Digital banks have become a phenomenon in the Indonesian financial industry recently. New platforms continue to emerge from legacy banks and new banks that are determined to focus heavily on building a digital banking experience from the start. A digital bank is still a banking service, but users can access most, if not all, of its services through a mobile application.
In Indonesia, there are no specific regulations governing digital banks, so they are currently relying on the rules of commercial banks in POJK No.12/POJK.03/2021. As for the regulation, digital banks are defined as banks with Indonesian legal entities that provide and carry out business activities, primarily through electronic channels without a physical office other than the head office or far fewer physical offices than conventional banks.
The potential of digital banks in Indonesia
According to Global Industry Analysts Inc., digital banks' global market size will reach $12.1 billion by 2020. It is projected to grow to $30.1 billion by 2026 at a 15.7% CAGR. In comparison, the retail banking segment is expected to grow at 14.3% CAGR, valued at $14.3 billion.
Interestingly, the digital bank market share is also divided into many segments. According to a report titled "New Banks in the 4th Industrial Revolution", there are several digital bank initiatives, ranging from betabanks, neobanks, challengers, big tech, to retailer banks. Each has a different value proposition.
On the end user side, research firm PwC provides its analysis that the current digital bank has the potential to embrace new user segments from young users (gen-z), digital millennials, blue and gray collar workers, and gig workers.
Actually, there are several benefits that banking institutions can get by switching to (or at least providing) digital banking services, including:
- Improve operational agility. Automated systems can increase business scalability with relatively more compact operating capital funds.
- Expand market share. Enables companies to reach more people without being limited to a physical branch office presence.
- Leveraging the digital ecosystem. The Open Banking concept allows digital bank players to connect with various digital services and provide value to each other.
Digital Banks in Indonesia
In Indonesia, there are already a number of digital bank players who have started their operations. Some of them are:
- Aladin (PT Bank Aladin Syariah Tbk)
- Allo Bank (PT Allo Bank Indonesia Tbk)
- blu by BCA Digital (PT Bank Digital BCA)
- Digibank (PT Bank DBS Indonesia)
- Jenius (PT Bank BTPN Tbk)
- Jago (PT Bank Jago Tbk)
- LINE Bank (PT Bank KEB Hana Indonesia)
- Motion (PT Bank MNC International Tbk)
- Neobank (PT Bank Neo Commerce Tbk)
- New Livin' (PT Bank Mandiri Tbk)
- On (PT Bank OCBC NISP Tbk)
- Raya (PT Bank Raya Indonesia Tbk)
- SeaBank (PT Bank Seabank Indonesia)
- TMRW (PT Bank UOB Indonesia)
- Wokee (PT Bank Bukopin Indonesia Tbk)
Various services are offered, ranging from basic banking features to wealthtech services. DSInnovate divides the segmentation of digital bank players according to their value proposition in its report, resulting in a mapping of service segments as shown below:
Open Banking Ecosystem
Open Banking, also called Banking as a Services (BaaS), has become a trend in the digital banking era. BaaS allows a digital service to have banking features in its application. The bank acts as a service provider with the help of third-party applications to establish the connection via an Application programming interface (API).
For end consumers, BaaS allows them to have a seamless experience in obtaining various financial product offerings --- for example; users no longer need to install multiple applications. Digital platforms can also add more value to their users by providing embedded finance services. On the other hand, banks can increase their user base by connecting to other platforms.
How does Open Finance simplify cross-platform collaboration?
Open Finance has a range of financial infrastructure services beyond banks that can be implemented into various digital applications. For example, Account Aggregation, allows application services to connect with user banking data and digital wallet — with complete authority in the hands of the user.
The usage scenarios are also varied, one of which is for personal financial services. Instead of having application developers build the connection with different banks, the Open Finance service like Finantier can summarize the work, enabling a single Account Aggregation API to aggregate customer data from various bank accounts in an organized and readable format.
To learn more about Account Aggregation and other Open Finance innovations, visit: finantier.co