Asian Banking and Finance(1) notes that Indonesia’s banking market offers major growth potential and opportunities in both corporate and retail banking as increased industrialization and urbanization drives higher consumer spending. With a low banking penetration at 36.1% of the large consumer base of 251.5 million people, enhanced by the middle-class growth, consumer banking offers a wide range of opportunities. Additionally, the country’s large Muslim population (the largest in the world) points to the expectation of Islamic banking business increasing in importance in the region.
As Asia’s fourth largest economy, with growth in profitability, loans and assets which has been stronger than in other ASEAN countries, the banking sector, with its wealth of untapped potential, offers a wealth of prospects for new competition, with higher margins and new product development.(2)
Additionally, Asian Banking and Finance(1) records that digital banking penetration has doubled from 1.5 to up to threefold in various emerging Asian economies since 2014, with digitally active customers accounting for 25% of Indonesia’s population.
Transformation of banking
According to PwC(3), technology and changing customer need are the top drivers of business transformation of the country’s banking industry . In fact, technology and fintech disruption are viewed as #1 and #2 risks to the banking system in Indonesia, with the traditional branch being superseded by digital channels for transaction activity.
PwC Indonesia’s 8th Banking Survey reported that only 8% of respondents say their bank has the same strategy of 18 months ago. This reflects the impact of technology on the industry, with the banks exploring new options to remain competitive and viable in that space. This includes a new focus on a more customer-centric services, with tech spend being allocated to front-end web/app/e-banking systems.
Closing the technological gap
Foreign banks show the greatest confidence regarding their own ability to manage the top risks. They also have the largest gap at 25% between their view of the industry’s capacity to address top risks and their own capacities as opposed to the gap of 5% viewed by the other banking groups(3).
The PwC report noted that the top risk concern of technology was not prioritized accordingly. Only 5% of respondents noted technology as the #1 risk management focus are. 62% of respondents indicated an overall satisfaction with management of technology/cyber risk, although two-thirds of respondents also noted that their bank does not as yet have a Chief Information Security Officer.