Knowing more about digital banks in Indonesia and foreign digital banking that started their operations in the country.

Source: Veriff

Digital bank is a bank that combines online and mobile services. Online services allow customers to access banking features, such as loans and credit cards submission through the bank’s website from a computer or laptop. Meanwhile, with mobile banking services, customers can use applications from banks to access banking features via mobile devices. One of the advantages of digital banks is that customers can access more financial services than conventional banks. 

In Indonesia, several banks want to establish a subsidiary in the form of a digital bank. The Financial Services Authority (OJK) noted that there are at least seven banks that are preparing to become digital banks. Within this article, learn more about digital banks in Indonesia and the opportunities for foreign digital banks to expand their services into the country.

Overview Digital Bank in Indonesia

In 2017, the World Bank estimated more than 95 million people in Indonesia do not possess bank accounts. However, 60 million of the populace have mobile phones, which represents a large untapped market to offer digital financial services. Online payments in the private sector alone could increase bank account ownership by 29%. Indonesian people who live in rural areas are far from the nearest physical bank or ATM. They have to travel long distances to withdraw cash or to get other bank services. With digital banking, rural Indonesians will be able to access easier payments and more financial services.

There are two types of digital banks in Indonesia. The first type is digital banks that are introduced by commercial banks, such as Jenius and Digibank. The second type is a digital financial institution settled by companies after the acquisition of local or commercial banks, these online banks are also known as neobanks. Analysts assume that there will be more tech companies that will enter digital banking in Indonesia. Analysts also expect neobanks will provide financial services and provide credit within the retail as well as the micro, small, and medium enterprise (MSME) segments.

Foreign Digital Bank in Indonesia

The existence of the foreign digital bank in Indonesia has already emerged these several years. However, until the end of June 2021, the Indonesian Financial Service Authority (OJK) already finished the regulation arrangement for digital banking and is currently under supervision by Indonesia’s Ministry of Law and Human Rights Affairs due to regulations harmonizations. The regulations are often asked by the public due to some distinction between conventional banking and digital banking, for example, the difference of the changing of business model between both types of banking in Indonesia.

According to TechinAsia (2021), there are 7 banking companies in Indonesia, and 3 of them are foreign banks such as KEB Hana Bank (South Korea), DBS Bank (Singapore), and United Overseas Bank (UOB) (Singapore). To date, there are several banks that ongoing processed the license of the digital bank such PT BRI Agroniaga Tbk (Indonesia), PT Bank Neo Commerce Tbk (Indonesia), PT Bank Capital Tbk (Indonesia), PT Bank Harda Internasional Tbk (Indonesia), and PT Bank QNB Indonesia (Middle East-Africa).

Foreign digital banking in Indonesia would bring plenty of benefits and potentials to Indonesia. Indonesia itself consisted of an archipelago where some of the regions obtained the geographical challenges to establish a conventional bank and required high connectivity and accessibility everywhere. In addition, the Covid-19 pandemic pushed people to do transactions through digital platforms. Furthermore, the customers of banking would be frequently accessed by people under 35 years old – millennials and generation Z – that realized the effectiveness of cashless and digital banking. Here are foreign digital banks that have started their operations in Indonesia.

LINE Bank by KEB Hana Bank South Korea

At the end of June 2021, KEB Hana Bank Indonesia officially launched LINE Bank in armed Japanese chatting message platform LINE Corporation and LINE Financial Asia. Moreover, LINE Bank would provide their customers with savings, deposits, and digital payment services. LINE Bank also presented their customers free of charge during transactions, including bank savings transfers, and cash withdrawals in an Automatic Teller Machine (ATM) in Indonesia.

Funding Product and Digital Marketing Head of KEB Hana Bank,  Hilda Limyanton added, the LINE Bank registration process is relatively accessible. The customers do not need to reach the nearest bank, only need to show their ID card, smartphone, and an internet connection to access the registration services of LINE Bank. The card would be posted to the customer’s address and already activated and ready to be used. Recently, LINE Bank’s digital banking service is still limited in several regions in Indonesia, but furthermore, digital banking would keep improving the service and the reach throughout Indonesia.

The customer numbers of LINE Bank in Indonesia are still increasing, until June 2021, LINE Bank has already reached 2 million account users spreaded in Taiwan, Thailand, and Indonesia. However, the partnership between LINE Corp. and KEB Hana Bank that happened in Indonesia would lead to LINE Bank acquiring 20% of Hana Bank through a share subscription agreement. Meanwhile the impact on the Indonesian economy, LINE Indonesia would enter the competitive Indonesian market in digital saving applications with no-fee transfers and withdrawals and no monthly admin fee, and easy access on LINE Bank application and LINE messenger platform.

Digibank by DBS Bank Singapore

Digibank digital banking has officially unveiled and launched first-of-its-kind mobile banking in Indonesia in August 2017. Digibank in Indonesia became a revolutionary offering to access the bank services through the digital platforms on smartphones to provide customers with a new banking experience in Indonesia in 2017. Digibank services would include the savings and loans to credit cards and investments program which the beneficiaries might be customized based on Digibank’s product packaging necessities that could be chosen by the customers.

Along with the development of Digibank digital banking in Indonesia, Digibank has already boosted the individual customer credit service as a component of the credit market in 2019 through the launching of the non-collateral credit (KTA) system in Indonesia. Talking about the registration process in Digibank, DBS bank has already pushed the paperless registration that allows customers to open an account by filling the data on Digibank application and set an arrangement meeting with the DBS bank to validate the biometric data. 

For the customers, according to VOI (2020), in 2020, Digibank already has 600,000 customers around Indonesia and still counting to be increased. Digibank targeted 3.5 million new customers in upcoming years, and DBS would also focus on the emerging affluent market segment, which have a positive impact on the managed fund company because of good financial planning.The benefits that Digibank provides to its customers include the hassle-free banking system that is based on artificial intelligence (AI). In conclusion, the benefits of Digibank would be accessed by their customers regionally, especially in Indonesia and Singapore.

TMRW by United Overseas Bank (UOB) Singapore

TMRW digital banking was launched in Indonesia in August 2020, UOB has started to expand their digital banking after successfully launching TMRW digital banking in Thailand by March 2019. TMRW by UOB provided a digital banking experience with the main target of Indonesia’s generation of “enterprising and digitally savvy” customers.

TMRW by UOB also created a collaboration with GoPay by GoJek to attract their customers during the registration process. The benefits of TMRW by UOB would be some packaging based on their customer’s needs and they set free of charge administration fee for digital banking service. TMRW also provided a virtual game for their customers as an additional feature where customers can save while building a virtual metropolis in their platform.

According to Finansial Bisnis (2021),  the customer numbers of TMRW in Indonesia have already reached 500,000 active customers in June 2021 and  remain increasing due to their launching in 2020. However TMRW targeted 3-5 million news customers in the Southeast Asian market in upcoming years, which consist of young executives and professional families aged 25-39 years. In addition, TMRW performance in digital banking created an impact in Indonesia to become the Best Digital Bank in Indonesia at The Alpha Southeast Asia 2020 Awards. This award led TMRW to be committed to improving a better service for their customers in Indonesia.

Opportunities to Open Digital Bank in Indonesia

The emergence of digital banks in Indonesia is expected to alter the banking industry’s landscape, since there are hundreds of millions of people in Indonesia who are currently unbanked. On the other hand, Statista estimated the number of smartphone users in Indonesia will reach 210.04 million users in 2021. Statista also projected that  89.2% of the population in Indonesia will have used smartphones in 2025. Government also claims that 4G technology will cover 80% of Indonesia’s territory, so that society can access internet services. Since the lack of ATMs in rural areas, digital banks are needed for someone who wants to access bank services. This is a huge opportunity digital banks have.

A report by E-Conomy SEA in 2019 noted that the value of the internet-based economy in Indonesia is USD 50 billion (approximately IDR 567.9 trillion). This is equal to 40% of ASEAN’s potential. Moreover, the ASEAN e-commerce market is expected to grow from USD 38.2 billion in 2019 to USD 153 billion in 2025. The majority of this market comes from Indonesia, which is expected to grow from USD 21 billion in 2019 to USD 82 billion in 2025. From the report, we can say that Indonesia has bright prospects in the digital economy.

COVID-19 pandemic also has triggered the acceleration of digital use, proven by Indonesian National Bureau of Statistics report that recorded growth of 10.58% in the information and communication technology sector in 2020 in Indonesia. Social restrictions cause people to maintain study, work, and carry out various activities from home. It is also the same with the financial sector. All banks go digital by improving their existing services, or by collaborating with a number of fintechs. Various banking activities such as transactions and payments are carried out electronically or digitally, with the help of technology.

Requirements to Open Digital Bank in Indonesia

Heru Kristiyana, the Chief Executive of Financial Services Authority (OJK) in Banking Supervision said that banks must have a capital of IDR 3 trillion to IDR 10 trillion to implement a fully digital bank.

From Heru Kristiyana statement, there are some other terms to open a digital bank in Indonesia:

1. Financial viability. The investor must be able to make additional capital at any time if there is a problem with the bank in the future.
2. The integrity of the bank’s owner. If the investor is found to have committed a banking crime in another country, he will never be allowed to enter the national banking system.
3. Vision and mission to develop banks in Indonesia. The investors who want to open a digital bank in Indonesia must have a proper vision and mission on how to develop micro, small and medium enterprises (MSMEs) and how they contribute to the national economy.

BRIGHT Indonesia As Your Local Partner to Open Digital Bank in Indonesia

Through foreign digital banking in Indonesia, the accessibility would be much easier considering Indonesia consisted of an archipelago which became a geographical challenge for conventional banks. Together with integrated internet connectivity improvement that is currently developing, digital banking in Indonesia would become an accessible platform for banking industries in Indonesia. 

In addition, the Covid-19 pandemic also forced people to optimize the cashless system to prevent the transmission of the disease. Meanwhile, the next generations including millennials and generation Z of Indonesia are aware that digital banking would bring effectiveness and efficiency to our working system. Hence, foreign digital banking is encouraged to have the right local partner in Indonesia.

BRIGHT Indonesia would help foreign digital banking to enter the Indonesian market through our services such as Business Partnership Engagement, Management and Strategy Consulting, and Foreign Direct Investment. The services will help your business to:

1. Registering and establishing client companies in Indonesia. Help client companies obtain the work and stay permit for your foreign employee in the Indonesian office: expatriates utilization plan (RPTKA), expatriates utilization permit (IMTA), and limited stay permit (KITAS).
2. Supporting our foreign client companies from the private sector with developing corporate or business unit strategies or helping your company from public sector organizations with public policy.
3. Link client companies both from the private and public sectors in global foreign direct investment (FDI) through training and assisting your company in entering FDI source countries to gather investment for your company’s local markets.

For more information, email info@brightindonesia.net.

This article is written by Galih Akmal Latif and Debora Septenia