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June 2, 2017

Thailand stepping up & getting results

By Patrick Brusnahan

Initiatives by the government, the central bank and various commercial banks are expected to gradually make some headway into cash’s dominance of Thailand’s payment system in the coming few years. Prepaid cards are growing in popularity, and public transport is helping to beat a path towards wider acceptance

Cash continues to be the preferred consumer payment instrument in Thailand, accounting for 96.5% of the total payment transaction volume. This is a result of a lack of adequate banking infrastructure, limited consumer awareness of electronic payments, and generally low levels of acceptance at retailers.

However, use of cash is forecast to decline gradually over the next five years, primarily as a result of initiatives by the central bank to promote electronic payments. The Thai government has also launched two development plans to stimulate overall growth: the Financial Sector Master Plan Phase III, and the Payment Systems Roadmap.

Financial inclusion programmes

The Thai government and several commercial banks have been taking initiatives to bring a greater proportion of the population into the formal banking system.

To create financial awareness, the Bank of Thailand introduced the Financial Consumer Protection Centre on January 13, 2012. The centre serves a dual purpose of improving citizens’ financial knowledge and understanding, and providing solutions for grievances and complaints relating to financial products and services. Adding to the central bank’s efforts, in 2014 the Citi Foundation and the Kenan Institute Asia together introduced the Literacy Improvement for Better Finance in Thailand project.

According to the World Bank, Thailand has made substantial progress in terms of financial inclusion, with the percentage of the Thai population aged 15 or above with a bank account rising from 74.6% in 2012 to 81.9% in 2016. Increased bank penetration has led to a rise in demand for products such as current accounts and debit cards.

Stringent regulation to curb debt

Household debt remained high in Thailand between 2012 and 2016, reaching a peak in 2013, with household debt equivalent to 82.3% of total GDP.

As a result, the central bank enforced stringent regulations in 2013, requiring all banks to cap annual interest rates at 20%, and all cardholders to pay a minimum of 10% of outstanding balances each month.

The measures helped issuers to identify creditworthy customers, and reduce defaults. They also reduced annual growth in credit card circulation from 10.5% in 2013 to 7.0% in 2016 – a trend that is expected to continue over the next five years.

Credit card use, however, is expected to rise until 2021, as a result of rising household spending, recovery in the automobile market, and increased consumer confidence.

Alternatives and e-commerce gain ground

Thailand’s e-commerce market in Thailand grew significantly from $8.3bn (THB259.4bn) in 2012 to $20.7bn in 2016, at a CAGR of 25.43%, due to rising mobile and online penetration, the growing presence of online retailers, and increased consumer confidence in online transactions. The market is forecast to reach $63.3bn in 2021.

Conventional instruments – including payment cards and credit transfers – remain the preferred modes of payment for e-commerce, collectively accounting for 68.9% of the total e-commerce transaction value in 2016. However, emerging methods such as mobile and digital wallets, and carrier billing are gaining prominence, collectively accounting for 9.4% of the total e-commerce transaction value in 2016 – up from 4.5% in 2012.

International payment solutions such as PayPal, MasterPass and Fortumo have entered Thailand’s e-commerce market, complemented by domestic operators such as mPay, True Money and AirPay.

Growing payment infrastructure

The number of POS terminals rose from 264,236 in 2012 to 380,540 in 2016, and is expected to reach 541,886 by 2021.

With the rising number of POS terminal installations at retail outlets, the potential for card-based payments is also expected to grow. To add to the growing POS terminal network, Bangkok Bank partnered with Hong Kong-based solution provider Pax Technology in 2016, to provide Pax’s S58 and S80 countertop models, as well as the 3G-enabled S90 mPOS terminal. In December 2014, Krungsri Bank and Mastercard together launched contactless POS terminals.

In addition to conventional POS terminals, mPOS terminals are also used for in-store payments in Thailand. In 2012, Visa International Thailand launched a new mPOS device that works as a card reader, and can be plugged into any smartphone or tablet, allowing merchants to accept Visa payment cards. Cardholders’ electronic signatures are required, ensuring that all transactions are well secured.

Rising preference for prepaid

Prepaid cards are increasingly gaining acceptance, primarily as a result of a general tendency among Thai consumers not to spend beyond their means.

Prepaid cards are also easily accessible to individuals who do not qualify for a debit or credit card, as the unbanked population accounted for 18.1% of Thailand’s total population in 2016. The number of prepaid cards grew from 20.2 million in 2012 to 35.3 million in 2016, at a CAGR of 14.91%.

Prepaid gift cards are gaining popularity in Thailand. TMB Bank provides a prepaid fleet gift card that is valid for a year after purchase, and can be used to pay for fuel at participating gas stations. Similarly, Bangkok Bank provides the Shell prepaid card, which can also be used as a gift card, and can be used to buy fuel at Shell gas stations.
In addition to open-loop prepaid cards, closed-loop cards are also available in Thailand. In 2012, for instance, the Rabbit card was launched by BTS for all BTS, MRT and BRT passengers.

Rabbit is a rechargeable contactless stored card that is available in a number of different variants, similar to the standard and corporate Rabbit cards. The cards can also be used to make payments at participating stores and restaurants, and are reloadable with a minimum of $2.80.

In addition, the Thai government is preparing to introduce the Mangmoom, or Spider, prepaid card in June 2017. The card can be used to pay various public transport fares; supported routes include BTS, MRT, Airport Link and MRT Purple Line. Mangmoom cards can also be used to pay for products and services at shops.

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