Miriam Andreta and Raditya Pratamandika Putra of Walalangi & Partners discuss the growth of digital banking in Indonesia
The COVID-19 pandemic and the fast growth of information technology have caused big changes in how businesses do business and finance. Physical activities are now limited, and businesses are moving their business transactions to digital platforms.
This new way of doing business in the economy also changes the way banks work, especially as traditional banks become digital banks.
Digital Banking
The Indonesian Financial Services Authority (Otoritas Jasa Keuangan, or OJK) came up with the idea of digital banks in OJK Regulation No. 12/POJK.03/2021 on Commercial Banks (OJKR 12/2021) to help banks become more digital and to make it easier for people to invest in digital banks.
With OJKR 12/2021, a business can now start a new bank with a business model for digital banking (or transform an existing conventional bank into a digital bank).
To do this, businesses must meet a number of regulatory requirements, such as I having a physical head office, (ii) having a business model with innovative and secure technology, (iii) being able to manage a prudent and sustainable digital banking business model, (iv) having good risk management, and (v) protecting personal data.
When applying for a principal licence, you have to put at least IDR 3 trillion ($203 million) into the business. This is less than the IDR 4 trillion that you have to put into a traditional bank.
OJK’s plan seems to be working because more foreign and domestic investors are buying shares in Indonesian small banks and turning them into digital banks. For example, WeLab Ltd. bought minority shares in PT Bank Jasa Jakarta and PT Elang Media Visitama bought PT Bank Fama Internasional (a subsidiary of PT Elang Mahkota Teknologi Tbk). In the next few years, OJK thinks that more businesses will get into the digital banking market in Indonesia.
Digital Transformation
In Q4/2021, OJK released a blueprint for digital transformation in banking. This blueprint included basic principles for making digitalization policies to create a safe and orderly environment for the digital transformation of banking in Indonesia. The blueprint focuses on five areas: data governance, technology, risk management, working together, and institutional arrangements.
With a focus on these areas, the policies to speed up digital banking are meant to encourage banks to make services that are efficient, safe, and innovative and meet the needs and expectations of customers.
One of the biggest problems that the blueprint expects is that there aren’t enough rules to protect customer data. Another problem is that some banks seem to send their IT work to a third-party expert through a process called “outsourcing.” This could cause risks to strategy, operations, and reputation.
The OJK has to keep a close eye on these problems all the time. It is important for OJK to know the level of digital maturity of the Indonesian banking industry so that it can make the best rules and policies to speed up the digital transformation of banks.
The blueprint includes the Digital Maturity Assessment for Banks (DMAB), which will be used by OJK to keep an eye on how banks are changing to become more digital. This will help the government figure out how digitally mature the Indonesian banking industry is. But this is still up in the air until OJK’s implementing regulation comes out.
