Financials

<p>The fintech industry in Indonesia creates an evolution towards how traditional bank works. Majorly triggered by the pandemic, big banks slowly shifted their business model towards digitalization.&nbsp;</p><p>No more big amounts of capital to set up a new branch is a sweet temptation that is hard to resist, especially in Indonesia, where rural areas cost a lot of capital to set up a branch. At the same time, the estimated revenue cannot support at least operational expenditure.&nbsp;</p><p>Fintech technology allows banks to reach out to rural areas without an obligation to set up a branch that will cost much capital expenditure. And also, some banks have already trimmed down their "unproductive" branch and focused more on registered agents that work as mini-ATMs for their banks, and some even allowed to help customers to open their bank accounts.</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Sweet Temptation of Digital Banking in Indonesia</span></h2><p>Looking at how Fintech "teaches" banks in Indonesia how to reach the underbanked population in Indonesia, which is more than 125 million people (more than 50%) with "small" investments.</p><p>Banks are changing their business models by replicating the fintech companies' method. One of the biggest state-owned banks launched their Digital Banking Program in 2019. Data from reliable sources show that their Digital Banking Program in 2021 total transactions is 1.193 trillion Rupiah (around 85 billion USD).&nbsp;</p><p>That number is just from 1 bank; this number shows how sweet temptation digital banking is giving. And looking at their business model, many banks learn that opening branches in rural areas with small capital expenditures is possible by utilizing a registered agent (usually a local retail businessman) as a branch point. By sharing the revenue of the banks with the registered agent, banks can focus more on operational expenses paid by the profit generated from the registered agent. More revenue with less expense is the theme of digital banking for 2023.</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Challenges of Digital Banking in Indonesia</span></h2><p>While we can sit down and talk about the many benefits of digital banking in the banking industry, we also need to know there will always be challenges to change the "Habits" of traditional banks. The security issue of the system is one of the vocal problems of digital banking. They need to control and evaluate their system regularly to avoid being breached by "criminals."</p><p>By trying to change the traditional bank's mindset that often worries about how digital banking, even though it will cost some people to lose their job, it is a "Necessary Evil" that needs to be done for them to stay strong in the competition.</p><p>While many fintech companies that focus more on growth rather than revenue are collapsing one by one, it also teaches banks that technologies without a solid business backbone also can become a big problem (which is banks' stronger point compared to fintech companies).</p><p>&nbsp;</p><h2><span style="font-size: 14pt;">Digital Banking</span></h2><p>Is it a must or not?&nbsp;</p><p>While many people can argue that traditional banks will still survive without the adoption of digital banking technology. The question dedicated to them is how long they can stay?&nbsp;</p><p>Technology has always improved in one way or another, making business evolve every time. It's a matter of choice of how you want to ride the waves or be crushed by the waves of technology.</p><p>In the end, one proverb sums it all about technology; the only constant thing is Change (Heraclitus &ndash; 500 B.C.E).</p><p>&nbsp;</p><p>&nbsp;</p><p><span style="font-size: 10pt;"><em>This article was contributed by our expert <a href="https://www.linkedin.com/in/adrian-bambang-35a9b7120/">Adrian Bambang</a></em></span></p><p>&nbsp;</p><h3><span style="font-size: 18pt;">Frequently Asked Questions Answered by Adrian Bambang</span></h3><p>&nbsp;</p><h2><span style="font-size: 12pt;">1. Can you give a simple explanation of Digital Banking? How is it different from Traditional Banking? </span></h2><p>The simple way to explain Digital Banking is how banks lend and funding processes with less expense by utilizing internet technology.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">2. Are fintech companies' business models a prequel to the digital banking business model?</span></h2><p>Digital banking comes after hundreds or maybe. Thousands of fintech companies have opened in Indonesia.</p><p>Some banks even channel their funds to some of the biggest fintech companies or do joint financing with them to test the technology and learn on which side the technology can help banks on their business model.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">3. Are digital banking business models a "sure way" for banks to increase their standings in the banking industry?</span></h2><p>The competition in the banking industry will play a significant role in their success. In contrast, digital banking technology is considered a "Game Changer" in the industry. How banks can attract new Tech Talent and `modify their business model with the application of technology is the one that matters a lot.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">4. Which job will soon be perished with the application of digital banking?</span></h2><p>Bank tellers will be one of the first to be lost to Digital Banking. Virtual Assistants and chatbots will soon replace them.</p><p>The marketing team in lending is also at risk of perished replaced by self-service apps. And many positions are at the intersection of being replaced or transformed by technologies.</p><p>&nbsp;</p><h2><span style="font-size: 12pt;">5. Does Indonesia still have lots of opportunities for New Players' banking business (Lending and Funding)?</span></h2><p>With more than 50% total population of Indonesia (more than 125 million) considered underbanked, new players still have many opportunities to start the Bank Business (Lending and Funding) in Indonesia.</p><p>Finding the right talent to utilize the technologies to reach those opportunities is just a matter of finding the right talent.</p><p>&nbsp;</p><p>&nbsp;</p>