Jakarta. Indonesia's financial sector is slated to face greater competition from technology companies and start-ups in the next few years, increasing the urgency for conventional businesses to innovate their business models and strengthen digital channels, according to a recent report by global consulting firm Bain & Company.
The report, titled "The Five Imperatives for Navigating Turbulence in the Payments Ecosystem," detailed strategies financial firms should implement in order to adapt with the shifting landscape, from embracing new payment systems beyond cards — such as smartphones — to establishing a strategy to monetize data collected from transactions.
Edy Widjaja, a principal in Bain & Company's Jakarta office, noted that some banks in Indonesia are already making a move towards digital channels, thanks to the support of Bank Indonesia's initiative for the country to go cashless.
"In payment gateway, the emergence of e-commerce has also generated interest from all types of companies, from banks like Bank Mandiri, with its e-cash and startups ̶ including 7-year old Doku," Edy wrote in an e-mail to the Jakarta Globe, referring to the state-owned lender's homegrown, electronic payment solutions start-up Doku.
Other banks like CIMB Niaga and Bank Central Asia, the nation's third-biggest lender by assets, have also been bulking up their digital platforms, such as the former's recent Octopay application on Facebook and the latter's Sakuku smartphone application.
Still, Edy added that some hurdles remain for banks and other financial firms as they navigate through the wave of disruptive technology, suggesting that one way companies can improve innovation is by joining hands with technology start-up companies.
An "openness to international players and partners" could also foster the growth, he added.
"Innovation is definitely being driven by the large banks and companies, but smaller companies are also important... Partnerships between large players and start-up innovators are increasingly common," Edy said.
A growing number of companies, from established commercial banks to budding start-up companies, have eyed digital channels as a way to reach more people in the financial system, thanks to Indonesia's expanding population of youthful and tech-savvy consumers.
"Large technology firms and digitally based start-ups have launched a slew of new products and services that threaten the established profit pools controlled by banks, the card networks and merchant acquirers," Thomas Olsen, a partner in Bain & Company’s Asia Pacific Financial Services Practice, said in a recent statement.
"Despite the challenges, there are reasons for optimism. Payments represent a rich and growing profit pool with relatively low capital requirements — a rarity in financial services," Olsen added. "Success hinges on making the cultural and organizational shift from being a financial utility provider to a technology-focused partner."