Uncovering why most Thai banks fall short of digitalisation goals

06/11/2023

Digital transformation is no longer a project to be completed, but an ongoing journey of keeping up with fast-paced technological changes. What are the challenges facing Thai banks in their digitalisation process? Which technologies can support their digital transformation agendas? How can strategic alliances help to drive change? Find out in this podcast.

For more information, read PwC’s ‘Digital Banking Survey 2023: Southeast Asia landscape’ and press release.

Guest
Transcript

Guest

Vilaiporn Taweelappontong
Consulting Leader, PwC Thailand and
Financial Services Strategy and Operations Leader,
PwC South East Asia Consulting
Email | LinkedIn

Transcript

Piyanat Suanapai
PwC Thailand Spotlight, insights on business and industry trends in Thailand and beyond.

Hello, I’m Piyanat Suanapai, your podcast host.

During the past few years, Thailand’s financial landscape has changed drastically due to digital technology, which has driven almost all banks to adapt their business operations to digital banking. Despite investments and efforts, many Thai banks have found that their digital transformation journeys are ongoing and that they haven’t succeeded in realising their digitalisation goals.

Today, Vilaiporn Taweelappontong, Consulting Leader, PwC Thailand and Financial Services Strategy and Operations Leader, PwC South East Asia Consulting will reveal digital transformation obstacles facing Thai banks compared to others in Southeast Asia. She’ll also share the Thai financial landscape trends amidst this challenging environment filled with rapid technological changes and increased competition.

Hello Vilaiporn.

Vilaiporn Taweelappontong
Hello.

Piyanat
Let’s start with our first question: How much has the Thai financial landscape transformed digitally?

Vilaiporn
Let me respond by breaking it down into three groups so you can get a better picture of the digital banking landscape.

First, banks are the original players providing banking services that have expanded to digital channels. Since their foundation is in banking, they have to be active or they won’t survive. They launched digital products such as deposits, loans, wealth and cards. They also launched digital channels. Before, you had to go to a physical branch, then there was internet banking, and now we have digital banking where you can do what you need from your sofa and not have to go to a branch. The bank group is very active, continuously launching new products and innovating new channels.

The second group, which is coming soon, is virtual banks which operate as a digital-only channel, a new kind of bank that must receive an operating license from the Bank of Thailand. They can operate without having any branches or even ATMs. Virtual banks are more common abroad, such as in South Korea where they began, followed by others closer to us including the Philippines, Singapore and Malaysia. This group will increase the competitiveness in the financial landscape because as a digital-only channel, they can act faster, launch products more quickly and introduce innovation.

The third group is non-banks, which are not in the bank business but offer bank services. In Thailand, if you go on e-commerce websites, you’ll see banking products embedded into them. Even super apps have them. Applying for loans is much easier now as there is no need to go into physical bank locations. This third group is also slated to generate excitement in the financial sector because they are easy and fast to set up and are highly innovative.

Thus, the latter two groups are driving competition, forcing traditional banks to act faster and be better and cheaper. Two to three countries in Southeast Asia are seeing intense competition in the financial landscape, similarly to Thailand, so we’ll have to keep an eye on the financial landscape. At the end of the day, consumers are benefitting from this fierce competition.

Piyanat
Although banks in Southeast Asia have undergone digital transformation as you mentioned, PwC’s Digital Banking Survey 2023: Southeast Asia landscape reported that 80% of banks in Southeast Asia haven’t yet successfully achieved their digitalisation goals despite over 70% of respondents indicating they have a clear digital strategy.

With regards to the Thai banking business, do you think banks have successfully realised their digital transformation goals?

Vilaiporn
There are two aspects to this. Some products and channels are successful, but have they reached optimum transformation? Not yet. Digital transformation is a journey, and the road is never ending. If someone says they have completed digital transformation, that’s unlikely because the journey is endless. Before, people saw digital transformation as a project, but it’s not anymore. It’s being embedded into the BAU (business as usual), a part of the business whether front, middle or back.

So, have we succeeded in digital transformation? There is still room to do more. There are innovative products, but there could be more innovation. There are products from other countries in Europe and Asia Pacific that really meet consumers’ needs. In Thailand, products such as loans and deposits remain traditional, so I think there is more room for innovation. There are underserved and unserved groups that can’t access financial services that the BOT wants to focus more on, so virtual banks can serve them.

In Thailand, I think there are more opportunities to grow, whether from innovative products, underserved or unserved segments. Even the ability to launch products as fast as ecommerce and platform businesses is an opportunity, which isn’t as easy for financial products. We expect to see more of these innovations in the future after more development and effective employment of technology.

Piyanat
What are the obstacles or limitations preventing Thai banks from reaching optimal digital transformation potential?

Vilaiporn
In my opinion, there are four obstacles to reaching optimal digital transformation.

First, the backend IT system. Most banks were established a long time ago and still use the same legacy technology from day one. This technology wasn’t designed for the digital era which requires speed, connectivity and efficient data retrieval. Legacy systems can’t support prediction and AI functions. Although there are new systems to connect to the old systems, if the foundation is old, they can only go so far. Legacy systems need to undergo a modernisation makeover.

Second, organisational capabilities and skills. Most people have worked side by side with legacy systems, so their resources and skills are also obstacles. For example, if a bank wants to adopt ChatGPT, AI, cloud transformation or ITIDD, it needs to recruit people to support the existing staff to strengthen their capabilities. If this can be done, banks can grow exponentially.

Third, culture. With platforms, we see they can brainstorm and launch products quickly. How are they so agile? With financial institutions, it’s not so easy because there are approval processes and procedures to follow. No matter how rushed they are, their culture is not built for agility. Now, many banks are doing what they can from training management and staff to adjusting their ways of working despite operating under the old model that doesn't support an agile or digital culture. So agility can only go so far. Many organisations establish new companies altogether, so they have the freedom to be agile. This is in progress at the moment, so we’ll see how it goes. As a whole, many bank cultures were not designed for fast, high-speed work.

Fourth, regulations. Banks are regulated businesses because trust is involved for people to make deposits, withdrawals and transfers. It can be challenging to make a move in a highly regulated business with lots of rules and steps to observe. There may be changes in Thailand as there have been abroad where regulators learn to adapt their regulatory frameworks so as not to impede innovation. Hopefully, we’ll see some adjustments in regulations.

Piyanat
With old backend systems, are there ways Thai banks can easily digitise these systems? In the aforementioned Digital Banking Survey, cloud technology can help drive digital transformation quickly and easily. Is this true?

Vilaiporn
That is true. Backend systems were set up at the same time that banks were established. It’s been twenty, thirty, forty years, and some banks have been around for over a hundred. We’re in an era where technology moves faster than the time it takes to train people, so cloud, AI, generative AI, integration, API and ‘as a service’, meaning you don’t need to do anything yourself, can help to drive digital transformation.

Looking at cloud, a good thing is that many banks are starting to adopt it, but differ at how much they are using cloud’s capabilities. Some are using cloud for infrastructure, development or coding, while others are using it as a platform by migrating some applications to the cloud. As a whole, however, there aren’t many banks adopting cloud, so there is still room for optimisation. We’re seeing banks recruiting people with cloud skills and considering adopting cloud.

Piyanat
How can Thai banks fully optimise cloud capabilities?

Vilaiporn
We need to first understand the components of cloud and its depth. What deployment models and applications are there? There are hybrid, full and SaaS, where banks are the users.

Next, look at the business. It’s not necessary to employ cloud for everything. See which areas or pain points cloud can address.

Third, capabilities. From what I can see, cloud is not fully optimised because people don’t have a full understanding of it. Some people know only a certain aspect about cloud, but not its full potential, so cloud’s usage is limited to certain aspects. Another example I see in Thailand is rising cost from cloud adoption, so there is concern as to whether it’s worth it. Banks have to check if the operating model is suitable and if cloud resources are managed correctly, as poor management can result in higher cost.

Piyanat
Can partnerships with fintech or technology companies be used as strategies to close these technology gaps and skills?

Vilaiporn
This is a great question and is the heart of this subject. Lack of skills is an issue around the world, not just in Thailand, especially those who have skills and knowledge on new technology. Financial institutions have several ways to close this gap. First is recruitment, which isn’t easy due to insufficient supply, and what ends up happening is competition over the same resources, driving up cost.

As a result, the partner model is becoming more popular, especially partnering with technology companies or even firms like PwC because they have people with these novel skills that are assigned to work on different projects. Instead of facing the challenge of hiring, training and retaining people, financial institutions can engage with partners with specific specialties like data analytics, cloud or legacy organisation. Banks can either work with one partner who can support all needs or work with multiple partners based on specialties. When banks need resources, they can reach out to their partners who will then provide personnel as requested, which is much easier than hiring, training and retaining people. This model is very popular and commonly employed in Thailand and abroad, where there are strategic alliances. On a contractual basis, if a person is requested, the partner must provide this person within a certain timeframe. This model is great for addressing the skill gap quickly, and with this gap closed, digital transformation will happen more easily.

Piyanat
There are many types of partners with different expertise. As such, what should banks look for in partners?

Vilaiporn
Banks will have to consider which kinds of partners they need: either one who can do it all or several, each with a specialty to serve specific needs, such as AI. So first, identify what is needed from a partner to consider if they have the necessary skills, what their recruitment policy is since they’ll be providing these people to financial institutions, what their training or development programme is to equip these people and how they engage these people. These partners are responsible for providing skilled people and are in it with the banks to grow together. This is different from the outsource model where the vendor just supplies people.

When looking for a partner, look at their ability, talent pool and capability to grow in the future. It’s also important to look at how they treat their people so that they don’t leave the partner organisation and essentially the banks, along with their growth targets and how they recruit people when new technology emerges so that they can support future needs. Banks are very interested in the partner ecosystem.

Piyanat
Finally, in addition to having a solid, well-defined strategy, what else can Thai banks do to stand out from competitors, especially those who have become fully digitised or new entrants like virtual banks and non-banks?

Vilaiporn
The majority of banks have strategies already, but they can reassess whether they have all the capabilities to support those strategies, which are usually focused on innovative products, growth and capturing untapped markets. Which methods or tools can banks employ to address these strategies? Which partners and from which segments? What products do they want to launch? Banks have strategies in place, but it boils down to execution as the capabilities and execution vary across banks. As a result, banks can assess whether their execution plan is robust, their culture supports speed and their backend systems are conducive to grow exponentially. Otherwise, it’s just a facade where a new application looks great but not so behind the scenes.

Piyanat
From the information Vilaiporn has just shared, we now have a better understanding of the Thai financial landscape trends and how Thai banks have adapted. Providing digital services may not be sufficient any longer; a wider assortment of products and services are essential. Upskilling their personnel is necessary to equip them with the skills to innovate new products and enhance the customer banking experience.

Thank you Vilaiporn for joining us today.

Vilaiporn
Thank you.

Piyanat
For more information on PwC’s Digital Banking Survey 2023: Southeast Asia landscape, please visit our website at www.pwc.com/th or follow PwC Thailand social media channels on LinkedIn, X (formerly Twitter), and Facebook for the latest updates.

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That’s it for today, thank you and goodbye.