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[KH Explains] Will Kakao Bank secure footing in untapped Thai market?

By Im Eun-byel

Published : March 19, 2024 - 16:15

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Thailand has remained an untapped market for South Korean financial firms since their exodus during the financial crisis in the late 1990s. Now Kakao Bank, the nation’s No. 1 online-only bank, is eyeing an expansion into the burgeoning digital banking market in Southeast Asia's second-largest economy.

Earlier this month, Thailand’s Ministry of Finance confirmed regulations for authorizing virtual banks, the equivalent of internet lenders in Korea.

According to the regulations, authorized lenders will be able to offer full banking services, ranging from taking deposits to credit transactions. Lenders must have registered capital of between 5 billion and 10 billion baht ($139 million to $277 million).

The Bank of Thailand will receive applications from Wednesday to Sept. 10.

After a nine-month screening process, the new banks are to begin operations within one year. Though the BOT had initially decided to grant three virtual banking licenses, a later announcement showed the number of licenses would not be limited.

"It is expected that virtual banks will bring about better customer experience and stimulate healthy competition in the Thai financial institution system, without posing risks to financial stability," the Bank of Thailand explained.

The latest measure opens up possibilities for Kakao Bank, the internet banking arm under Korean tech behemoth Kakao. The internet lender has teamed up with a local counterpart to make its way into the country.

In June, Kakao Bank announced it signed a memorandum of understanding with Thailand's finance giant SCBX to form a consortium to acquire the license to operate a virtual bank. The Korean lender aims to acquire a minimum of 20 percent of the shares in the consortium.

If the consortium successfully earns a license, Kakao Bank will be the first among the three internet-only banks in Korea -- along with K bank and Toss Bank -- to tap into an overseas market.

“Kakao Bank will cooperate with SCBX to apply for the license approval in line with the schedule announced by the central bank of Thailand,” an official from Kakao Bank said.

“We will expand our business by implanting ‘digital finance DNA’ (into) the Southeast Asian market, based on our technologies of operating contactless finance (services) and digital platforms,” the official said.

Through the approval, Kakao Bank would also become the first Korean lender to launch a business in Thailand in nearly two decades. Though local finance firms, including an insurer and a state lender, have expanded their businesses into the country, no commercial lender has earned approval for business there in recent years.

“Korean banks fled Thailand following the Asian Financial Crisis in 1998. After the mass departure, there has been an unwritten law in Thailand that bans them from returning to the country. Also, Thailand is known to be a country with a high bar for foreign banks overall, not just for those from Korea,” an official from a local finance firm said.

The last foreign commercial banks to have earned a license for operation in Thailand were the Australia and New Zealand Banking Group and Japan's Sumitomo Mitsui Trust Bank in 2015. The Thai market has not seen new foreign players in the nearly 10 years since.

The push to encroach into Thailand comes partly as the fast-growing country has been seeing an upsurge in the distribution rate of mobile devices.

Thailand was the top country in the South and Southeast Asia region in terms of expected use of mobile phone services increasing in the next one to two years, according to a survey held by telecom giant Telenor Asia last year.

Furthermore, the lender could seek synergy with Kakao Pay, an online payment service unit under Kakao. Kakao Pay has been actively working on making its mobile and online payment service available in the country.

Korean financial authorities are also paying close attention to Kakao Bank's pursuance of a license in Thailand, as it could signal a new start for Korean lenders to venture into the Thai market.

"A local finance firm's experience of succeeding in Korea could contribute to the growth of Thailand's finance industry if it earns the license approval to operate a virtual bank in the country," Financial Services Commission Vice Chairman Kim So-young said, indirectly referring to Kakao Bank when he met with Bank of Thailand Gov. Sethaput Suthiwartnarueput on Feb. 28, during a visit to the country.