Banks hesitate in rush to cashless era
EXPLAINER: The public backlash to KTB's plan to introduce fees for cardless ATM withdrawals requires a deep dive
by: Somruedi Banchongduang
April 12, 2023
Krungthai Bank initially announced a planned 10-baht fee per transaction for cardless ATM withdrawals starting from May. (Photo: Pornprom Satrabhaya)
The banking industry's push to discourage the use of cash led some to believe it was a good idea to charge fees for cash transactions and suspend cardless money withdrawals at ATMs.
The Bank of Thailand and local banks have been promoting digital payments in their efforts to shift towards a cashless society, with digital banking adoption posting growth.
Krungthai Bank (KTB) emerged as the first bank to announce fees for cardless ATM withdrawals, leading to a public backlash.
As a consequence, the central bank and commercial lenders are reconsidering their approach in terms of public nudges and incentives to discourage using cash.
What was the timeline for KTB?
On April 1, KTB announced via its mobile banking app, Krungthai NEXT, that it would begin charging a fee of 10 baht per transaction for cardless ATM withdrawals starting from May.
KTB, the country's third-largest lender by total assets, with 16 million app users and 9,000 ATMs nationwide, attempted to offset the impact by waiving the fee for the first transaction of every month from May to July. The bank cited two reasons for implementing the fee: the higher cost of cash management and the promotion of a cashless society.
The announcement sparked a wave of public complaints, particularly on social media platforms, where users criticised the 10-baht fee as too high, especially for students or low-income earners who frequently need to withdraw small amounts of money. Some comments accused KTB of prioritising profits over the shift towards a cashless society.
Following the overwhelmingly negative feedback, KTB cancelled the plan the following day, stating it would indefinitely postpone the fee and await further guidance from the central bank.
What is the central bank's direction?
Siritida Panomwon Na Ayudhya, assistant governor for payment systems policy and the financial consumer protection group at the Bank of Thailand, said in a statement the regulator wants to promote digital payments as the primary method of payment for goods and services, in line with its payment channel development strategy for 2022-24.
As part of this strategy, the central bank plans to review the fee structure for payment services, including cash and cheque payments, as well as digital payments.
The review aims to encourage greater usage of payment services and ensure any fees accurately reflect the actual costs of the digital payment channel. The central bank is considering an appropriate structure for payment service fees, aligning them with these principles, she said.
The central bank will consult with relevant stakeholders before implementing any changes to the fee structure, according to Ms Siritida.
What do large banks need to consider?
A source in the banking industry who requested anonymity said other major banks also intended to introduce fees for cardless ATM withdrawals, similar to KTB's plan. However, the blowback from KTB's announcement led these banks to freeze their fee plans, said the source.
The industry is awaiting central bank guidance on the matter, particularly regarding a fee structure.
Payong Srivanich, KTB chief executive and chairman of the Thai Bankers' Association (TBA), said KTB will also await instructions from the regulator.
Arthid Nanthawithaya, chief executive at SCB X, a holding company of Siam Commercial Bank, recently said SCB and other banks may not respond regarding fees until the central bank provides guidance.
"There are still a lot of complaints about a fee for cash transactions. This suggests a strong conviction among consumers. As a result, banks will review the issue and not take any immediate action," he said.
Kobsak Duangdee, secretary-general of the TBA, said the local industry is strongly focused on digital payments and moving towards a cashless society in the long run. The pandemic had a major impact on consumers' financial behaviour, leading to a significant rise in digital banking adoption, he said.
The banking sector will gradually transition towards a cashless society as the next step, said Mr Kobsak.
He said the TBA plans to hold further discussions with the central bank regarding the direction of digital payments, specifically discouraging the use of cash for transactions. Banks currently offer cash transactions for free across all channels, including at physical branches and ATMs.
Why is there an effort to discourage the use of cash?
Another source from the financial industry who was involved in the development of PromptPay, the national digital payment infrastructure, said discouraging cash usage was one goal for creating the system. The rationale is there is a high cost associated with managing cash, particularly expenses related to transporting cash from cash centres to bank branches and ATMs across the country. This transport process also incurs expenses related to human resources and security systems, said the source.
"Cash is a high-cost area for the banking system, which is why banks may want to discourage its use by introducing fees. However, discouraging cash usage requires a delicate approach because it can have a significant impact on a large number of people," the source said.
In many countries, banks charge deposit fees to cover the cost of managing deposit services. However, Thai consumers have enjoyed free cash transactions for a long time.
The digital-savvy younger generation increasingly use digital banking platforms and cardless ATM withdrawals, without fees being charged.
Thai banks need to better communicate to the public that this is a gradual transition towards a cashless society, said the source. Thailand's high rate of digital banking adoption is an advantage that can facilitate the country's transition towards a cashless society and digital economy, said the source.
Digital payments are a key element to support the country's digital economy, helping to reduce operating costs and increase efficiency, which strengthens the country's overall competitiveness, the source said.
How can banks better communicate their gradual shift to a cashless society?
Thanyalak Vacharachaisurapol, deputy manager of Kasikorn Research Center, said the central bank's strategic direction plan clearly encourages the adoption of digital payments in Thailand. This move is expected to improve quality of life, enhance competitiveness and transition the country towards a cashless society, she said.
In order to ensure a smooth transition, all related parties should cooperate to communicate the direction to the public, said Ms Thanyalak.
Additionally, the central bank should provide clear schedules, timelines and information on any tentative fees associated with banking transactions, she said.
The shift towards a cashless society must be carried out in a phased manner to allow consumers to become accustomed to the changes, said Ms Thanyalak.
"Charging fees for existing services that were previously free may not be an easy task for banks," she said.
"They should explore new income sources and pursue new S-curve growth opportunities, such as partnerships and joint venture strategies."
Ms Thanyalak said digital banking adoption among Thais has grown significantly since the pandemic, while banks have experienced a hefty decrease in fee-based income, particularly from transactional banking services.
In 2022, the country's banking sector recorded fee-based income growth of only 1.5% year-on-year, compared with 6-7% or even double-digit growth before the pandemic.
According to data from the central bank, the number of banking transactions via PromptPay has risen from 257 million in December 2019 to around 1.46 billion as of January this year.
The volume using PromptPay also increased from 1.48 trillion baht at the end of 2019 to 3.97 trillion as of January this year.
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