Digital Bank- Bisnis Indonesia - Yudo Wicaksono

The Emerging Era of Digital Banking
Teguh Yudo Wicaksono
Bisnis Indonesia Banking Outlook 2021, 7 September 2021
OFFICE OF CHIEF ECONOMIST
GROUP

The Evolution of Banking
Competition & Collaboration with Fintech
New Technology

Hundreds of Digital Banks have Operated in the world
It has been fast-tracked by Covid-19
Customer Accounts 2020 (Mio)
Monzo (UK)
5
N26 (Germany)
6
Chime (US)
8
Tinkoff Bank (Russia)
10
KakaoBank (S. Korea)
12
Revolut (UK)
13
Nubank (Brazil)
25
Mybank (China)
29
PayTM (India)
57
WeeBank (China)
200
0 50 100 150 200 250
Source: Statista
https://www.mandiri-research.or.id 3

Fintech currently represents a small share of overall revenue of the financial services industry but their growth and
contribution to innovation are significant
Figure1 Distribution of Annual Revenue
Bank Fintech
Non-Bank Fintech; 6%
Figure 2 Distribution of Patent Granted
Bank Fintech; 2%
Non-Bank Fintech;
11%
Figure 3 Tech Spending in Fintech (US$ billion)
Bank; 91%
Bank; 87%
Sources: IMF 202.

Two major trends in the dynamics between conventional banks and fintech
Leads to convergence between fintech start-up and banking industries
Asia: Countries start to introduce digital bank licenses, utilize
mostly by matured fintech or start-up
While leading US banks has been actively invest in Fintech to make strategic
partnership
New digital banking licences in Asia
aiBank
Mybank
China
Suning Bank
XW
WeBank
Singtel-Grab
Sea Limited
Ant Financial
Singapore
Consortium Greenland Financial Holdings,
Linklogis Hong Kong, and
Beijing Co-operative Equity Investment Fund Management
K Bank
South Korea
Kakao Bank
Ant Financial
Bank of China
Fusion Bank
One Connect
Hong Kong SAR China
Standard Chartered
WeLab
ZA International
MI
Rakuten
Taiwan China
Chunghwa Telecom
Line Financial
Malaysia Digital Banking framework issued in December 31st 2020;
Source: Deloitte
licenses to be awarded in 2021-2022
Source: CB Insight
5

Digital Bank in
Indonesia

https://www.mandiri-research.or.id
Existing “Digital Bank” in Indonesia
OctoMobile
Jenius
Bank Digital BCA
(Bank Royal)
Bank Jago (Bank
Artos)
Bank Neo
Commerce (Bank
Yudha Bakti)
Bank Bisnis
International
CIMB Niaga
BTPN
BCA
Gojek
Akulaku
Kredivo (FinAccel)
A Super-app. It currently
has nearly 3.0 million
monthly active users in
Indonesia.
Pioneer and It currently
has 2.7 million users
and over IDR10 tn of
third-party funds
deposited through the
mobile app.
Approx M&A value of
Rp988 billion
Approx M&A value of
Rp242 billion
Approx M&A value of
Rp500 billion
Approx M&A value of
Rp553 billion
Developed by existing banks &
more as app-based services.
Developed by
existing banks &
operated as
digital bank
Developed/acquired by fintechs & operated as digital bank
7

In many countries, digital banks are aimed at promoting financial inclusion
Financial inclusion: serving underserved and unserved customers
Singapore (MAS)
Hong Kong (HKMA)
South Korea (FSC)
Malaysia (BNM)
Taiwan (FSC)
Policy Objective
Policy Objective Policy Objective Policy Objective
Policy Objective
Focused on "underserved and
unserved , " Millennials and b
small and medium enterprises
( SME )
Promoting financial
inclusion by targeting
retail and SMEs
segments
Promoting innovation and co
mpetition in banking
sector , by lowering barriers
to
entry and reduce redundant
' ex ante' regulation
Expanding access of financial
services and giving solutions
for "underserved and
unserved customers"
Promote inclusion and innov
ation in the financial service
to millenials and SMEs
Scope Scope Scope Scope Scope
Digital Full Bank
(DFB): retail customers and
non- retail; Digital Wholesale
Bank (DWB) for SME and
non-retail
Customers’ retail and SME. Customers’ retail and SME. Customers’ retail and SME. Customers’ retail and SME.
Source: Deloitte, OJK, various sources
8

Challenges on Digital
Financial Innovation

Major Challenges
Uneven Digital
Infrastructure
Consumer Trust & Data
Security
Fragmented Know Your
Costumers (KYC)
Coordination Failure:
Supply does not meet
Demand
Low Financial Literacy &
Perceived No Benefits
of Digital Financial
Service Usage
Limited Human Capital
Supporting Banking
Techs

The uneven digital technology infrastructure appears to be the major driver of the
inequality in digital financial services
3G+ network coverage by village, Indonesia (2018)
Source: Calculated from PODES 2018 (BPS-Statsitics Indonesia) at village level.

Strategies & Priorities

Strategies by existing banks: Focus on Consumer Banking
Source: PwC Survey: Digital Banking in Indonesia 2018

Smartphone-based mobile banking is the leading component of digital strategy
Source: PwC Survey: Digital Banking in Indonesia 2018

Investments in emerging areas in the next 2-3 years
Source: PwC Survey: Digital Banking in Indonesia 2018

Thank You

Annex

Digital bank license has policy objective
Financial inclusion: serving underserved and unserved customers
Criteria
License Type
Singapore Hong Kong South Korea Malaysia Taiwan Indonesia
2 types : digital full bank (DFB) and digital
wholesale bank (DWB).
(MAS) (HKMA) (FSC) (BNM) (FSC) OJK (Regulation No 12/2021)
Only 1 type of license is granted . Only 1 type of license is granted . Only 1 type of license is granted . Only 1 type of license is granted . Only 1 type of license is granted .
Number
of Licenses Grant
ed
2 full bank digital licenses and 3 wholesale bank
digital licenses .
There is no specified limit for
the license . A total of 8 licenses have
been granted .
A total of 2 digital bank licenses
were granted .
Will issue up to 5 licenses
A total of 3 digital bank licenses
were granted , initially only 2 licenses
.
No restriction or quota
Main Purpose of
Policy
Make service finance more easily accessed by the
segment of the market "under served and
unserved , " as Millennials and businesses small
and medium ( SME ) .
Promoting financial inclusion by
targeting retail and SMEs segments
Promoting innovation and competition in
bankin sector , by lowering barriers to
entry and reduce redundant ' ex ante'
regulation
Expanding access of financial services and
giving solutions for "underserved and
unserved customers"
Promote inclusion and innovation in
the financial service to millenials and
SMEs
No specific purpose
Capital
Requirement
Minimum paid up capital SGD 1.5 Billion (USD1.1
Billion)
Minimum paid up capital HKD 300
Million (USD 38.5 Million)
Minimum paid up capital KRW100 Million
(USD85.4 Thousand)
Minimum paid up capital RM100 Million
(USD23.8 Billion)
Minimum paid up capital TWD10
Billion (USD358,9 Million)
Minimum paid up capital IDR3 Trilion.
Total capital requirement is IDR10
Triliun or USD692 Million
Scope of
Granting the
Loan
DFB: retail customers and non- retail; DWB for
SME and non-retail
Customers retail and SME. Customers retail and SME . Customers retail and SME . Customers retail and SME. Not regulated
Fee Restrictions
No minimum account balance and fall-below
fees.
No minimum account balance and fallbelow
fees.
Not regulated Not regulated Not regulated Not regulated
Source: Deloitte, OJK, various sources
18

Improved bank account ownerships but the unbanked
population remains large
Source: FII 2018, cited from Witoelar, Wicaksono & Mangunsong 2021

The unequal distribution of financial services in Indonesia
Number of points of services for basic savings account including banks, ATMs, branchless bank BSA agents
Source: Calculated from PODES 2018 at village level.

Perceived no benefit of usage remains the major obstacle for digital bank adoption
Reasons for not having a bank savings account by characteristics (%)
Source: FII 2018, cited from Witoelar, Wicaksono & Mangunsong 2021

The perception of low benefit could stem from unreliable digital services
Reasons digital transaction platform was unavailable
Source: Harmonization of LKD and Laku Pandai (SurveyMeter 2018b)

Consumers’ trust is critical, and they are willing to incur higher cost to get secured
transactions
Proportion of Ownership of Bank Account and Trust to Financial Service
Provider
Consumer preferences on the cost and trust of digital platforms
70
65.47
60
55.14
50
44.86
40
34.53
30
20
10
0
Don't Trust Financial Service Provider
Have Account
Don't Have Account
Trust Financial Service Provider
Source: FII 2018, cited from Witoelar, Wicaksono & Mangunsong 2021 Source: Microsoft & IDC (2019), cited from Witoelar, Wicaksono & Mangunsong 2021