Experience and Insights: Regulatory Challenges for Fintech Businesses in Thailand

This is the first article for Experience and Insights, a series of interviews and articles where I discuss best business practices and insights – particularly in matters of finance – with successful thought leaders based in Bangkok.

Watewiboon Pumipue is the Founder and CEO of Talad Invoice, Thailand’s first on-line invoice factoring platform. Watewiboon is also a member of the Thai Fintech Association and has worked closely with various government and public agencies such as the Bank of Thailand, the Securities Exchange Commission, the Ministry of Digital Economy and Society on the latest developments in rules and regulations on the emerging fintech industry in Thailand.  

I recently met with Watewiboon to discuss his business as well as some of the challenges new Fintech companies face in Thailand.

The Fintech angle

Talad Invoice is a tech start-up that developed and operates an invoice factoring and crowdfunding platform for both commercial and peer-to-peer lending.  The platform allows small and medium-sized enterprises – which are usually considered high-risk by commercial banks, and often have difficulty accessing capital – to get loans from private investors by putting up their unpaid invoices as collateral in exchange for a short-term loan.

Talad Invoice uses Blockchain to verify and record transactions between parties, and utilises data analytics for credit scoring to allow private investors to gauge the borrower risks and enter into loan transactions with borrowers.  While, innovation and digital technology is revolutionizing the way financial services are offered, Watewiboon says that new Fintech companies often face many barriers to success.

The challenges in Thailand   

Thailand’s Fintech sector is developing rapidly. Much like Talad Invoice, a large portion of these Fintech businesses are focused with developing digital transaction services. However, much of the financial system still operate under rules that were created for the traditional financial institution and traditional transaction models.  With the aid of digital technology, many fintech companies are developing novel business models which, unfortunately, often operate under the opaque conditions of a non-existent or incomplete regulatory landscape.

In the lack of clear laws to delineate between legal and illegal financial activities, it is very difficult for fintech start-up to scale up their business. Investors are often hesitant to invest into a company whose business model may one day be deemed illegal or restricted by future regulations.

For instance, regulations on peer-to-peer lending and crowdfunding have only been recently been issued.  This is encouraging as it would allow fintech companies to obtain proper licenses, understand the boundaries of what can and cannot be done, and secure the commitment of interested venture capital firms to invest into their business.  However, it is difficult to predict how long these regulations will stay relevant as technology is constantly evolving. If the regulators are too rigid or conservative in their interpretation of law or coming up with new regulations,  commercial and technological realties could quickly render “new” laws obsolete in a matter of a few years.

How Thailand can improve the situation

Regulators are moving to catch up with the digital revolution.  Yet, a large effort is still required to stay ahead of the curve.  Regulations have to match the pace of business innovation. This means when Thailand issues laws to regulate the digital economy, the regulations must be sufficiently broad in scope so as to remain relevant for the next five to ten years. Technology will always inevitably change, and there must be sufficient flexibility in the regulatory mechanism to encompass or respond swiftly to such change. 

Watewiboon points to Singapore as an example. The Monetary Authority of Singapore – the country’s central bank and integrated financial regulator – has very specific programmes that govern Fintech and innovation. These units must be agile and staffed with tech savvy personnel in order to bridge the gap between bureaucracy and the face paced start-up economy.  Having a dedicated wing of the central bank working on this sector alone, allows Singapore to be far more nurturing of innovation and effective at creating comprehensive regulations that encourage growth and investment.

The goal of the Thailand 4.0 economic model is to digitalise Thailand’s economy. For that to happen, regulators will have to be capable of anticipating future technological developments and developing sensible rules to govern them. Forward-looking, regulations will allow businesses to take full, legal advantage of the opportunities presented by new technologies.

If Thailand had an authority dedicated solely to financial technology regulation, Thai Fintech companies could develop their business with minimal regulatory lag.  This would further enhance the development of local fintech companies and foster their expansion into the regional and global arena.