Digital evolution in Indonesia’s banking industry

28 Feb 2018



In today’s digital era, changes in technology trends and customer behavior have compelled businesses to be more agile and adaptive to the rapidly evolving market. For the banking industry, the need for digital acceleration has become a top priority in order to stay competitive.

With about 260 million people, Indonesia poses tremendous opportunity for digitization in banking. While several local retail banks have started to digitize their business processes, many remain to focus on enabling basic customer transactions to this day. More importantly, only 36% of Indonesia’s population is connected to formal financial institutions, leaving an estimated 150 million citizens unbanked. The financial gap of 75 USD should be immediately addressed by banks and FinTechs.


Source: Solidiance research and analysis

“Digitalizing Indonesian Banking Consumer” is Solidiance’s comparative study on digital banking development in Indonesia, introducing the landscape of digital banking in Indonesia and steps that need to be taken by the current market leaders as well as the new entrants. 


Key drivers accelerating growth in Indonesia’s digital banking

Driven by the availability of affordable smartphones and access to mobile internet, Indonesia’s internet penetration is expected to boom at a CAGR of 8% from 2015 – 2020. The shift in demography, which continues to be dominated by the millennial generation, has also urged banks to start addressing their financial needs. With customer behavior rapidly shifting across generations, the customer’s banking journey will no longer be linear. Mobile devices and social media play a crucial role in various parts of a customer’s engagement cycle.


Source: Solidiance research and analysis

The advancements in technology are significantly affecting the banking industry. Innovation will continuously grow in every area of the value chain due to the relentless speed of digitization and automation. The rise of tech startups, including FinTechs, and regulatory initiatives urge financial institutions to be more transparent and data-driven.


The digital imperative in Indonesia’s banking industry

Availability in connectivity Infrastructure, combined with the expectation of increased number of smartphones, internet penetration as well as a growing young affluent customer segment, are factors that enable digital retail banking penetration to reach 60% by 2020.

In order for companies to transform in the digitization era, Solidiance believes there are 5 core competencies needed to be aligned with corporate vision and mission. Companies should enhance development in all five core building blocks comprised of business model, organizational structure, capability building, new digital product & service as well as digitalized marketing and promotion efforts.

5 core building blocks for digital transformation


Source: Solidiance research and analysis

Digitalization helps open greater opportunities for challenger banks – the new entrants who try to capture customers’ attention with digital products and services – to seize the market with the latest digital innovations. Furthermore, it helps pave the way for incumbent banks – those who currently have significant market share – to induce new ideas and transform corporate models toward digitalization.

“Digital Evolution in Indonesia’s Banking Industry” white paper seeks to give an understanding into Indonesia’s current banking industry against the backdrop of today’s digital era and tech-savvy population. A number of key trends are showing that consumers are engaging differently with their financial service providers, driven largely by the shift in customer behavior and expectations.


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