- Jan. 04, 2022 -
The wave of digital banking in Southeast Asia offers tech companies the opportunity to enter the financial industry.
Maya Nawangwulan, a start-up employee in Jakarta, regularly uses a variety of payment platforms, including GoPay, OVO, ShopeePay, and more, and is happy to try out new fintech products. In June, she opened an account at Line Bank, which was not yet officially launched, and registered in advance to receive a reward of IDR 300,000 (about $21). Line Bank is a digital bank supported by Hana Bank.
"The registration process is simple, I just fill in my personal information, upload an ID photo and a selfie with an ID. I was then contacted by a customer representative to verify the information. Two days later a debit card arrived at my house. Nawangwulan told KrASIA.
She also registered two deposit accounts with Line Bank. "This is my first time opening a deposit account. What attracted me was the line bank deposits as low as IDR 1 million (about $70) and the interest rate was about 4% per annum, higher than many traditional banks. She is pleased with the convenience and diversity of products of digital banking.
Promotional image of line bank website in Indonesia
Like Nawangwulan, many Indonesians will start using digital banking services in 2021. According to a finder report, about 24.9% of adults in Indonesia have a digital bank account. Utilization is expected to grow to 39% by 2026.
"Getting a banking license anywhere in the world is not easy. But the wave of digital banking in Southeast Asia has given companies the opportunity to enter the financial sector. Zennon Kapron, a director of fintech research and consultancy Kapronasia, told KrASIA.
So it's no surprise that many tech companies are involved in digital banking. Kapron said companies such as Line Bank, Gojek, Akulaku, WeLab and others plan to offer a full suite of digital banking services. These are digital-first companies with a wealth of data available to create highly personalized banking experiences.
Indonesia's digital banking industry has grown rapidly over the past 12 months. When Gojek integrates with Bank Jago services, users can open bank accounts within Gojek's super app. Many other companies have also launched digital banking services, including Seabank of Winter Sea Group, Neo+ of Akulaku acquisition bank Neo Commerce, Line Bank of Asiana Bank, Blu of BCA Digital, etc. Some of these banks are also plugging into e-commerce apps or partnering with e-commerce providers as payment methods for these platforms, such as Seabank and Shopee, Blu and Blibli.
E-commerce company Bukalapak will also reportedly partner with Standard Chartered Bank to launch digital banking services, while Grab has formed a joint venture with Emtek Group to set up a digital bank in Indonesia.
"The entire banking industry is embracing digitalization, including us. Bank Neo Commerce (BNC) has only been around for a year and is constantly improving its services. The digitization of the banking sector will continue to deepen, and new digital banks will emerge in the coming years. BNC President Tjandra Gunawan told KrASIA.
He also added that it only takes "two minutes" for users to open an account with BNC. BNC also offers savings products with interest rates of up to 6%, which allow users to make transfers using a phone number. Since its launch in March, BNC apps have been downloaded more than 10 million times.
About 66% of Indonesia's 275 million residents are currently unbanked. There are also more than 60 million micro, small and medium-sized enterprises (MSMEs) in Indonesia, of which about 70% do not have access to credit, according to Bank Indonesia. Digital banks are expected to provide these individuals and businesses with new options for accessing financial services.
Gunawan said: "Financial inclusion is a long-term process. In order to serve the people who do not fully enjoy financial services, our strategy is to cooperate with different Internet companies, especially lending fintech companies. We believe that partnering to deliver digital products that fit your needs is key to promoting financial inclusion. ”
To create an orderly and secure ecosystem, the Indonesian Financial Services Authority (OJK) introduced a series of new regulations in August. OJK allows digital banks to operate without branches or only online, but must have a registered headquarters in Indonesia. Digital banks can be transformed from traditional banks or new entities. For newly formed banks, regulation requires a minimum capital of IDR 10 trillion (about US$698 million).
OJK also outlines a blueprint for digital banking that works in five areas: data governance, technology, risk management, collaboration, and institutional arrangements.
But there are also challenges in the development of digital banking. Low financial literacy and inadequate internet infrastructure outside of large cities are the biggest obstacles to the spread of digital banks.
Kapron said: "Despite the increase in smartphone penetration, user education remains a key challenge in terms of device use and responsible use of digital financial services. The government is working to fill the gap, but it will take time. ”
Kapron believes that the competition in Indonesia's digital banking industry has just begun, but there will be more innovation in products, services, and integration with fintech and consumer platforms in the future.
"No matter how successful these digital banks will be in the future, they will still face fierce competition in the short term."
For companies entering the digital banking business, the key is to provide differentiated services. "Traditional banks have large balance sheets and profits that can be used to stay competitive," Kapron said. It remains to be seen whether the new competitors will have the same capabilities. ”
Editor's note: This article is from KrASIA and is titled Indonesia's digital banking sector sees rapid development in 2021 | KrASIA Year in Review by Khamila Mulia
Wen | Shi Yi
Editor| Zhao Xiaochun
Pictured| Unsplash, the company's official website