Beyond first-mover advantage: A sustainable model for virtual banks in Thailand

The next major shift in this evolution is the emergence of virtual banking—a fully digital banking model that delivers financial services exclusively through online and/ or mobile platforms, eliminating the reliance on physical branches.

Designed to enhance accessibility, convenience, and affordability, virtual banks offer a scalable solution to modern banking needs. By operating without traditional branch networks, they significantly reduce overhead costs, allowing them to provide lower fees, competitive interest rates, and the potential for highly personalized financial products (enabled through innovative technologies such as artificial intelligence, data analytics), and seamless customer experiences.

Recognizing the potential of virtual banking, the Bank of Thailand (BOT) has actively supported its development to drive financial inclusion and market competition. By expanding access to modern, secure, and efficient banking services, virtual banks are poised to play a pivotal role in Thailand’s financial ecosystem, catering to both individuals and businesses in an increasingly digital economy.

As Thailand prepares for the launch of virtual banking licenses, much of the focus is on being the first to market. However, long-term success will depend on more than just speed. A sustainable virtual bank must go beyond early entry by building strong ecosystem propositions for its captive customer base, a profitable launch roadmap and maintaining a rapid innovation cycle to stay competitive. 

Over the past decade(s), virtual banks and challenger banks (other new Banking entrants) have surged globally, with APAC emerging as a key growth region. However, only 5% of virtual banks globally have achieved sustainable profitability. Whilst regulatory support has been instrumental in driving the entry of virtual banks across APAC, long-term success will ultimately hinge on how these virtual banks execute their build, launch, and operations to ensure sustainable growth and profitability.

Three differentiators for successful virtual banks

Successful virtual banks in APAC have prioritized building strong ecosystems by forming strategic partnerships and consortia with non-bank partners. This enables them to scale customer acquisition, leverage alternative data sources, and innovate new customer value propositions beyond traditional banking services. 

These consortium models have reshaped the way virtual banks build and sustain customer volumes while driving profitability. Strategies such as cross-selling within the ecosystem, AI-powered pre-scoring for credit, seamless onboarding from wallets to full banking services, and embedding financial solutions into social platforms have emerged as key pathways to long-term sustainability. For customers, this means greater convenience, faster access to credit, and a more integrated digital banking experience that fits seamlessly into their daily lives.

According to Deloitte’s Global Digital Banking Maturity Report 2024, digital champions have shifted their focus from everyday banking to relationship banking and ecosystem expansion. Over the past 2 years, investment in ecosystems has grown by 19%, enabling cross-selling opportunities and beyond banking services to drive new revenue streams. 

A well-defined product roadmap that extends beyond the minimum viable product (MVP) launch is crucial for sustained market expansion and long-term efficiency. Typically, there are several defined pathways, starting with a basic suite of core CASA and lending/card products, before expanding into fee-based services and Banking-as-a-Service (BaaS) for both retail and MSMEs.

At the heart of this transformation is technology innovation, and the key question remains—how can virtual banks prioritize a tech stack that is both cost-efficient and scalable to deliver differentiated propositions and drive long-term success? It comes down to the simplicity and ease of the proposition. Some UK digital banks have mastered this and were able to minimize operational support costs, a lesson that larger digital players have since adopted. However, rising operational expenses — particularly in AML and fraud management—pose an ongoing challenge for all market participants.

Additional areas of focus for Thailand’s virtual bank winners

In addition to the challenges above, Thailand’s virtual bank winners will need to focus on some key country-specific success criteria.

Similar to other parts of APAC, Thailand’s virtual bank applicants are required by regulators to address the financial inclusion challenge. The key hurdle lies in striking a balance between designing product offerings for unbanked (do not have access to basic banking services) and underserved (have insufficient access to banking services) segments, while ensuring economic sustainability. Those successful applicants then must focus on moving from application to reality – being able to genuinely meet the needs of these segments to build trust and inclusion, while ensuring broader mass market appeal. 

Given that multiple licenses are being awarded, the race to be “first to market” takes on a new dimension. This has led to a big focus on selection not just of proposition, but of technology approach — whether to build from scratch, buy off-the-shelf solutions, or leverage existing platforms from others. Early digital banks predominantly built proprietary solutions, whilst newer entrants have embraced SaaS and APaaS models or hybrid strategies that blend both approaches to accelerate time to market. This is where many digital banks around Southeast Asia have gained a competitive edge, leveraging innovative consortium or regional technology solutions that enable faster setup whilst mitigating the compromises on flexibility and innovation.

Summary

Overall, then, for Thailand’s virtual bank applicants, the path to long-term success extends far beyond securing a license or being first to market. The ability to build a sustainable business model —one that balances ecosystem-driven growth, regulatory alignment, product innovation, and cost-efficient technology deployment will open doors to financial services for the underserved communities. 

For consumers in Thailand, the shift to virtual banking promises tangible benefits, particularly in terms of financial accessibility and inclusivity. Virtual banks can reach underserved populations in rural areas by eliminating the need for physical branches and enabling digital onboarding for customers. Additionally, lower operating costs enable these banks to offer reduced fees and higher interest rates on savings. With AI-driven tools, consumers can benefit from personalized financial advice and faster loan approvals, enhancing their ability to manage finances effectively and securely.

Alexander Douglas-Jones
Technology & Transformation Partner
Deloitte Singapore