Three Challenges of Indonesian Banking in Adopting Digital Technology

In addition to the problem of Internet speed that is always lagging, there is one more thing that is always in the spotlight in Indonesia, namely banking. To date, only about a quarter of Indonesia's population has access to banking services despite decades of operation. Along with the increasingly rapid technological growth, the banking world in Indonesia still has to face several challenges on its way to adopting digital technology.

Although the development of banking did not show significant growth, it does not mean that the government did not make efforts in this regard. Through Bank Indonesia (BI), the government seeks to promote the presence of branchless banking and mobile banking to accommodate trends and habits in modern society.

The result, according to MEF laporan report, 80% of respondents in Indonesia stated that they had used the facilities mobile banking. Although it is considered a good development, it is not immediately mobile devices banking become one of the solutions in overcoming one of the challenges of banking in Indonesia, namely: unbanked people.

Regarding this, we spoke with Pre-Sales Head Asia Software AG Jigar Bhansali and Principal Advisor Financial Services (Singapore) and Customer & Growth Practice Lead (ASEAN) KPMG Tom Mouhsian to find out what challenges the banking sector in Indonesia must face in adopting digital technology. In Indonesia, Software AG has helped digitize various banks, including Bank Mandiri and Bank Danamon.

In Jigar's opinion, which is also acknowledged by Tom, basically the banking world in Indonesia will still focus on three things, namely Customer Data, IT Integration, and Unbanked People in their journey of adopting digital technology.

1. Customer Data

Any industry when entering a new market must be able to understand their customers. When the industry 'knows' what its customers are like, it will be easier for them to launch their business strategy. Unfortunately this is still not seen in our banking world according to Jigar.

Jigar says:

"Currently, most banks in Indonesia are still struggling with consumer data and information. For example, what kind of data are your consumers (behavior), what products they want, and what kind of business model is appropriate to implement, most banks do not yet have an integrated system that can access them. information like this. While customer data is the first step in the process of digitizing the system."

2. IT Infrastructure

The second obstacle that needs to be considered is the IT infrastructure. In this case, Jigar explained that an 'agile' infrastructure would be able to facilitate banking adaptation to new digital channels entering the market, such as mobile applications for example. Unfortunately, according to Jigar, integration of banking applications in Indonesia is still not very good.

"The IT application system here is still not well integrated. So when you try to offer a solution to consumers, sometimes they don't get what they expect. [...] The solution is that you have to open up opportunities to work with several other parties for this ," he said.

3. Unbanked People

The last obstacle is the one that is most often the subject of discussion, namely unbanked people. The government itself has indeed made several efforts, such as promoting attendance programs branchless banking and mobile banking to accommodate this. Despite showing good growth, these two programs do not necessarily become a solution to solve this problem.

Jigar said, "With so many unbanked people In this case, the discussion is how to attract them, create a relationship between the bank and them, and also the business model that should be applied so that they want to become customers."

Responding to this, Tom added by explaining that it was not just to make them bank customers, because from the start the bank did not have an important role in their lives. According to Tom, this problem is more about how to bring them to be more active in the economy and make the presence of banks more relevant in their lives.

Tom explains:

"This kind of problem is actually not specifically a bank problem, but rather a socio-economic problem. It's about how to make them more active in the economy, and make the bank's presence relevant in their lives. Thus in the future they will become more active again in the banking ecosystem, and using existing technology like apps, or whatever."

AG software itself doesn't actually shoot directly end users, but more targeting the banking itself. In Indonesia, Software AG tries to offer technology platform capabilities that can help companies become "digital enterpriseThe platform is claimed to be able to manage very large volumes of data (using technology cloud and big data analytics) so that in the future it will be able to cope with the demands arising from the "Internet of Things".