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Digital banks force fundamental change on entire industry: Analysts
Competition between digital and conventional banks has been heating up and will accelerate the move from offline to online services, but it won't automatically improve financial inclusion.
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All about the youth: An employee (right) helps a customer conduct a digital transaction at the head office of J Trust Bank in Jakarta in this undated photo. J Trust Bank targets younger customers to increase its third-party funds. (JP/Wendra Ajistyatama)
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ompetition between digital banks and conventional banks has been heating up and is likely to accelerate the digitization trend in the industry.
In August, some digital banks were offering interest rates of 7 to 8 percent on deposits, well above the 3.5 percent cap up to which funds are guaranteed by the Deposit Insurance Corporation, in a move that reflects their aggressive strategy to win over customers.
Publicly listed Bank Jago recorded a sevenfold annual increase in credit lending in the first half of this year. The bank plans to jack up its lending further through partnership with peer-to-peer (P2P) lenders and a multifinance company, among other channels.
Bank Jago, Bank Neo Commerce (BNC), SeaBank and other digital banks suffered net losses ranging from Rp 46.77 billion to Rp 231.85 billion in the first half of this year. Yet, the first two saw their stock price jump fivefold and fourfold, respectively, over the past year.
Nailul Huda, who heads the Institute for Development of Economics and Finance’s (Indef) Center of Innovation and Digital Economy, told The Jakarta Post on Monday that while some of these banks might seem small compared to major established lenders, ecosystem support and a steady stream of funding from big tech would make them a formidable foe to the conventional banks.
He noted that Bank Jago was part of the GoTo group ecosystem comprising e-commerce, e-wallet, food delivery and many other services. SeaBank, he added, possessed a similar ecosystem, while BNC was backed by digital lending firm AkuLaku.
“Right now, it may seem difficult for them to compete with major banks, but the presence of big tech companies behind them makes it possible for them to actually face the competition,” Nailul said.
