The Rise of Digital Bank and e-Commerce in Indonesia

With a population of more than 260 million, emerging middle class, and digitally savvy population, Indonesia is one of the most important internet markets in the world. According to report by We Are Social (shown below), the penetration of internet in Indonesia has reached 50% with 130 million internet users while mobile penetration has reached 67% with almost 178 million mobile users. This has caused a paradigm shift in banking and retail sectors. Customers have started to change the way they bank and shop, growing more open to exploring and using digital channels for their needs. In 2016 alone, online transactions (e-commerce) in Indonesia reached almost US$5 billion with 2.47 million internet users shopping online according to Bank Indonesia Governor, Agus Martowardojo.

The government of Indonesia has realised the importance of this paradigm shift and last year, an e-commerce roadmap was signed by President Jokowi as part of government’s initiatives in pushing for a national digital economy. Minister of Communication and Information Technology, Rudiantara, explained that the roadmap would not only regulate technology but also covers logistics (Logistics 4.0: The State of Digitalization in the Logistics Sector in Indonesia), cybersecurity, human resource development, and consumer protection. Moreover, he also highlighted the importance of payment system in promoting digital banking and e-commerce in Indonesia through this roadmap, “One of the issues in the roadmap relates to the payment system by implementing National Payment Gateway (NPG), which will be under the supervision of Bank Indonesia.”

Bank Indonesia responded swiftly and NPG was launched last December. NPG was introduced to promote easy and affordable cashless transactions for the general public while at the same time enhancing customer protection by securing data for each transaction. Onny Widjanarko, the Head of Payment System Policy of Bank Indonesia, explained that when NPG has been operated fully, every person will own an NPG-card which can be used to do financial transactions nationally through different ATMs and EDCs without any additional costs. The launch of NPG is aligned with the vision of Bank Indonesia to promote cashless society through the central bank’s initiative called the National Non-Cash Movement, launched in 2014.

Digital Bank and e-Commerce

Banks in Indonesia are ramping up investments in digital channels to keep up with an increasingly connected customer base. Bank Negara Indonesia (BNI), for example, allocated Rp2 trillion in 2017 for capital expenditure (capex) and 50% of it was used for ICT development. Deputy CEO of BNI, Herry Sidharta, mentioned that capex for 2018 will be higher than for 2017 and bulk of it will still be spent on their digitalisation effort including procurement of Cash Recycling Machine, EDC, development of network infrastructure, cybersecurity and data center enhancement. BNI was awarded the Indonesian Enterprise Innovation Award in 2017 in recognition of their digitalisation effort.

Other banks in Indonesia including Bank Mandiri, Bank Mayapada and Bank OCBC NISP have pledged more capex for their digitalisation effort too. Permata Bank is another bank in Indonesia which is aggressive in exploring ICT solutions to pursue their vision of digital bank. Permata Bank has explored frontier technology such as AI, biometrics, and blockchain as part of their digitalisation strategy. Recently, they have introduced a feature called VoiceID which is used to authenticate the identity of their customers. This feature is embedded in PermataTel (Permata Bank call center) and this has resulted in faster customer service. Permata Bank Director of Technology and Operations, Abdy Salimin, mentioned that this biometrics system could validate customer’s voice within seconds and the total time taken to authenticate the identity would be 45 seconds. This, in turns, has increased the customer satisfaction. Prior to VoiceID, Permata Bank had also introduced biometrics solutions called FingerID and FacialID. Abdy emphasised that more digital initiatives will be introduced by Permata Bank in the near future.

Business intelligence and data analytics are another solutions that are highly sought after in the banking and e-commerce sectors. Banks such as Bank Danamon have implemented such solutions to enhance customer journeys and improve fraud detection. E-commerce players including Tokopedia, Shopee and iLotte (a joint venture between conglomerates Salim Group and Lotte Group) have also stressed the importance of data and the potential it carries if utilised properly.

Further in-depth discussions with key stakeholders from Indonesia BFSI and retail sector will be carried out at the 25th edition of Asia IoT Business Platform in Jakarta this August and this will include:

  • Rudiantara, Minister, Ministry of Communication and Information Technology
  • Onny Widjanarko, Head of Payment System Policy, Bank Indonesia
  • Abdy Salimin, Director of Technology and Operations, Permata Bank
  • Steven Calvin Victory, Vice President, iLOTTE
  • Radityo Triatmojo, Head of Government Relations, Shopee Indonesia

Drop me a note at [email protected] if you are interested to join the discussion.

Felix Fernando

4 June 2018

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