JAKARTA - In this digitalization era, the banking industry is one of the few industrial sectors that has managed to clean up and transform itself. The spirit of change and transformation itself can basically be considered as one of the DNA that cannot be separated from the performance and development of the banking industry.
Prior to the COVID-19 pandemic that pushed digitalization, the banking transformation itself had actually gone a long way. Starting from the change in relying on physical services to public online services via Automated Teller Machines (ATM), then to personal online services through mobile banking, to answering the challenges of digitization with the emergence of digital banking services.
The era of digitalization has indeed changed the behavior of customers in the financial services sector to become more digital and efficient for banks. Banking and other financial sectors are also required to adapt to the latest technology to meet customer needs and provide the best service. In fact, banks are competing through their digital innovations to attract customers.
Managing Director of APAC Thought Machine, Nick Wilde said, every bank, both incumbent and new, needs to modernize its technology to become more digital in order to continue to exist in the competition for financial services. Through digitalization, he said, in addition to meeting customer needs, operational costs for each bank can be further reduced and efficient.
In fact, he does not deny that banking modernization requires a large investment. Therefore, every bank requires a commitment to continue to carry out digital modernization in all its business processes. This needs to be done so that the banking business can survive in the long term.
"Currently, I think banks are experiencing tough competition with the evolution of economic platforms (GoTo, Bukalapak, Apple, etc.). We can also see that when modernization is carried out, operational costs (digital systems) will be much lower than legacy," explained Nick in Infobank webinar 'The DNA of Next-Generation Digital Banking' “Disruption and Innovation in Core Banking to Build The Customer-Centric Bank of The Future” Thursday, 14 July.
The rapid development of digitalization has certainly opened up various opportunities and innovations for the financial services industry. In this case, Soluix Fintechnology Indonesia's Chief Sales and Marketing Officer, Eryco Putra, said that there are opportunities for banks to open up and offer various financial service innovations, or banking as a service.
Banking as a Service itself is a term for digital banks and other third parties to be able to connect to the banking system directly through the Application Programming Interface (API). In this way, banks and third parties can build service offerings on top of the infrastructure that has been set up by the service provider.
"There will be more opportunities in the future. For example, Social Commerce (Social Media E-commerce) brings opportunities not only to the ecosystem, but also to banks. How can banks offer easy solutions (financial services) to influencers, content creators, and SME," said Eryco.
To do this, he suggested that banks should not focus on legacy business systems, which may not necessarily fulfill this need. Modernization of technology, human resources and banking business processes is needed to run banking as a service. However, he said, the cost of investing in modernization is not cheap.
However, Eryco revealed that digital transformation in a banking is a gradual process so that it can be done periodically and little by little every year. Therefore, banks need to plan on developing their technology.
He also suggested that each bank could form a digital development team to conduct surveys related to consumer needs and what still needs to be improved from the current system. Thus, gradual development can be carried out and does not burden the company's finances for a long time.
Digital Finance Innovation Needs Supporting RegulationsTechnological developments have changed consumer and market behavior trends in the financial services sector. Thus, there is a need for renewal of digitalization and repositioning of business models to keep up with changes and developments, as well as reinvention or creation and innovation of a new business model and way of working in order to improve the efficiency and effectiveness of business processes.
"OJK views that Digital Financial Innovation (IKD) is a positive thing and needs to be supported in order to encourage financial service institutions to provide services that are faster, easier, cheaper and can be accessed by people everywhere," added the Senior Executive Analyst of Digital. OJK's Finance Innovation Group, Moh. Eka G. Sukmana.
However, in addition to the potential for development, digital financial innovation also has risks, so there is a need for a regulation. Related to this, OJK requires two policies, namely "light touch regulation" and "safe harbor policy" so that IKD is well organized and grows.
"So that this digital financial innovation can continue to develop, but also can implement good governance and consumer protection. So, POJK No.13/POJK.02/2018 concerning Digital Financial Innovation in the Services Sector is principal based, so does not regulate things that are detailed," said Eka.
According to him, digital financial innovation must be regulated with the aim of prioritizing consumer protection, facilitating the development of digital infrastructure to make it more effective and efficient. Then strengthen regulations and supervision to prevent disruption, ensure standardization and interoperability, and support responsible innovation as well as create a digital financial ecosystem.
"This is the basis for OJK to regulate related to the implementation of digital financial innovation, the regulation is how digital financial innovation continues to develop well and also mitigate risks," added Eka.
Three Components of Digital Bank DevelopmentIndonesia has now entered the 5.0 era after enjoying the 4.0 revolution. The digital era 5.0 in the world of digitization demands that everything change quickly, this is supported by electronic media as a means of implementing change. Disruption of technology in Indonesia has brought Indonesia towards a large-scale digital transformation of the economic sector, inseparable from banking which is now undergoing a transformation in digital acceleration which is increasingly becoming a public need.
Such conditions require banks to increase digital transformation as a priority and one of the strategies to increase bank competitiveness. The development of banking digitalization must also keep up with increasingly sophisticated technology in the 5.0 era. Therefore, in the digital banking era, banking must prioritize core banking development strategies, business opportunities, and challenges that must be faced.
Expert Associate Partner of McKinsey and Company, Aditya Saxena said, there are 3 main components for digital banks in developing digital front end operations in banking. First, banks still have to maintain their branches in addition to reducing the physical footprint for customers.
Then, the modular components in banking must be configurable, allowing flexibility in the speed of digital operations front end operating at the required speed, as well as fast and agile operating model time components in digital developments.
"Basically there are three main components of how a digital bank looks like one digital front end operation. So we understand that the bank is still important but the branches are still important, the second component is the modular component allowing flexibility in the speed that the digital front end operation allows to operate at the last required speed, this is the operating model time," he said.
He explained that in Indonesia alone, 99.5 percent of consumers have been able to adapt to the existence of digital banks. However, 50 percent of these customers are known to decide to switch to other bank digital services because these customers do not get the services they want, are offered products that are not of high quality, and are concerned about security. Thus, the challenge that arises is how banks can meet customer needs and align them with business.
"It's about embedding that thinking across the value chain about how the customer journeys, starting from getting their orientation, giving them the right product, providing insight, capturing their data, providing customized products to serve them and providing them with a range of services," Aditya concluded. .
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