Banks’ profits to take a hit as Thailand goes cashless

Kasikorn Bank will bear the brunt of the impact.

Thailand has recently rolled out PromptPay, a nationwide electronic payment and money transfer system. The system is expected to go live in July, and analysts fear that PromptPay’s success will have an adverse impact on banks’ profits.

According to Maybank Kim Eng, PromptPay will negatively affect banks' fee income, which in turn will drag profits.

"The impact to banks’ 2017F earnings are about 3–7%. The impact to KBANK is the greatest (7%) as it has a large fee income base," Maybank Kim Eng noted.

However, the brokerage firm's estimates rests on a number of crucial assumptions. Maybank Kim Eng reckons that the portion of fees from money transfer ranges from just 1-4% in the total operating income for big banks, and is very tiny for small banks.

"We expect overwhelming demand for registration for the programme but people will use it mainly for small amounts due to lower fee and security concerns, hence the fee would be cut by half at most," said Maybank Kim Eng.

What sets the government-backed PromptPay apart from other payment systems is that it has significantly lower transfer fees.

"The lower fee has raised the market's concern about the outlook for banks' fee income. During the first stage, we expect PromptPay usage to be concentrated among the middle class as this group is more familiar with this kind of technology," the report noted.

Although the launch of PromptPay will eat into banks' profits, Maybank Kim Eng noted that there are a number of make-or-break factors which will impact the service's success.

"It remains to be seen how these websites/applications look, and how user-friendly their interfaces are. Security to prevent cyber crimes will be another concern. We believe these issues are crucial for PromptPay's success," Maybank Kim Eng noted.