Perbanas’ Anika Faisal discusses Indonesia's digital banking evolution

In a recent interview, Anika Faisal, the secretary general of Perbanas and a non-executive director on the board of Bank Jago, shared her perspectives on the state of digital banking, operational resilience and financial stability in Indonesia. Her insights provide a valuable look into the regulatory and operational dynamics shaping the country's banking sector.

The role of Perbanas in the banking sector

Faisal outlined the role of Perbanas in supporting the banking industry in Indonesia. She highlighted the organisation's focus on promoting best practices, fostering collaboration among banks, and advocating for regulatory improvements to support innovation, operational resilience and stability. "Regulatory excellence is about creating a stable and strong financial system and market environment," Faisal stated, emphasising the need for a comprehensive perspective in financial regulation.

Bank Jago: Balancing innovation and traditional banking principles

Taking Bank Jago as an example, Faisal explained that Bank Jago aims to integrate innovative digital services with traditional banking principles. She noted that over half of Bank Jago's employees come from non-banking backgrounds, primarily in technology and retail sectors, which brings fresh perspectives while maintaining core banking disciplines.

"We are a servicing industry first and foremost; understanding our customers' needs is how we stay relevant," said Faisal. Despite its digital focus, Bank Jago adheres to fundamental banking practices such as capital management, balance sheet management, and risk management. These practices ensure the bank's stability and compliance with regulatory standards while promoting digital innovation.

Challenges and opportunities in digital banking

Faisal highlighted several significant challenges digital banks like Bank Jago face in balancing technology investments with profitability. Unlike traditional banks that can scale gradually, digital banks must invest heavily in technology to enable innovative services from the outset. "You must prepare the technology to enable you to serve millions from day one," she explained, pointing out the high initial costs that digital banks incur.

This requirement for substantial upfront investment presents a unique challenge to achieving profitability. Digital banks need to find a balance between offering necessary services and managing costs effectively. "Time to scale is very important," Faisal emphasised, noting that rapid growth is essential for covering initial investments and moving towards profitability.

Partnerships and ecosystem integration are crucial for digital banks to manage these costs and expand their reach. She said that Bank Jago leverages its relationship with the Gojek ecosystem to provide seamless customer experiences. This collaboration helps reduce redundancies and share costs but also requires strong alignment between partners in terms of goals and operational standards.

Financial inclusion and digital literacy 

Digital banking plays a critical role in enhancing financial inclusion in Indonesia by reaching underserved populations and enabling broader economic participation. Faisal pointed out that digital literacy varies widely across the Indonesian population, with younger generations being more adept at using digital services, while older generations may be more susceptible to scams. "The literacy in terms of understanding the risks is a bit of a challenge," she noted.

Faisal also emphasised the importance of responsible digital practices and consumer protection. "We will protect your data, but if you don't protect your data, it becomes difficult," she remarked, highlighting the need for public education on cybersecurity. This dual focus on technological advancement and consumer education is seen as vital for fostering a safe and inclusive digital banking environment.

Technology and operational resilience

Faisal also discussed the significance of operational resilience in the digital banking sector. She stressed that while technology can drive efficiency and customer satisfaction, it must be balanced with robust risk management practices. "At the end of the day, it's the way you work with technology that matters," Faisal remarked. She highlighted the necessity for banks to adopt microservices-based architectures, open banking application programming interfaces (APIs), and other advanced technologies while maintaining stringent compliance and risk management protocols.

The future of digital banking in Indonesia

Looking ahead, Faisal is optimistic about the potential of digital banking to transform Indonesia's financial landscape. She believes that continuous improvements in digital infrastructure and regulatory support will enable digital banks to achieve profitability and contribute significantly to the economy. The key lies in balancing innovation with regulatory compliance, ensuring that banks evolve in a way that protects consumers and upholds financial stability.

Faisal is particularly hopeful about the role of digital banking in fostering financial inclusion. By providing accessible financial services, digital banks can help integrate underserved populations into the formal economy. "Digital banking can be a powerful tool for financial inclusion," she stated, emphasising the need for ongoing efforts to enhance digital literacy and consumer protection.

Faisal's insights highlight the dynamic and evolving nature of digital banking in Indonesia. With the combined efforts of regulatory bodies and innovative banks like Bank Jago and others, the country is poised to navigate the challenges and seize the opportunities presented by the digital transformation of its financial sector. Her emphasis on maintaining core banking principles while embracing innovation provides a balanced approach that could serve as a model for others exploring similar transformation.

Meet Anika Faisal, Altona Widjaja, Edisono Limin, Indra Utoyo, and other senior banking industry decision makers and practitioners at Finance Indonesia on 12 September 2024. Read more: https://theasianbanker.com/finance-indonesia-2024/