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Indonesia leaps forward in digital banking adoption
This broad adoption of digital banking during the COVID-19 pandemic has brought the industry to a new level of maturity, opening new opportunities and challenges for banks and nonbanks alike.
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A customer pays with QR code. Digitalization, such as cashless payment, in daily life is being widely accepted in many countries. (Shutterstock.com/StreetVJ/File)
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onsumer use of digital banking is accelerating in Indonesia and throughout Asia–Pacific, largely thanks to innovation by banks and fintech companies in emerging markets and the impact of COVID-19 on consumer behavior.
According to McKinsey’s new Personal Financial Services 2021 survey, covering approximately 20,000 urban banked respondents in 15 Asian markets, about 90 percent of the region’s consumers now use digital banking actively, and most consumers are open to purchasing more banking services through digital channels.
Indonesia in particular has seen a dramatic rise in digital banking adoption. About 78 percent of Indonesian customers now use digital banking actively (at least once a month via online or mobile channels)—up from 57 percent in 2017. And Indonesians are poised to reduce cash spending as they rely increasingly on digital payment instruments.
Already in 2021, 55 percent of respondents say they use cash for less than 30 percent of their weekly expenditures, and 80 percent of Indonesian survey respondents report that they expect to maintain or increase their use of mobile and online banking beyond the pandemic.
This broad adoption of digital banking during the COVID-19 pandemic has brought the industry to a new level of maturity, opening new opportunities and challenges for banks and nonbanks alike. To remain relevant and stay ahead of customers’ expectations, incumbent banks must think carefully about three crucial themes: the role of branches, customer engagement, and market position.
The role of branches: Indonesian bank customers are cutting down on branch visits. Only 55 percent of survey respondents said they visit a branch at least once a month, as compared to 81 percent in 2017, and seven in ten bank customers are open to consulting with a banker via remote digital channels.
Consumers’ increasing comfort with digital advisory services creates a crucial opportunity for banks to leverage automation and digitization to streamline account openings, loan applications, and more to redefine branches and create value. Banks should consider redeploying branch staff to advise customers via teleconferencing and devote in-person branch consultations to more complex transactions.
While more than 60 percent of respondents in Indonesia are open to purchasing bank products through digital channels, only 20 percent report having actually purchased a product online. To close this gap between customers’ interest and their actual behavior, banks should ensure that the full range of services is easily accessible to customers via digital channels.
Sustaining a level of customer engagement that generates new revenue will require banks to leverage automated decision making powered by artificial intelligence (AI) and machine learning to deliver individually crafted offers in near real time.
Finally, it is imperative for Indonesia’s incumbent banks to be clear about their market position in this fast-evolving landscape. Over the past five years, long-established financial institutions have introduced digital-only propositions, including Jenius by BTPN (2016), Digibank by DBS (2017), and TMRW by UOB (2020).
Competition has further intensified in 2021 with the launch of more than ten direct banks, several of which are backed by major digital ecosystems like Akulaku, Gojek, and Sea Group.
Our research suggests that traditional banks risk losing market share to these new entrants: 47 percent of survey respondents in Indonesia indicate that they are open to moving their accounts to a digital-only bank, and affluent customers would consider entrusting more than 40 percent of their assets to digital-only service providers including direct banks or AI-enabled automated investment platforms (or “robo-advisors”).
Amid all these disruptions, incumbent banks must develop a compelling digital value proposition that goes beyond the baseline requirements of convenience, speed, ease of use, and security to offer a broad range of financial services delivered through highly personalized customer experiences.
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The writers are from McKinsey & Company. Sonia Barquin is a partner in our Indonesia office while Eric Buntoro is an associate partner and Ignes Pricilia is a capability and insights specialist.
