Even though many countries including Thailand have been affected by financial crises and regulatory reforms, we are currently in the stage of revival with high potential growth among ASEAN countries. According to the IDC Financial Insights’ observation on key structural shifts, trends of financial institution sector are: expansion of banking industry, particularly, in South Asia and Southeast Asia due to an escalation of financial inclusion and new-entry of financial players; technology refresh to serve with more sophisticated financial products and services; and regional integration (AEC) and the growth of Asian insurance business. These are paths to higher competition among banks, in which, IT innovation is a key to distinguish each brand. Undoubtedly, banks and related parties invest more in IT projects to advance their services responding to digital era. To be more specific, we have to admit that we live in the world of digitization with an escalation of Internet users and Y generation. Consequently, this group of people becomes a new targeted customer group for banks. Interests in higher conveniences of services which result from high integral digital environment and multi-task lifestyle of the people prompt banks to respond with “Virtual Banking Concept” – any interaction with a bank happens online instead of face-to-face meet up at a branch. To illustrate, the numbers of Internet and mobile banking users have grown up recently as well as volume and value of transactions via such systems.

Such an occurrence can affect other economic agents. They may face illiquidity and even insolvency, affecting market interest rates, in turn leading to changes in trading activities and a disruption in market confidence Payment systems are an essential component in preventing such occurrences and a technical mechanism for the central bank to step in order to challenge contagion or potential contagion. The interest of central banks in financial stability was largely triggered by the Herstatt incident of June 26, 1974. German banks processed Deutsche Mark payments to Herstatt bank in exchange for US Dollars, to be delivered through Herstatt correspondent account in New York. Regulators, deciding to close the bank for lack of solvency immediately, failed to appreciate the time-zone difference between Frankfurt and New York, leaving transactions half-completed. German banks did not receive their US Dollar payments. Although the Herstatt incident did not lead to a financial-stability crisis, it made central banks aware of the risk and they started developing a continuous linked settlement platform, whereby commercial banks manage settlement of foreign exchange amongst themselves on a payment versus payment basis. Cooperation in this area led central banks to share experiences covering other areas of payment systems and financial stability. Well-functioning markets depend on the willingness to develop adequate solutions to ensure smooth functioning of payment systems. Ironically, part of the problem stems from the very fact that technological advances speed up the payment systems and make them more reliable. This in turn enables banks to economise on liquid balances.