Are Indonesian Retail Banking Ready for Digital Transformation?
20 Aug 2018
This article was written by our Associate Partner, Gervasius Samosir, and featured in Forbes Indonesia's August edition.
With the third largest youth population in the world and 130 million active social media users, Indonesia has the potential to become the biggest digital economy in Southeast Asia. The rapid growth of internet users, improvements in telecom infrastructure, and an increasingly supportive regulatory framework are factors driving digital transformation in the country. Yet many industries are still lagging behind in their digital initiatives, including the financial services sector. Across Indonesia, several retail banks have started to digitize their business processes but many choose to focus on enabling basic customer transactions to this day.
Indonesia is moving towards a cashless society to support financial inclusion as only 36% of the population is currently connected to formal financial institutions, leaving an estimated 150 million citizens unbanked. Furthermore, 85% of transactions in the country rely on cash, signifying the need for alternative payment schemes.
The increasing demand of customer expectations from the youngest population bracket in Indonesia, the millennial generation, has also urged executives in the industry to rethink the customer journey. Indonesia's millennial productive age population is expected to reach 58% of total population by 2027, making this generation to be the highest age demographic in Indonesia in the next decade.
Apart from the large pool of resources Indonesia can leverage on, disruptive technology will continuously grow in every area of the industry's value chain. Commercial banks in Indonesia such as BTPN, Mandiri, and DBS Indonesia have successfully utilized artificial intelligence and big data analytics in their digital product offerings to further streamline and automate processes. By 2020, digital retail banking penetration is estimated to reach 60% driven by Indonesia’s burgeoning digital economy and the rapid growth of its young affluent customer segment.
How should banks take up on digital opportunity?
The up-take from digitization will therefore help open greater opportunities for challenger banks to seize market share with the latest product and service innovation while also helping incumbent banks pave the way in new ideation and corporate model transformation. For incumbent and challenger banks, the first step towards digital transformation is by aligning 5 core competencies in line with corporate vision and mission: business model, capacity building, leadership & organizational DNA, products & services, and marketing promotion strategies.
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