PwC Indonesia Survey: Digital Banking in Indonesia 2018 “Digital strategy as a corporate strategy”

Jakarta, 10 July 2018 – Digital disruption has been driving Indonesian banks to consider digital as part of their strategy, resulting in digital banking as a mainstream strategy for the industry. With that being said, it is crucial for bankers, digital enthusiasts and fintech start-ups, to name a few, to acknowledge the current state of digital banking and the risks and challenges facing the industry.

Today PwC Indonesia has launched its first edition of the Digital Banking Survey of Indonesian Banks. The survey attempts to gather and synthesize diverse views from senior banking executives across banking institutions in Indonesia.

Chairil Tarunajaya, Technology and Risk Consulting Leader at PwC Indonesia noted the key highlights of the survey which includes the acceptability of digital strategy as a business strategy, the primary objectives of a digital strategy, the contribution of digital banking to business revenues and mobile banking as the leading component of digital strategy, among others.

Chairil Tarunajaya, Technology and Risk Consulting Leader at PwC Indonesia, commented:

“The survey focused on six main areas including digital strategy and operating models, digital talent and skills, emerging technology and innovation, customer experience, digital analytics and decision making, and risks and challenges. We trust that bankers, digital enthusiasts, fintech start-ups and other readers of this publication will find the results and analysis insightful.”

Banks have embraced digital strategy as part of corporate strategy

We found that most of the banks in Indonesia from Bank Pembangunan Daerah (BPD), joint venture banks, local banks, state-owned banks and Syariah banks have incorporated digital initiatives as a part of their corporate strategy, with around 66% of survey respondents indicating so. Only 12% of respondents indicated that they created the digital strategy as part of their Information Technology (IT) strategy followed by 16% of respondents who have included digital strategy as part of their product or customer strategy. It is also very encouraging to see that only 4% of the respondents have indicated a separate standalone digital strategy document in place. This response shows the acceptance of digital strategy as business strategy and not solely an IT initiative.

Chairil Tarunajaya, Technology and Risk Consulting Leader at PwC Indonesia, noted:

 “We see a considerable difference between how large banks and state-owned banks view digital strategy compared to others. According to our survey, only 38% of state-owned banks and 44% of Buku 4 banks have incorporated digital strategy as part of their corporate strategy. This may be an indication that large banks have started on the journey of digital transformations; however, there are still challenges in developing a common view of digital strategy across these banks.”

Peterjan van Nieuwenhuizen of BTPN, Ajisatria Suleiman of Indonesian FinTech Association and Pudja Unggul Kartiman of the Indonesia Cyber Security Forum also contributed their view points during the launch of the survey report.

Customer experience and revenue growth are the key drivers for digital strategy

Whenever there is a conversation about digital, one of the buzzwords used is customer experience. In line with this, 44% of respondents have indicated that the primary objective of their digital strategy is to enhance their customer and employee experience. In addition, about 40% of respondents have indicated that they do not currently measure the revenue contribution of digital, while another 40% have indicated less than 5% revenue contribution from digital.

Cyber security threats pose a major risk to digital business in the next 2-3 years

According to PwC’s Global Economic Crime and Fraud Survey 2018, cybercrime has long passed beyond infancy and adolescence. This maturity calls for a new perspective on the multifaceted nature of cyber threats and accompanying threats. According to Indonesian bankers, cyber security threats are the biggest risk to their digital business. Losing skilled people to competition is the next big risk. Rapid changes to technology, competitor banks’ digital banking initiatives and fintech pose the third biggest risks.

Domestic and regional technology companies are emerging as serious banking competitors

Indonesia is in the midst of an e-commerce and payment sector boom, with multiple domestic and regional companies leading the charge. It is not very surprising to see that the majority of Indonesian bankers, around 72%, consider Go-Jek to be one of the emerging competitors with its Go-Pay and other services. Around 62% of Indonesian bankers believe Alibaba with its Alipay and other services is a force to reckon with and could emerge as a serious banking competitor in the near future.

Santoso Widjaja, PwC Indonesia Consulting Director, commented:

“We also hope to see in the coming years, the digital services expansion of telecom companies might further strengthen their mobile wallet / money solutions. This might lead to either a fierce competition or effective collaboration with banks and technology companies.”

Physical branches still provide the best experience followed closely by the mobile channel

Despite speed, convenience, consistency and friendliness, human touch is also one of the main factors of customers’ good experience. Creating real connections by making technology feel more human and giving employees what they need to create a better customer experience is critical for the industry. Although physical branches are still leading the chart of good customer experience with 70%, mobile and internet channels also led on the chart with 64% and 56% respectively. Meanwhile, digital branches, e-Money and social media channels still need some work to enhance their customer experience.

Risk management teams are still trying to adapt to digital innovation

Considering the digital innovation of Indonesian banks is still in the beginning stage, risk management organizations are also trying to evaluate the impact of digital on their existing risk management practices and are also in the process of upskilling their teams to be ready for the future. Responsibility for risk management for digital initiatives is still split in Indonesian banks with 60% of respondents indicating the risk and compliance team is responsible for managing risks of digital initiatives. Meanwhile, almost 30% of respondents believe that the risk management responsibility is split among digital business teams/product owners and the CIO.

Marina Tusin, PwC Indonesia Consulting Leader, commented:

“The increase in competition within business environments, coinciding with the vast array of technology solutions, means that the correct technology strategy is vital in supporting the growth of a business. PwC Indonesia has developed a delivery approach to define and implement a technology strategy. This approach positions technology as a strategic enabler and integral part of the organizations’ corporate strategy.”