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Banks urged to build digital services
With the impending conquest of digital services through financial technology (fintech), banks must gradually shift their main transaction methods toward digital to survive new competition landscapes in the sector, experts and analysts have suggested
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ith the impending conquest of digital services through financial technology (fintech), banks must gradually shift their main transaction methods toward digital to survive new competition landscapes in the sector, experts and analysts have suggested.
Currently, conventional financial methods dominate the way a majority of Indonesians conduct transactions, but with the appearance of many fintech firms disrupting the system, the trend is changing. However, it is also up to the fintech firms themselves to sustain their services so they can act as effective players in the industry.
Mandiri Capital Indonesia (MCI) president director Eddi Danusaputro explained that currently, ATM transactions are still the dominant method of bank transactions for the Indonesian public, but the trend is declining due to the increasing shift toward mobile banking and the high maintenance costs that banks have to deal with regarding ATMs.
Thus, he urged banks to gradually treat the e-channel as the main platform when the time comes, as transactions through bank branches have been effectively on the decline since 2010.
“Maintenance costs for ATMs are also very expensive as they have to take into account the factors surrounding upkeep, such as ACs and security guards,” Eddi said Thursday at the Centre of Strategic and International Studies (CSIS) conference on Digital Diplomacy in Fintech.
“In essence, banks are also profiting relatively little from ATMs and are basically losing money every day.”
MCI is a corporate Venture Capital firm operated by the country’s largest financial institution, Bank Mandiri, which is also a state-owned lender.
According to data from MCI, the proportion of the volume of mobile transactions compared to overall transactions has been steadily increasing over the past years. In 2013, it stood at nearly 10 percent and increased to 27.65 percent two years later. The increasing popularity of mobile transactions is also correlated with the rise of fintech services, which eliminates much of the hassle of bank-based transactions.
Eddi added that the popularity of third party peer-to-peer (P2P) lending services with the public is due to both convenience and clarity on how a customer’s money is handled.
To make sure that fintech companies are able to build themselves sustainably to become the alternative solution, observers, such as IBM Indonesia’s general manager in banking and financial markets Inge Halim underlined the importance of startups in capacity and content building as well as making sure the founders have adequate knowledge of the industry.
“A majority of fintech company founders are either ex-vendors or ex-bankers,” she said.
“They cut their teeth in the financial industry before they started on their own. For those starting without that experience, it might be harder for them, but what is needed is the knowledge to solve problems.”
Adding to that, Bina Nusantara University lecturer and senior advisor at financial risk consulting company PT VaRiskindo, Mohammad Hamsal, noted that the government itself must also anticipate, build and guarantee the role of fintech in the future as doable, feasible and beneficial for Indonesia.
Indonesia’s financial literacy and penetration is still seen as relatively weak compared to neighboring countries. The country’s credit card penetration is at 4 percent while its bank account penetration is only at 36 percent, despite a loan deposit ratio of 90 percent.
