A raft of measures to encourage digital financial services, including open banking, are among a broad range of policy proposals in a Bank of Thailand (BOT) consultation.
In its ‘Repositioning Thailand’s Financial Sector for a Sustainable Digital Economy’ publication, the central bank states that it wants to ‘strike the right balance between promoting innovation and managing risks, as well as allowing for flexibility in dealing with abrupt changes’ during a period when technological advancement and environmental changes are shaping global trends at an ‘unprecedented’ pace.
Thailand’s economy and financial sector are, the consultation states, transitioning towards a digital world, evidenced by a four-fold increase in transactions made using national real-time retail payment system PromptPay, which attracted nine million new users during 2020-2021. But, at the same time, the BOT notes that climate change is ‘rapidly gaining ground and materiality’. The country, which has a population of about 70 million, is among the top 10 countries most vulnerable to climate change, it states.
Framing the ambitions of its policy proposals, BOT states that it has three overarching objectives: for the financial sector to capitalise on technological advances to drive innovation and provide inclusive financial services and consumer protection ‘in a level playing-field and competitive environment’; for the financial sector to help businesses and households in the transition to a digital economy and help them effectively manage environmental risks; and to ensure the financial sector is resilient to ‘significant and new risk factors’.
The paper is divided into five sections: section one sets out forces shaping Thailand’s economy and financial sector; sections two (‘Leveraging Technology and Data to Drive Innovation’), three (‘Managing Transition towards Sustainability’) and four (‘Shifting from Stability to Resiliency’) elaborate on policy proposals; and section five describes BOT’s expectation on what success should look like.
Open competition, infrastructure and data
In respect of open competition, for example, BOT proposes the introduction of a virtual banking licence ‘to stimulate competition among service providers’. It also proposes to lift a limit on fintech investment, excluding that in digital assets, by subsidiaries and affiliates in a banking group and ‘allow for more flexible structures of banking groups to encourage innovation while safeguarding deposits and providing appropriate consumer protection’. At present, banks cannot invest more than a current limit of three per cent of their capital funds in fintech.
In respect of open infrastructure, the document mentions the possibility of a Thai retail central bank digital currency (CBDC). Later in the document it states that a ‘pilot test’ is expected to launch ‘around the end of 2022’. Retail CBDC testing had previously been expected to begin in the second quarter of this year.
The 42-page publication goes on to state the ambition of accelerating reduction in cash usage, as well as reducing the use of paper cheques by half within five years ‘to support the transition to a digital economy’. But it wants to ‘discourage the adoption’ of digital assets such as crypto-currencies as means of payment for goods and services in replacement of Thai baht.
The paper also references the development of digital ID infrastructure that is ‘interoperable across different platforms and open to various service providers’. This includes verification and authentication of corporate digital IDs through Thailand’s National Digital ID (NDID) infrastructure, in collaboration with the country’s Department of Business Development and Electronic Transactions Development Agency (ETDA). It says use-case testing for corporate entities (such as for opening bank accounts) is set to begin this year.
In respect of open data, BOT wants to see a data ecosystem that ‘enables the public and the business sector to utilise their data collected by different service providers in choosing services or switching service providers at reasonable costs.’
Open banking: what do consumers want?
On the specific topic of open banking, BOT proposes to implement policies that enable data owners to easily transfer their own data from one service provider to another ‘at reasonable costs, with no barriers in choosing or switching their service providers’. But it points out that standards for application programming interfaces (APIs), data and security are needed.
BOT, Thai Bankers’ Association (TBA) and Government Financial Institutions Association (GFA) just last month jointly launched a pilot programme – ‘dStatement’ (short for digital bank statement) – for sending and receiving bank statement data between banks in a machine-readable digital format.
At its launch on 24 January, the service – which allows people who need to submit their bank statement as supporting documents to request and send their bank statement data from one bank to another bank using mobile-banking apps or via other servicing channels – was being offered by six banks. Five further banks are due to also offer the service later by the end of June.
Trumpeted as the ‘first milestone of an open data ecosystem’ in financial services, it is the first live service after a co-operation agreement signed by the member banks of the TBA, GFA and Association of International Banks (AIB) in July 2021 to develop and adopt common data standards.
Questions asked in BOT’s paper include: ‘as a consumer, in which use cases do you wish to see the implementation of open banking as your top priority, e.g. personal financial management, lending, insurance, other non-financial services?’; and ‘what do you see as the main obstacles in pursuing this initiative? For example, the absence of a lead authority or regulations that allow for easy data connectivity.’
An ‘Open Banking Directional Paper’ is due to be in around the third quarter of 2022.
Aiming to improve payments governance
BOT’s consultation also describes an aspiration to improve the governance framework of domestic payment system infrastructure.
The paper proposes the establishment of a ‘Payment Council’ involving stakeholders such as commercial banks, NBFIs, consumers, regulators and experts, similar to bodies already established in other nations. It cites examples include the UK’s Payment Systems Regulator and Pay.UK; and the Australian Payments Council and Australian Payments Plus.
Other measures in the consultation include ‘steering’ the financial sector to incorporate environmental risk assessment into their business operations; promoting financial and digital literacy; and strengthening supervision of emerging risks, ‘for example risks that come with new financial technologies’.
Bangkok-headquartered BOT said it compiled the paper after a ‘preliminary consultation’ with experts, policy committees, agencies from the public and private sectors, as well as other regulators. Deadline for responses is 28 February.
‘Thailand to pilot retail digital currency in 2022’ – our news story from 28 August last year on BOT announcing plans for pilot testing of a retail CBDC
‘“Game-changing potential”: Thai central bank assesses CBDC business payments trial’ – our news story (17 March 2021) on Thailand’s central bank’s assessment of its first experiment in using digital central bank money for corporate payments and settlement
‘China and UAE join HK-Thai explorations of cross-border digital currency payments’ – our news story (24 February 2021) on the central banks of China and the United Arab Emirates having teamed up with the equivalent authorities in Hong Kong and Thailand to investigate the potential for central bank digital currency (CBDC) use in cross-border foreign currency payments