Virtual Bank Licensing Framework

Executive Summary

The Thai financial sector is undergoing digital transition. In recent period, many financial institutions and non-banks have pivoted business models to be more digital led. These players use technology and data to develop products that serve each customer segment better. However, some retail and small-and-medium-enterprise (SME) customer groups including low-income individuals and small businesses are still unable to access appropriate financial services. Meanwhile, the experience of customer segments who already access financial services through the digital channel can be improved when offered a full range of financial services that are more convenient and seamless.

Under the new financial landscape to reposition Thailand’s financial sector for a sustainable digital economy, the Bank of Thailand (BOT) sets a key direction in the digital dimension. The key direction supports the financial sector to leverage technology and data to drive innovation and better financial services, emphasizing an appropriate balance between promoting innovation and managing risks.

One of the key policies is the introduction of virtual banks as new players, which is consistent with the action of regulators in many jurisdictions. The objective is to allow applicants who possess the expertise in technology, digital services, and data analytics to offer financial services efficiently through the digital channel while having lower staff and bank branch costs. These services should bring about new value proposition and better serve the needs of each customer segment, particularly the unserved and underserved segments of retail and SME customers. Meanwhile, those already accessing financial services through the digital channel should obtain better experiences through a full range of services that are more convenient and seamless. Furthermore, virtual banks should operate in a sustainable manner. They should not initiate a race to the bottom, engage in irresponsible lending that lead to excessive debt-taking, or abuse dominant market position which would pose risks to financial stability, depositors, and consumers as a whole.

To ensure that virtual banks operate in accordance with the above objectives and that they promote responsible innovation without creating undue risks, the BOT sets the following key licensing, regulatory, and supervisory framework.

1. Virtual banks may provide full-service banking business to be flexible and accommodate changing customer needs.
2. Virtual bank applicants must meet appropriate qualifications including having business models that can sustainably achieve the stated objectives, as well as having expertise in technology, digital services, and data analytics.
3. Virtual banks must comply with the same regulations and supervision as traditional commercial banks. The BOT shall supervise virtual banks in a risk-proportionate manner, placing great importance on robust corporate governance and a sound risk culture.
4. Virtual banks shall go through a restricted phase in the initial years and be under close supervision to ensure sustainable operations while not posing systemic risks.

The BOT invites comments and suggestions regarding the proposed virtual bank licensing framework by 12 February 2023. The responses will be incorporated into the virtual bank licensing regulations which will be proposed to the Ministry of Finance for consideration. It is expected that the release of the final licensing regulations and the opening for applications will take place in 2023. The list of successful applicants who receive the approval from the Minister of Finance will be announced in 2024.