What Central Banks Should Learn From Thailand’s PromptPay System
Thailand’s central bank, with the help of the private sector, created an e-payment infrastructure that 67 million users use. Among the users are the 3.13 million SMEs, which constitute 99.6% of all enterprises in Thailand.
A short anecdote about why I believe in financial inclusion via digital banking
In the summer of 2014*, I had the chance to visit China, and one of the cities I got to see was the capital, Beijing.
One morning, while strolling through the bustling streets of Haidian district, I saw an old lady selling sweet potatoes on the corner of a crosswalk. Based on the bulk load of undusted sweet potatoes she had on display, she brought the produce straight from her plantation.
While waiting for the lights to turn green, I saw a young man squatting in front of the pile of sweet potatoes and filling in a plastic bag with the purple-shaded root vegetables that the old lady was selling. When he was done choosing, he asked something to the old lady in Chinese, which, based on the context, I assumed the young man asked how much he had to pay her. Once she replied, the male customer took out his phone from his rear pocket and started scanning a QR code that the old lady had on display on the screen of her phone. A couple of seconds later, she nodded while saying thank you, and the young man crossed the road with one hand carrying the bag full of sweet potatoes.
There was no cash transaction. No paper bills nor coins. Just a scanning motion from one rear phone camera to a display of a second phone.
That was the first time I saw someone paying digitally via a QR payment service. Later, after asking my Chinese friends, I discovered that what I saw on that morning by the corner of Beijing University’s crosswalk was a transaction processed via WeChat pay.
*To give you some context of 2014 in China, that same year in September, Alibaba went public on the New York Stock Exchange. ByteDance, the parent company of TikTok, raised its Series C round. Tencent injected another $700 million into Didi in December 2014, and a pre-Pinduoduo era.
Asia Pacific region would exhibit the highest adoption of QR Payments (CAGR 18.7% during 2021–2030)
Fast-forward to today, China’s love for QR-based payment is no secret, and the all-pervasive QR code has redefined many aspects of our daily lives. But when I first stumbled upon WeChat Pay nearly ten years ago, I was shocked.
And as a justification for my reaction back then, ten years have passed, but there are still more businesses accepting cash or card payments than any digital payment method. Or at least it is the case in the Western hemisphere.
But once the attention is shifted to the East, we see exciting case studies of digital payments becoming increasingly pervasive in the daily lives of the average consumer and small and medium business owners.
While spending nearly two months in Thailand at the beginning of this year, I saw with my own eyes how the day-to-day of Thai people is centrifuged around a nationwide QR payment system. Today, I will share my notes on what I saw, experienced, and researched about Thailand’s PromptPay system.
So, what is PromptPay?
PromptPay is a digital payment system in Thailand, launched in late 2016s by the Central Bank of Thailand in collaboration with the Thai Bankers’ Association and the leading local banks. Some banks involved were Siam Commercial Bank (SCB), KBank, Bangkok Bank, and Krungsri Bank.
It launched under the government’s national e-payment initiative that started in 2015, aimed at promoting cashless transactions and facilitating easier, faster, and more secure financial transactions within the country.
PromptPay enables individuals, businesses, and government agencies to transfer money and make payments electronically through various channels, such as mobile banking applications, ATMs, and online banking platforms.
The system links a user’s Thai national ID number, mobile phone number, or corporate registration number to their bank account. Foreigners with long-term residency can also open a bank account in Thailand, which means they can utilize this digital payment technology.
PromptPay can be used for various transactions, such as person-to-person (P2P) money transfers, bill payments, government transactions, and even for purchasing goods and services at participating merchants. For instance, if an individual or SME business owner linked PromptPay to his/her national ID or corporate registration number respectively, yearly tax refunds can be processed through this system instead of waiting for tax refund checks to arrive in mailboxes.
A key success factor of PromptPay’s mass adoption: it was a national project
What makes PromptPay powerful is the fact that it was built on top of the centralized electronic financial transaction system of Thailand. And why is this possible? Because as mentioned above, it was built not by a private tech company but by the Central Bank of Thailand.
PromptPay is built on top of the National Interbank Transaction Management and Exchange (ITMX) system, which serves as a central infrastructure for electronic financial transactions in Thailand. ITMX connects financial institutions in the country and facilitates the secure and efficient exchange of transaction data.
When the Central Bank of Thailand launched a standardized QR code system called MyPromptQR in 2017, an initiative also under the national e-payment master plan, the South East Asian country unlocked a new era of mobile digital payments.
Compare this model with what the WeChat Pays of the world are offering to users, and you will clearly understand the implications of a country’s central bank running such digital banking system.
Benefits of PromptPay QR to the 3.13 million SMEs in Thailand
Walking down the branching streets of Sukhumvit Road in Bangkok gives you a sense of how many small and medium enterprises there are in Thailand. From my go-to mango sticky rice stand Mae Varee to Rung Rueang pork noodle shop in Soi Ari, it is salient that in Thailand there are more independent mom-and-pop shops than big-box retailers.
According to the OECD, there were approximately 3.13 million SMEs in 2020, constituting 99.6% of all registered enterprises in Thailand.
To proactively boost SMEs’ financial access, the Bank of Thailand (BOT) has promoted new innovative financial services and products for SMEs, such as digital personal loans and digital factoring, as well as new infrastructure to support operational efficiency and a competitive environment in the financial sector, including a central web service to deal with double-financing for invoice finance.
PromptPay, in line with the other benefits offered by the Central Bank, is an initiative that has essentially helped Thai small and medium business owners to better handle their operations with a more accessible and centralized banking system. Besides the most salient benefit of being able to reduce operational costs, businesses no longer need to deal with the risk of accepting counterfeit bills and can better manage the finances of their businesses in a payment system all integrated into their bank account. Since the PromptPay account is linked to their business tax ID, business owners can also claim faster tax refunds in tax seasons.
And through the implementation of PromptPay, merchants also benefit from lower fees compared with the routine 3% charged by credit card schemes.
What are the benefits for retail users?
From the retail user’s perspective, one can use a bank account, debit card, credit card, and e-wallet bank account to pay for the transaction executed via PromptPay. This could be conveniently transferring money to a friend after a dinner date or paying the GrabBike driver for a 10-minute ride from Thong Lo to Asok BTS station instantaneously, in a cashless format.
But more than anything, the biggest benefit of using PromptPay is not needing to pay the 25 baht fee every time one transfers money because any transaction under 5,000 THB is exempted from the transaction fees.
(Yes, 25 THB is less than $0.80, but let me give you a reference of how valuable this may be to the average Thai. A famous food stall near my hotel was part of the Bib Gourmand Bangkok list; their basic Chicken and Rice dish was 45 THB. If one can ‘save’ from two money transfer costs, one can use that instead for lunch money.)
Cross-border Payments with Partner ASEAN Countries
Interestingly, in April 2021, the central monetary authorities of Thailand and Singapore announced that they will connect Thailand’s PromptPay with Singapore’s PayNow, making it the world’s first retail real-time payment linkage.
And after the successful case study born from the PayNow (Singapore) — PromptPay (Thailand) linkage, the Bank of Thailand has expanded PromptPay’s coverage to other ASEAN countries as part of the ASEAN Payment Connectivity Initiative.
Today, Thai nationals can travel to Japan, Cambodia, Vietnam, Malaysia, Indonesia, and Singapore, and utilize their country’s QR payment service to pay for small transactions in these partnering countries.
Fun Fact: Vocalink, a Mastercard Company, partnered with Thailand’s national ITMX to create the architecture of PromptPay. Paynow, Singapore’s real-time payment network managed by the Association Bank of Singapore (ABS) and overseen by the Monetary Authority of Singapore (MAS), also received help from Vocalink when first setting up the infrastructure of the digital payment system.
Concluding with a wild prediction: what will the Bank of Thailand do next?
As of March 2023, PromptPay has some 67 million users since it was first launched in 2017. And if we look at the data for February alone of this year, there were more than 60 million baht worth of transactions via the centralized system. For a population of ~71 million, it means that more than 95% of the entire population in Thailand has a PromptPay-linked bank account.
For an initiative that was spearheaded by a central bank, I would call this 6-year-old digital banking transformation a success.
But I don’t think they will stop here. Now that the Bank of Thailand has proven that a centralized M-payment infrastructure works, I do not see why the Thai monetary authority wouldn’t integrate its up-and-running ITMX infrastructure with future Central Bank Digital Currency (CBDC) schemas – granted in the far future.
While researching for this article, I stumbled upon multiple reports released by the Bank of Thailand on the progress of its retail CBDC development and how the BoT has been among the first central banks to recognize the importance of CBDC as a novel financial infrastructure.
The BoT has also been testing wholesale CBDC projects called Project Inathanon (2019) and Project Inathanon-LionRock (2020). The latter was conducted in partnership with the Hong Kong Monetary Authority and has since been extended to become Project mBridge with the joining of the Central Bank of UAE and the Digital Currency Institute of the People’s Bank of China.
In 2022, the BoT announced that it will be starting a pilot study of a retail CBDC with a real-life application conducted with the support of two commercial banks (Siam Commercial Bank and Bank of Ayudhya). When this announcement was made the Thai regulators said it will also compare to the country’s leading digital payments platform, PromptPay.
Although there have been mixed messages from Thailand’s government regarding digital assets, the fact that the BoT was one of the earliest and most active central banks in the world to test both wholesale and retail CBDCs could turn the sentiment toward the green light.
If it is your first time hearing about CBDCs, I wrote a 2-part series about this topic.
I wrote this piece out of genuine curiosity while I was nomading in Thailand for over a month. I was amazed by how efficient this payment system was and when I learned it was an initiative by the central bank of Thailand, I wanted to let more people know about it because more monetary authorities should follow Thailand’s steps. This is truly a public good. I strongly believe it could be exported as a successful case study to not only neighboring South East Asian countries but also any country that is in dire need of an efficient mobile digital banking system.
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