Risa Hemtasilpa 02-04-2018
September last year, Commonwealth Bank announced that withdrawal fee from other banks’ customers is removed. It is another significant move in the banking industry of Australia since it forced other banks to follow suit.
When I heard this news, I thought that abolishing transaction fees is difficult in Thailand. Why?
Because Transaction fee is the second largest income and some banks have a high portion of non-interest income which is approximately 40% of total operating revenue. On the other hand, only 24% of Commonwealth bank’s income comes from non-interest earning; together with the downward trend of fee collection in a cashless society, makes an effect of fee removal in Australia less than banks in Thailand.
Surprisingly, there is a Fee(phe)nomenon in the banking industry of Thailand at present. It is starting with the Big four banks: SCB, KBank, KTB and BBL unveil “No Fee” campaign. The campaign removes fee from top four frequent transactions via digital channels1 –different banks and different zone money transfer, bill payment, and money top up - forced other banks to follow.
“No Fee” is not new in Thailand, but it usually is used by smaller banks to attract customers. However, Thailand is still a cash base society which means people consider wide coverage of ATMs and branches and stability as a top priority. Therefore, no fee from small banks can attract only a tiny share of the wallet, but it is not powerful enough to change clients’ main bank.
Three possible main factors stimulate final decision of cutting fee;
First is digitisation trend. Growing of Fintech has poked banking industry to be more active. Banks in Thailand have developed mobile applications and internet banking to match consumers’ lifestyle. Building up innovative image, reducing operation cost and decreasing traffic in branch also reasons that banks encourage people to do the transactions via online and self-service machine.
The other factor is promoting cashless society from government. In July 2016, the government released Prompt pay campaign and encouraged people to link their identity number or mobile phone number to bank accounts. Free money transfer for the first 5,000 THB. to the Prompt pay account was offered, and 10 THB. was the highest charge for higher volume. All banks actively tried to maintain their customers’ base and number of transactions since one number can link only one bank account.
The one who lost the number of transactions to competitors, the only way to win back is about the fee.
The last one is competitor movement. Middle-income segment and above are being customers of more than one bank. Moreover, the fee is a sensitive issue for them. If two banks are stable, deliver good service and convenience, they will go for the one that offers the lowest fee or higher saving interest rate.
What effect of this fee(phe)nomenon?
1. Prompt pay: People will link Prompt pay only for receiving a tax refund or other benefits from the government while they can choose to do the transaction with other banks.
2. Small banks: It is such as nightmare for small banks since fee cannot use as a trigger anymore. They need to differentiate themselves rather than jump into the fee war and tradeoff lost.
3. Bill payment: Some supermarkets and convenience stores have bill payment service which previously charges a lower rate than banks. Now it’s time to reconsider their strategy.
4. Money top up for mobile phone: the bank is going to grab some share from other service providers.
This is another step of financial industry’s competition in Thailand. How some types of fee removal affect the bank? How much transaction growth in digital channels? What type of income that they will boost up and what strategy that they will implement in this situation? Will cost reduction from digital migration strategy pay off? All questions are exciting to find out, aren’t they?
Note:
1 SCB and BAY offer free of charge for money withdrawal from cardless ATM.
Reference:
ANZ. (2017). ANZ annual report 2017.
Bangkokbiz (2018). Fierce competition for fee reduction. Krungsri offers pay bills with Krungsri gets 5 THB cash back. Retrieved from http://www.bangkokbiznews.com/news/detail/797319.
Bank Of Thailand (2016). Prompt pay. Retrieved from https://www.bot.or.th/Thai/PaymentSystems/PSServices/PromptPay/Pages/default.aspx.
Brand Buffet (2018). SCB bluffed “It is not just a No Fee promotion, but it is Fee cancellation”. Retrieved from https://www.brandbuffet.in.th/2018/03/scb-kbank-free-fees-digital/.
Commonwealth Bank. (2017). Commonwealth Bank annual report 2017.
Hawke, S. (2017). ATM fees dropped by the big four banks. Retrieved from http://www.abc.net.au/news/2017-09-24/commonwealth-bank-and-westpac-axe-atm-fees-for-non-customers/8979250.
KBank. (2017). Kasikornbank annual report 2017.
SCB. (2017). Siam Commercial Bank annual report 2017.
