KHIAONARONG, Tanai (1999)

Banking and Innovation: The Case of Payment Systems Modernisation in Thailand

This thesis examines the role of banks in influencing innovation and analyses their links to
payment systems modernisation. The main argument is that banks are a type of technological
institution having the potential to promote innovation, although such roles may be implicit or
secondary. This role is investigated in eight chapters. The first three chapters review the major
innovation models and progress in payment system. An analytical framework, based on
evolutionary and resource-based views, is developed to examine how resources and routines,
which reflect an organisation's stock of skills, influence innovation, and assist them in
sustaining competitive advantage.

The following three chapters present the empirical results. In a survey of innovation in the
banking industry, research results suggested that although there were relatively high levels of
information technology awareness and application, particularly in payment system automation,
there remained a moderate level of innovative capabilities among the banks studied. Further
analysis through four mini case studies of the largest commercial banks also suggested
similar increases in technological investments, but replication rates were also relatively high.
Thus, it is argued that such investments may gain, but not sustain, competitive advantage,
whereby the latter requires banks to innovate by acquiring, accumulating, and advancing their
stock of skills. In this respect, the role of the central bank in creating a conducive environment
for innovation is also important, which may be seen through its involvement in payment
systems modernisation.

The final two chapters discuss policy and research implications. It is argued that central bank
policies oriented towards payment system reform, along with new payment product and
services development by commercial banks, have come to play a progressive part in
promoting technological innovation in banking. Such roles in reforming rudimentary payment
systems have helped strengthen national information infrastructures, especially in emerging
market economies, and moreover, have influenced the set-up of a national innovation system
in banking, which underpins economic development.