Taking a Closer Look at Digital Banking in Indonesia
In this time of pandemic, adoption of the digital economy has skyrocketed and will remain the status quo. Digital space has become our first home as this is where we do daily routines nowadays.
For all service and product providers, including the financial services sector (FSS), there seems to be no better way out to survive than to go with the flow: going digital is a must!
DS Innovate & Telkomsel Whitepaper 2021 reports that banking apps users increased 37% during the pandemic time from 57.9 million users in January 2020 to 79.4 million users in January 2021. Meanwhile, more than 77% of Indonesia’s 270 million people are unbanked or underbanked.
The opportunity is obvious. They will certainly be on the lookout for suitable financial services and products digitally since digital banking can ease transactions, and is practical and straightforward to use.
Digital Transformation in Banking
Although most banks have gone digital, not all banks that operate online are digital banks. Furthermore, understanding of digital banking products is inconsistent among the Indonesian population.
Sampingan Report 2021 mentions that about 28% of those who said they use digital banks do not use any of the existing banks. This group of people might think of mobile banking when they state they use a digital banking product.
A digital bank is a financial institution that effectively manages the customer lifecycle online-from enrolment to withdrawal-while providing a level of security similar to that of a traditional bank.
The work behind this digital bank is simple enough, but technically somewhat complicated. There are several technologies behind it, from biometric architecture for multi-factor authentication to Open API infrastructure to cloud computing. These technologies have helped the digital bank to offer various personalised financial services and products and on the other hand, accelerate financial inclusion.
Through these technologies, the digital bank successfully overcomes many barriers, such as pricing, information, product design, and channel barriers which provide fair opportunities to the people who want to improve their financial well-being.
According to DSInnovate’s 2020 Fintech Report, there are nine different financial products offered in the market to improve the financial well-being of individuals: digital wallet, pay later, investment, working capital loan, insurtech, payday loan, goods ownership credit, crowdfunding, and remittance.
Looking at the attitude of the current market, the number who know more about these nine digital financial products is very different. More than 80 % of people know about digital wallet, 72.5% know about paylater and 57.3% know about investment. Meanwhile, awareness of remittance is only 10.2%.
However, these numbers go down significantly when you look at the usage. Digital wallet still tops the list, although the number is only 70.7%. Paylater follows with 45.2% of users and 28.4% of users have used investment products..
Digital Bank Landscape
Currently, several digital banks have been officially established and are fully operational. It was started in 2016 when Bank BTPN launched Jenius. A year after that, DBS Indonesia launched Digibank, while Bank KB Bukopin also followed by launching Wokee.
This year, several more banks are establishing their existence as digital banks, including BCA Digital by Bank BCA and BRI Agroniaga by Bank BRI.
There are three main categories of digital banks, distinguished by their ownership: domestic commercial or rural banks, regional banks, and tech companies.
The first and second categories are wholly owned by conventional banks that operate digital banking as a venture. Meanwhile, the third category are small banks acquired by tech companies (Gojek, Shopee, etc) and other regional banks.
For example, Bank Artos was acquired by Gojek and turned into a digital bank called Bank Jago. The same happened with Bank Neo Commerce, which was initially called Bank Yuda Bhakti before being acquired by fintech Akulaku and converted into a digital bank. There is also Seabank, which used to be called Bank Kesejahteraan Ekonomi before it was acquired by Sea Group, the head company of Shopee.
Certainly, these current digital banks have varying degrees of popularity in society, depending heavily on the needs of the beneficiaries nowadays. Jenius, for example, tops the list as one of the first players in the market, as more people need a digital app for transactions, including daily transactions, than for saving. Neo Commerce is below Jenius with 9% of the 1200 respondents, as the need to save is also much greater than to invest.
From the high number of users, it is clear that digital banks are well accepted by society. Sampingan Report 2021 states that 36% of respondents are satisfied with the simplicity of financial transactions offered by digital banks and consider them to be very effective and efficient, as they can do them anytime and anywhere.
Further analysis of non-users of digital banks reveals that 44% of them are not yet familiar with the benefits offered by digital financial services and products. Moreover, they also consider the current banking products sufficient to meet their financial needs and well-being.
So, once again, the opportunity is obvious. In addition, Economy SEA 2020 Report notes that Indonesia is the second largest of new digital consumers during this pandemic. The report also predicts that 93% of these new digital consumers will continue to use at least one digital service after the pandemic. Following this, the report also predicts that the digital economy in Indonesia will grow at an average rate 23% per year.
For all service and product providers, including the financial services sector (FSS), there seems to be no better way out to survive than to go with the flow: going digital is a must!
