Commentary: Indonesia — A Nation Primed for a Digital Disruption
Indonesia appears ripe for a digital-banking revolution.
Lenders with the right offers could capture significant value from financial consumers who are eager to go mobile and online.
Over the past few years, financial-services consumers in Indonesia have started embracing digital banking — often more readily that their peers in other Asian emerging markets — a recent McKinsey & Company survey showed.
Incumbent banks and new entrants that can ride the consumer-adoption wave to create innovative propositions could capture significant market share.
The survey showed that in Indonesia, smartphone and online-banking penetration surged by seven to eight times between 2011 and 2014.
Even more interesting, financial-services customers in Indonesia are more likely to bank over smartphones than Internet banking, an anomaly for emerging economies in Asia.
In McKinsey’s 2014 Asia Personal Financial Services Survey, 33 percent of the respondents in Indonesia said they had conducted bank business over a smartphone compared to 21 percent who had used a computer for banking.
Both figures were up significantly from just a few percent in 2011.
The 2014 survey canvassed about 16,000 financial consumers across 13 Asian countries, including around 1,100 in Indonesia. It was a continuation of a series of similar surveys conducted by McKinsey at a regular frequency since 1998.
Overall, the 2014 results showed that Asian financial-services consumers are going digital quickly.
And while the rise of digital banking has been long awaited, several recent factors have combined to accelerate the trend, most notably the rapid increase in Internet and smartphone adoption and growth in e-commerce.
Results from Indonesia reflect these regional trends, often more intensely. As in other markets, digital banking in Indonesia is being pushed by young and affluent consumers.
But in the archipelago, about half the financial-services consumers who have used digital banking are in the higher-income brackets, compared to a third in emerging Asian markets on average.
Similarly, customers in all age brackets below 50 years old are more likely to have used digital banking in Indonesia than elsewhere in emerging Asia — for instance, 52 percent of customers between 20-and 29-years old in Indonesia, compared to 45 percent in the rest of emerging Asia.
The stakes in play in Indonesia are high, especially for incumbent banks.
Almost 60 percent of those surveyed said they would at least consider opening an account with a bank that offered compelling online features, particularly personalized processes for paying bills, fully digital loan applications, payment options using text messaging, and shopping and taxi payments using mobile phones.
In addition, across a range of services, 20 to 30 percent of our survey respondents in Indonesia said they would be willing to shift some of their business to a digital bank that met their needs.
Significant balances are under threat. Respondents willing to shift business to a digital bank said on average they would consider transferring 34 percent of their investment accounts, 31 percent of their saving or term deposits, and 28 percent of their insurance business.
Already, personal-finance consumers are moving away from banks and toward digital services.
Indonesian respondents said they banked over smartphones or computers on average 1.7 times a month, compared to almost never in 2011.
At the same time, respondents said they visited bank branches or contacted call centers on average once a month, down from 1.2 times a month in 2011.
The results mirror the trend in Asia’s other emerging markets, but show greater intensity.
Despite the growing adoption, a large proportion of banking customers have yet to sample digital banking.
In Indonesia, 38 percent of our respondents said they have not conducted any banking business online. Concerns over security and complexity of services are the highest hurdles.
Of those who have not tried digital banking, almost half said it was not safe and about a third said they wanted a physical receipt for their transactions.
In addition, a little more than a third said that digital banking was too complicated.
The potential for digital banking is further demonstrated by how few of our respondents have purchased financial products online.
In Indonesia, only 7 percent of our respondents said they had bought a banking product online.
Among the remainder who were active Internet users, the vast majority — 70 percent — said they were stopped by security concerns.
Digital banking will undoubtedly grow rapidly in Indonesia and, indeed, throughout the emerging economies of Asia.
Incumbents have an advantage with their branch networks, which our survey showed will remain important, but any financial institution, whether incumbent or a new entrant, has the opportunity to capture a significant share of the market and drive value creation through a tailored digital strategy.
Understanding how financial-service customers are evolving is an important step to success.
Guillaume de Gantes is a principal in McKinsey’s Jakarta office. Vinayak H.V. is a principal in the firm’s Singapore office.
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