According to Kristiyana, the OJK will open opportunities for the establishment of digital banks in the following (three) ways:

· In the form of a (business) unit of an existing conventional bank,
· In the form of a conventional bank that is converted into a digital bank,
· A bank that is established as a digital bank since its inception.

The regulations designed by OJK not only determine matters such as core capital that must be met by the investors/owners, but also the technology standards that allow customers to carry out e-transactions by themselves (such as opening accounts, making transfers, applying for credit, opening deposits, etc.) as well as high-quality cyber security to make everything as safe as possible.

Many Eager to Open a Digital Bank

Once the regulation has been issued, expected later this year, it is not impossible that we will see the sudden mushrooming of digital banks in Indonesia. There seem to be plenty of parties who are willing to invest in a digital bank, including the pursuit of low-capital banks and transform them into full-fledged digital banks.

Something that should still be fresh in our memories is the acquisition of Bank Welfare Ekonomi (Bank BKE) by the Sea Group, which is the owner of huge e-commerce platform Shopee, that happened in February 2021. Bank BKE has now also changed its name to Bank Seabank Indonesia (SeaBank).

Another example is Bank Artos that changed its name to Bank Jago. This bank was acquired in late-2019 by senior banker Jerry Ng and founder of investment firm Northstar Group Patrick Walujo. Both men hold 51 percent of the shares shares, combined, through PT Metamorfosis and Wealth Track Technology. Interestingly enough, famous ride hailing company GoJek (Indonesia's only Decacorn and a so-called super-app) recently invested in Bank Jago too.

Moreover, there is Bank Harda Internasional that was acquired by businessman Chairul Tanjung through PT Mega Corpora. Tanjung also previously owned Bank Mega, included in the BUKU III category. Tanjung controls a business empire/ecosystem that includes shopping centers, amusement parks, and media.

Lastly, the bank with the largest market capitalization on the Indonesian stock exchange, Bank Central Asia (BCA), acquired Bank Royal and turned it into BCA Digital. Meanwhile, there are Agro BRI Bank (a subsidiary of state-controlled financial institution Bank Rakyat Indonesia, or BRI) and the Neo Commerce Bank (owned by Fintech company Akulaku).

Core Capital of Prospective Digital Banks in Indonesia:

Bank   Core Capital
(in IDR trillion)
BCA Digital  1.37 (Q3-2020)
Bank Harda  0.30 (Q3-2020)
Bank Agro  4.17 (Q4-2020)
Bank Neo Commerce  1.06 (Q3-2020)
Bank Jago  1.06 (Q3-2020)
SeaBank  1.31 (Q3-2020)

Sources: Speeddesk CNBC Indonesia and Indonesia Stock Exchange (IDX)

Who Are Ready?

To determine who is most ready to become a digital bank is quite a difficult task as each candidate has his separate advantages and characteristics.

But obviously it is an advantage in case the parent company is a big conventional bank equipped with big capital, such as BCA Digital, BRI Agro, and Bank Harda Internasional. Moreover, it can take advantage of the existing wide network of its parent company's branches.

But, on the other hand, Seabank, Bank Jago, and BNC can already rely on a powerful existing ecosystem through e-commerce and fintech.

Classification of Prospective Digital Banks in Indonesia:

Category Bank
New Digital Bank Do not exist yet
Unit of a conventional bank BCA Digital, BHI, BRI Agro
Stand-Alone Existing Bank BKE, Bank Jago, BNC

Even if the prospective digital bank faces problems related to its capital, the market in Indonesia would certainly allow shareholders to raise funds through a rights issue - although there is also the option to acquire another 'mini-bank'.

The Potential of Digital Banks in Indonesia

Investors are eager to enter the digital banking industry of Indonesia. The country, a vast Archipelago, indeed poses geographic challenges for the conventional banking industry to provide services to people on the small islands or near national borders.

Moreover, research conducted by Google, Temasek, and Bain & Company 2019 (in e-Conomy SEA 2019) states that 92 million Indonesians remain unbanked. In addition, Indonesia's Ministry of Cooperatives and Small and Medium Enterprises said that of the nearly 60 million micro, small and medium enterprises (MSMEs) in Indonesia, only 26 percent have access to banking services.

Conclusions from E-Conomy SEA (2019) Research:

 The value of Indonesia's Internet economy = USD $50 billion, equivalent to 40% of ASEAN's potential
The e-commerce market in ASEAN is expected to grow from USD $38.2 billion in 2019 to USD $153 billion in 2025. The majority of this market originates from Indonesia, where the value is estimated to rise from USD $21 billion in 2019 to USD $82 billion in 2025
• 92 million Indonesians are unbanked
• 47 million Indonesians are underbanked
• 42 million Indonesians are banked
The number of Internet users in Indonesia = 152 million (2019)

But on the other hand, data released by Statista shows that smartphone penetration in Indonesia jumped from only 28.6 percent of the population in 2015 to 63.3 percent of the population in 2019. At least 89.2 percent of the Indonesian population is projected to use a smartphone by 2025. With 4G technology coverage (claimed by the government) to cover 80 percent of Indonesia, the Internet and digital banks are certainly efficient methods to reach unbanked customers in the remote areas.

Digital Banks Impacted by the COVID-19 Pandemic

Believe it or not, the ongoing COVID-19 pandemic triggered a significant increase in digital financial transactions and services across Indonesia, especially with the generations of citizens below 35 years of age - consisting of millennials and generation Z - being increasingly aware of the importance of efficient and cashless transactions.

Due to the pandemic health and hygiene protocols have emerged to maintain physical distance, while study, work, and carry out various activities from home. This has triggered the acceleration of the development of the digital economy. This includes the financial sector. Many banks suddenly “went digital”, either by improving their existing services or by collaborating with a number of fintech companies. With the help of technology, various transactions, payments, and other banking services are now carried out electronically or digitally.

Therefore, the presence of digital banks in Indonesia is certainly believed to change the landscape in the banking industry. As some hundred million Indonesians remain unbanked or underbanked today, there exists great potential for for digital banks in Indonesia.

Writer: Elizabet Siregar