Digital payment apps, while facilitating ease of consumption, do not tackle the fundamental issue: limited disposable income of Thais, particularly among those in lower-income groups.
The outbreak of Covid-19 in 2020 coupled with border closures caused the Thai economy – ASEAN’s second largest – to suffer one of the sharpest contractions in the region, with its GDP declining by 6.1 per cent. Household consumption dropped sharply from 1650 billion THB (46 billion USD) in the fourth quarter of 2019 to below 1400 billion THB (39 billion USD) by the second quarter of 2020. Although the economy has since registered a positive growth rate in 2021, its pace of recovery at 1.6 per cent lags behind other ASEAN counterparts. The absence of tourism receipts during the pandemic prompted the government to launch stimulus packages in the hopes of spurring domestic consumption for an economic recovery.
Among the more prominent stimulus mechanisms to spur private consumption are co-payment schemes such as Khon La Khrueng (let’s pay half) and Ying-Chai-Ying-Dai (the more you spend, the more you get). As of March 2022, 26 million Thais or about half of the adult population have signed up for the co-payment schemes. However, the catch is that instead of conventional cash payments, to be eligible for the co-payment schemes these transactions must be conducted through digital payments. Digital payment, compared to cash payment, is seen to facilitate money transfers and investments while eliminating the costs associated with handling cash. A seven-country analysis – excluding Thailand – by the Boston Consulting Group (BGC) in 2019 projected that increased use of digital payment, by spurring investment and consumption, could lead to economic growth of 0.3 to 3.1 per cent.
While there are several digital payment options such as PromptPay, TrueMoney, Rabbit LINE pay and mobile banking QR code in Thailand, the Pao Tang app developed by the state-owned Krungthai Bank is the sole digital payment platform for government-funded co-payment schemes. Riding on its bundling with the government’s economic stimulus, the app now boasts more than 40 million registered users. Apart from accessing public funds, Pao Tang users also enjoy a host of other functions, including booking a slot for government-funded Covid-19 vaccination, or purchasing government bonds and even lottery tickets. Indeed, compared to pre-pandemic levels, the use of digital payment has quadrupled in Thailand.
The act of switching from cash to digital payment, on its own, does not guarantee economic growth as it only involves a change in the mode of transaction. As in the case of Pao Tang, even with attractive stimulus packages attached, three factors impede the government’s intended goal of increased spending.
First, a spike in tax collections spooked local businesses and individuals who are or were evading the system, or those who manipulate financial reports to pay lower amounts of tax. Fears of scrutiny by the revenue department are heightened by reports, citing official sources, that the digital database derived from the government stimulus packages has made it easier to collect tax from those who reach a certain amount of personal income.
Riding on its bundling with the government’s economic stimulus, Pao Tang’s app now boasts more than 40 million registered users. Apart from accessing public funds, Pao Tang users also enjoy a host of other functions.
Although a spokesperson from the Ministry of Finance denied accusations that the Pao Tang app discloses personal income details to the revenue department, shop vendors remain wary. Consequently, there has been inertia of late to accept digital payment from roadside vendors. In addition to the widespread adoption among consumers, active participation among firms is equally important for digital payment to succeed – through the setting up of digital payment terminals, for instance.
Second, a mobile phone with internet connectivity is a pre-requisite for users of Pao Tang. Mobile phone internet penetration in Thailand is lower compared to its neighbour Malaysia. Internet coverage rates are significantly lower in provinces with lower per capita GDP – including the North and Northeast region – compared to the richer regions. Paradoxically, Pao Tang may widen the economic disparity as poorer Thais are unable to access the government funded co-payment schemes and the benefits of digital payment.
A survey cited in the World Economic Forum ASEAN Digital Generation report underscores the current importance of internet access: 57 per cent of respondents regard slow or expensive internet connection as the main barrier to digital adoption. The Thai government is in the process of expanding broadband coverage in rural areas, although other obstacles still remain in place, including low digital literacy and smartphone affordability.
Lastly, Thailand experienced one of the largest GDP contractions among the ASEAN economies in 2020 with a steep decline in consumer confidence index during the pandemic. The index has not recovered to pre-pandemic levels, remaining significantly below 2019 levels and dipping again in recent months since the invasion of Ukraine. Global inflationary pressures will also likely dampen household spending. Digital payment apps, while facilitating ease of consumption, do not tackle the fundamental issue: limited disposable income of Thais, particularly among those in lower-income groups.
Thus, despite the successes of Pao Tang, there remains a limit as to how far digital payments can spur domestic spending, which is a key component of economic growth. Given these challenges, the digital payment apps including Pao Tang have some way to go before they can vigorously spur consumption. They can give a boost to the economy, but cannot momentously drive Thailand’s recovery.
Kanpunnarin Amphunan is an analyst on Southeast Asia politics and has undertaken research roles for the Thai government and private agencies.
Kevin Zhang is a Senior Research Officer, ISEAS – Yusof Ishak Institute.
Fanzura Banu was Research Officer at the Regional Social and Cultural Studies Programme, ISEAS – Yusof Ishak Institute.