Digital financial service innovations have grown rapidly in recent years, especially with the COVID-19 pandemic drawing global attention. Limitations to physical and social activities are a constraint on conventional financial services, creating a need for innovation in the form of digital services.
These rapidly growing financial service innovations are marked by, for example, the mushrooming of financial technology (fintech) startups and the development of digital banking services in general. This situation was anticipated by regulators, including the Financial Services Authority (OJK), which applies a smart regulatory approach to digital financial service innovations.
In a virtual discussion held by Telkomtelstra titled “Financial Service Strategies in the Digital Era: Maximizing Omnichannel Initiatives for Growth and Revenue using KYC Digital Platforms”, Dino Milano Siregar, the Director of Digital Finance Innovation at the Financial Services Authority (OJK), explained that the smart regulatory approach policy is applied as a bridge in terms of the OJK’s efforts to manage rapidly-growing digital finance innovations.
“If fintech is tightly regulated, it will be extremely limited. If it is not regulated at all, it will develop out of control. We are managing it slowly, hoping that simultaneously with its growth, the security of transactions will also improve along with service development,” he explained.
Dino believes that the rapid growth of digital financial service innovations has been influenced by the financial gap in Indonesia of US$165 billion, caused by the inability to access financial support from banks or other conventional financial institutions.
“Indonesia has massive potential, as the 16th largest economy in the world, with approximately 174 million current internet users. Then there is the financial gap of US$165 billion, which we really need to make use of so that it can be of benefit to our country,” he said.
The size of the financial gap, according to Dino, is also evident in the number of micro, small and medium-sized enterprises (MSMEs) that have not received support from financial institutions and banks. “70% of MSMEs in this country have not been reached by financial institutions, let alone digital finance, despite the fact that limited access to credit is considered to be one of the main obstacles in the growth of MSMEs,” he explained.
Therefore, he added, it is not surprising that fintech is developing so quickly. “Fintech can be used as a solution to fill the financial gap, as it is a more efficient and cost-effective channel to remotely reach communities that are not served by traditional financial institutions,” he stated.
According to Dino, OJK has identified approximately 84 types of digital finance innovations, which are divided into 15 clusters. To date, 155 peer-to-peer lenders have been registered with the OJK, 33 of which already have licenses. In addition, 3 equity crowd funding platforms have been granted permission by the OJK. On the other hand, Bank Indonesia has also issued licenses to 37 payment system related fintech companies.
The Basis of Digital Transformation
On the same occasion, Agus F Abdillah, Telkomtelstra’s Chief Customer Officer, expressed his belief that the rapid growth of digital innovation in the financial sector has been influenced by Industry 4.0. Digital transformation makes customer service better, faster, and cheaper. “And interestingly, those who adopt digital technology are mostly banks and digital finance institutions. Why? Because many new startups in the financial sector, or fintech companies, are currently entering into digital technology,” he explained.
Agus cited a 2018 PWC survey involving 52 banking company executives in Indonesia, where 72% of respondents stated that fintech startups are a challenge for conventional banking and financial institutions. “With a large customer base, fintech startups are able to enter really quickly into the financial industry for payment transactions. As startups originating from digital technology, fintech companies are able to very quickly gain the ability to develop super apps, complete with data analytics, machine learning, and other technologies,” he explained.
Agus explained that there are a number of underlying factors in the behavioral changes of consumers/financial service customers when using digital services. Consumer/customer preferences can be identified by a number of main factors, including customer experience, or how a customer is served from pre-purchase to purchase, and post-purchase, similarly to how regular customers are served in the non-digital arena. In addition, the trust factor is extremely important in building relationships and engaging customers when using a service.
“Currently, maintaining customers is extremely competitive, meaning we must provide faster, better, and more efficient services,” he stated.
Telkomtelstra has developed customer engagement services in the financial and banking sector in collaboration with Oracle, for e-KYC (know your customer). There are 4 main factors that can make customer engagement a competitive advantage for banks and conventional financial institutions in adopting digital services, including e-KYC. These four main factors are proactive engagement, seamless experience, contextual assistance, and cloud agility.
“Increasingly more banks and financial institutions are adopting digital engagement as a corporate strategy for banking services and future operational strategies,” he explained.
Meanwhile, Dora Sunarli, Sales Director of PT Oracle Indonesia, explained that the rapid growth of digital innovation in the financial and banking sector has driven the development of e-KYC innovation away from face-to-face methods and instead toward digital methods. Previous face-to-face KYC methods required physical attendance, longer verification processes, and higher investment costs. With the assistance of digital technology, in addition to being able to accelerate the e-KYC process, financial service providers can utilize internet networks that are already accessible to 88% of the Indonesian population to achieve even greater coverage. A digital strategy, if implemented properly, can assist the finance industry in increasing the percentage of customers using banking services. “If we want to set aggressive targets of 1,000 or 2,000 new customers per day, for example, it’s the perfect challenge, with fully automated e-KYC which emphasizes speed,” she stated.(*)