Virtual Banking: Opportunities or Risks for Investors

After the Bank of Thailand (BoT) has announced the draft Virtual Bank Licensing Framework – BoT Consultative Paper in January 2023, investors from a wide range of industries were expressed interest to launch their virtual banks including those in the commercial banking sector, non-bank financial institutions and fintech business investors. This is because BoT has not granted the new commercial banking license for a long period and the launch of virtual bank licensing is open for investors from all groups, not just domestic investors.

In addition, compared to the number of the country’s population, the number of banks in Thailand may not be sufficient to support. There are only 17 domestic commercial banks and 3 specialized financial institutions that accept deposits from the public. Therefore, it is a great opportunity for new entrants who are keen on providing banking services to target the clients who do not yet have access to banking system’s financial services or capture the market share from existing incumbent banks.

However, to successfully operate this new type of commercial banks is not going to be easy in a short period. As existing commercial banks have been operating for a long time, they are well-known to public and ready to provide services through their branches, mobile phones, and internet banking. Hence, the newcomers may not be able to compete as easily as those who provide services in a conventional financial services format or targeting the existing clients of those incumbent banks.


To gain opportunity to grow the virtual bank, the new entrants may have to set their goals to

  1. Leverage the investors’ current customer base. The existing customers are relatively easier to penetrate with low acquisition costs, compared to other group of customers.
  2. Focus on specific customer for examples those who do not already have access to banking services including unserved customers and underserved customers i.e., micro, small and medium-sized enterprises that did not have access to a loan through banking system before.
  3. Offer the innovative financial products and services, as well as provide quick and user-friendly services that are different from those offered by the incumbent banks today.


However, virtual banks are still new which poses high risk to their success. Those risks can potentially come from:

  1. Higher competition from commercial banks and non-bank financial institutions who want to maintain their existing customer base.
  2. BoT’s strict supervision in the early stages of operation. With this matter of fact, it is expected that virtual banks will not be able to increase the number of customers quickly which limit their ability to see big leaps in growth.
  3. With high initial investments from both Tech Stack and minimum capital requirement of 5 billion baht, the overall cost may not be as low as it should be.
  4. Targeting customers with middle to low income may increase the default rate. Also, without any branches, it may be impossible to know the identity of that customer. Effective Risk Management, especially strong debt collection strategy, may reduce the overall NPL to some extent.

Overall, virtual banks tend to bring in a great opportunity for both domestic and foreign investors to launch new banks in Thailand. Moreover, it opens new platforms for customers who do not have access to the existing banking services and enhances the development of financial service innovation.

However, it is unlikely that virtual banks will succeed in the short term. Without effective cost and risk management, we may not witness its exponential growth, nor offer lower-than-usual interest loan products and deposit products with inflated returns to incentivize the customers.