Competition in Indonesia’s digital banking sector is heating up, pushing the country to the top for fintech services in the region. Seven banks have already established their banking licences, while seven others are in the pipeline. This news is a grand slam for Southeast Asia as the region is still heavily underbanked and in need of financial services. 

Digital banks in Indonesia have all the tools to sustain their progress as the country has the largest economy in Southeast Asia. Its unbanked population sits at 83 million, making it an attractive option for domestic and regional investors in the sector.  

However, there are still many hurdles to overcome. Although Indonesia has one of the largest potential consumer bases, low financial literacy and aggressive user acquisition could stand in the way of its success and profitability. The Financial Services Authority (OJK) is also still in the process of creating official guidelines for digital banks. However, these spikes in the road are not stopping financial and tech giants from moving forward. 

Indonesia fintech

We look at how fintech startups are disrupting Indonesia’s digital banking market

Here are some of the supporting factors behind the emerging fintech firms and banks spurring this disruption in the country and the ASEAN region. 

Behind the breakout

Positioned for high-level success, Indonesia holds the necessary keys to unlock its ascent to digital banking stardom. For genuine progress to happen, banks must have a robust market and the qualities needed to capture the population’s attention. Fortunately, Indonesia possesses these traits in no shortage. 

Its mobile penetration is at around 76%, making it well suited for mobile banking and targeting outside of physical banks. The population is ripe for picking with 83 million unbanked people, and since Millennial and Gen Z Indonesians make up more than half of the total population, digital banks have access to a market primed for further digitalisation and fintech services. 

Digital literacy is also on the up and up within these generations, adding to their appetite for online banking. As the world moves ever more online, this group of 145 million Indonesians will need digital banks to help support their financial goals. 

Digital banks leading today’s emergence

With 14 companies already working to lead eBanking in Indonesia, many more players will be vying to capture the market and cement their place in Indonesia’s financial industry. It’s no shocker with the massive potential bubbling in the country. 

To make it over the startup hump, these companies have to face some regulatory hurdles, especially the fintech firms. For a tech company to file for a bank licence, they must first acquire an existing physical bank. The OJK has yet to roll out amendments to its online banking guidelines but plans to do so later this year. Once they do, fintech firms can skip over this step and develop their own eBanking services from scratch. 

As of now, there are only two types of bank licences in Indonesia, General Bank (commercial) and Rural Bank (Bank Perkreditan Rakyat) licences. For OJK to recognise a financial institution as a digital service provider, it must share with the authority its changes in business model and meet the requirements, including a minimum amount of capital. After fulfilling these steps, they can begin to provide services to their customers.

The current line-up and future prospects

The seven banks with digital banking licences currently are:

  • Bank BTPN: This company runs its services under the name of Jenius. 
  • Bank Bukopin: Its service name is Wokee. 
  • Bank DBS: This bank operates under the name of Digibank. 
  • United Overseas Bank (UOB): Its service name is TMRW. 
  • Bank Jago: Named Jago, its investors include tech giants Gojek and GIC.
  • Bank MNC Internasional: This company runs its digital bank by the name of MotionBanking. 
  • Bank Aladin Syariah

Those still in the application stage are:

  • Bank KEB Hana: Funded by tech firm Line Financial, its services will be named Line Bank.
  • Bank BCA Digital: This digital bank will be a unit of Bank Central Asia, Indonesia’s largest lender by market capitalisation. 
  • Bank BRI Agroniaga: When it receives its licenses, it will be a subsidiary of state-controlled Bank Rakyat Indonesia, the country’s largest lender by assets. It will also team up with fintech startup Payfazz to pursue this endeavour. 
  • Bank Neo Commerce (BNC): Its mobile banking service and app are called Neo+. 
  • Bank Capital
  • Bank Harda Internasional
  • Bank QNB Indonesia

Digital banks in Indonesia are gearing up to break out of the traditional mold and shake up the financial industry. By solely claiming to be an online bank, publicly listed banks have already seen spikes in their stock prices on the Indonesian Stock Exchange. Companies applying for digital banking licences are still growing and, with the current success rate, the Indonesian fintech market will soon have a significant influence on Southeast Asia’s digital banking trends.