Siam Commercial Bank restructured in 2022, deconstructing the Thai financial institution into twelve companies beneath a new holding company called SCBX.
For one of those twelve entities, SCB 10x, the restructuring was business as usual. It had been running since 2020 with a mission to invest, incubate, and research new technologies that the group could incorporate.
If anything, according to the unit’s CEO, Mukaya Tai Panich, the group is even more determined to transform itself into a digital entity. “Before, we were incorporated outside of the bank,” she said. “And we still are, only now we are one of 12 such companies.”
Her job at SCB 10x is divided between corporate venture capital, and venture building, which encompasses a Labs unit that carries out technical research to support the VC’s portfolio companies.
Broadly, SCB 10x is focusing on artificial intelligence and blockchain.
GenAI
Its lab unit’s biggest project is developing a Thai-language large-language model called ‘Typhoon’.
“This requires a lot of research and buedget for compute power,” Panich said. “But we’ve found ChatGPT [the LLM from OpenAI] is too slow” when applied to specific finance use cases in Thai language.
Typhoon is intended to sit atop SCB 10x’s stake in TogetherAI, a US open-source cloud platform designed for customers to design and run generative AI applications. TogetherAI is also backed by Salesforce Ventures, Nvidia, and brand-name Silicon Valley venture-capital firms, but it is notable that SCB10x was an early seed investor.
“Their cloud service is faster and cheaper than AWS [for GenAI purposes],” Panich noted. “Machines now understand our language. Along with producing images and voice, they can help us achieve automation and efficiency.”
One early use case is customer service, with cutting-edge chatbots. Another company that SCB 10x invested in is Tenyx, which is developing voice AI agents. The bank intends to layer its Typhoon model on top of Tenyx’s technology to harness it for its domestic banking business.
The company has also participating in a seed round of Guardrails.ai, another San Francisco company, which is building tools to measure and report AI-related risks.
These US companies are highly sought after by VCs. Panich says they welcome SCB 10x onto their cap tables partly because it makes SCBX a potential customer, but also for the group’s connections.
“We are often their first Asia-based investor,” Panich said, noting the group can open its network. “Western tech companies often don’t know where to turn when they want to expand to Asia.”
Panich says the company hopes to have Typhoon in live deployments by the end of this year.
Blockchain
The second big area of activity is blockchain. “We want to have a version of SCB that is a crypto bank,” Panich said.
SCB 10x’s focus on AI only began in early 2023, with the advent of GenAI. But it has been investing in blockchain-related opportunities since 2020.
Its first plunge was taking a stake in InnoverseX, a Thai digital-assets brokerage and exchange, and in Fireblocks, the self-custody solutions provider for crypto wallets. It added a stake in Talos, provider of crypto trading tools for professionals.
SCB’s wealth business, SCBInvest, can now let customers manage digital assets as well as traditional securities. Internally, SCB is also now using payment tokens as a medium of exchange for cross-border transactions. It is also developing TokenX, a platform intended to support tokenization of real-world assets.
Right now these activities are siloed, but Panich says the goal is to find a way to integrate them with SCB’s traditional operations.
Going live
She expects to start with payments: SCB has a pilot in the sandbox of its regulator, Bank of Thailand, to use Fireblocks’ infrastructure to enable blockchain-based remittances via Solana or other layer-1 blockchains. She hopes this might be deployed live this year, perhaps as early as June, using Circle’s USDC stablecoin as the medium of exchange.
“It’s instant settlement, and unlike correspondent banking, you don’t need any pre-funding,” she said. Moreover, SCB doesn’t need to rely on a critical mass of other commercial banks to use this. “We can transact with fintechs, payment aggregators, and other partners,” Panich said.
The group is confident that blockchain tech will power the next generation of commercial banking. Panich points to DeFi lending businesses such as Aave and Compound. “These companies can run a $1 billion loan book with only a small team,” she said. “They don’t face credit risk because their trades are over-collateralized, and they don’t face market risk because their contracts liquidate immediately. Banking can definitely be disrupted.”
DeFi disruption
For that vision to come true, though, the industry needs to address lingering risks native to crypto. For example, over-collateralization mitigates settlement risk, but it only works in a purely digital environment where tokens are easily minted and burned. That’s still not the case when dealing with real-world assets: collateral is expensive, so it’s inefficient to lend if you have to tie up all your capital.
Panich is confident that solutions will emerge that enable players in DeFi to measure credit risk, using the transparency of blockchain. But it will take time because participants need to build a track record that can be used to profile their creditworthiness.
She is more sanguine about navigating the blowups of crypto lenders. SCB 10x was an investor in BlockFi, which went under in November, 2022. Panich ascribed its fall to FTX’s collapse, not its own business-model failures, but said, “BlockFi is a cautionary tale…the lesson is when we conduct due diligence, we must be thorough.”
She noted her company didn’t invest in FTX because it was concerned about FTX’s lack of a board and other governance-related red flags.
She did say that BlockFi’s collapse shows that blockchain-based lending has yet to mature as a business model. “In TradFi, lending requires cross-checks and reports on parameters such as the borrower’s other exposures. We now have regulations for licensing institutions, and regulators are looking at these things in detail.”
But she cannot envisage a bank not figuring out how to do lending via blockchain rails. She expects the future will be about DeFi rather than centralized lending platforms such as BlockFi. “We need to be partnered with Aave and Compound and businesses like that.”
She added, however, that such partnerships must be offshore: crypto lending is illegal in Thailand. She expects over time the regulators will develop frameworks for risks related to digital assets, at which point SCBX will be ready to offer more financial services via blockchain.
Onshore or off, Panich says SCB 10x partners with regulated institutions. Asked about the risks of Tether’s stablecoin, given its prominence in the market, she said, “We use USDC because we want to work within regulation. If we plan to integrate anything with the bank, our regulators will ask a lot of questions, including whether our partners are also regulated.”
Similarly her team is trying to ensure whatever it does on blockchain comes with ways to manage risk. For example, SCBX’s sandbox pilot for remittances transacts on Solana, but that network has a record of occasional outages. So the bank is also able to transact via protocols such as Stella and Polygon – and in a worst-case scenario, if no blockchain is available, it can fall back on TradFi wires. “We must ensure we have alternatives,” Panich said.
