How banks will survive in fee-cut era

Economy April 16, 2018 01:00

By Special to The Nation

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Last month, prior to when the popular TV series “BuppeSanNivas” became the talk of the town, discussions on a “fee cut” were taking place all over Thailand. 

Thai bank leaders almost simultaneously announced cuts to “transfer and bill payment” fees from their digital channels. Thankfully, our citizens have finally been freed from fees after having waited for a long time.

This is one of the biggest disruptions so far in the entire industry. Banks, once upon a time our “Sleeping Partners”, had started to cut off small parts of their bodies. According to the Bank of Thailand, fee income from transfers and payments amounted to about Bt24 billion or 13 per cent of their net income.

The question is “How can they survive in such a cut-throat environment?” 

One major solution is cost reduction. 

Obviously, the cost of less-utilised assets should be eliminated. If the number of digital channels such as mobile and Internet banking increase, the number of physical channels such as branches and ATMs should be downsized or relocated to another area that can generate increased revenues while containing operating expenses.

A bank’s physical channels should be viewed as similar to real estate. As in the orthodox real estate playbooks, the three key success factors in this business are: Location, Location, and Location. In the real estate game, the odds of winning over customers will be high if branches and ATMs are in the prime area as high traffic, so they can charge fees from enabling transactions. However, the cost of renting always keeps increasing over time. Even though banks try to optimise branches, ATM locations, number of staff and so on, it remains difficult for them to maintain their profitability in this channel. 

In the digital world, Jeff Bezos, Amazon’s CEO and founder, once said that the three key success factors are: Technology, Technology, and Technology. This has proved to be true because digital technology follows Moore’s Law, which suggests that technology will be doubled every 18 months. As a result, an inverse to renting, the cost of acquiring new technology will become cheaper and the servicing speed will become much faster. 

On top of that, digital channels are much easier to scale up. Banks just need to install infrastructure on some sites or purchase cloud services, whereas in contrast they have to deal with laborious work to prepare and maintain physical channels. ATM sellers, and ATM cash management businesses might feel gloomy when they sell a lower number of ATMs. The next issue is the staffing related to such assets. There will be job cuts. Another approach is to change job responsibilities. Staff working in cash and branch operations could be assigned to the new roles, including to improve customer experience. 

Another solution is revenue generation. This seems counterintuitive at the beginning of fee cuts. How could fee cuts generate more revenue? It is a so-called deposit-led strategy. Banks acquire a customer’s deposit first, then follow with other products to serve the customer’s needs.

Banks cut fees to attract existing customer to use bank services more, and acquire new deposit customers from other banks. The customer base will grow first. After that, banks will better understand customers because of greater information. Of course, the most informative one is financial transactions. Over billions of inward transfers, outward transfers, and even bill payments will be stored on their database – a Big Data environment.

Then, banks can analyse the big data with an army of data scientists, data engineers. Thanks to Moore’s law, with the advanced machine learning techniques, proper technology infrastructure, and business collaboration, banks can extract the convoluted patterns of customer behaviours so that they can offer the right products or services to the right customers, given their risk appetites. If customers accept the products, banks will be expected to generate revenues under acceptable risk from following the strategy. 

For example, TMB has been using this strategy by acquiring new customers – both retail and SMEs – through deposit accounts with no transfer fees. For retail customers, TMB can offer financial products, such as mutual funds and insurance products, based on customers’ needs.

This lets the bank know how they operate their businesses. What are their risks, so that the bank can offer the right products, right loan amount under their acceptable debt serviceability to the SME customers? 

Definitely, the winners in this fee battle are customers. 

Contributed by Panawat Innurak, senior data scientist at TMB Analytics. He can be reached at

Views expressed in this article are those of the author and not necessarily of TMB Bank or its executives.