The banking industry has undergone many changes thanks to the rapid development of technology in the last decade. One of the innovations that were born and are becoming a hot topic of discussion among Indonesian people is digital banking. 

However, what is the difference with conventional banks that we have known? 

Digital Bank 

Digital banking is the digitization of every level of banking, from the front-end to the back-end. In other words, a digital bank should be able to facilitate all levels of banking functionality across all service delivery platforms. 

From the front-end, banking activities should have all the same functions as banking services and be visible to consumers. For example, they function as a head office, branch offices, online services, bank cards, ATMs, and point of sale machines. 

While from the back-end, banking activities that happen in front should be visible to bankers through the server and the admin control panel. Therefore, digital banks need to utilize technology to automate administrative tasks and data processing, which, in turn, can lessen the pressure on employees to complete daily tasks. 

In Indonesia, the Financial Services Authority (OJK) defines a digital bank as an Indonesian Legal Entity Bank (BHI) that provides and carries out business activities primarily through electronic channels without a physical office other than the head office or using limited physical offices. 

Bank BHI is an established bank that carries out its business activities under the applicable legal provisions in Indonesia as a limited liability company, cooperative, regional company, or other models stipulated by government regulations. 

However, OJK does not define digital banking as a new type of bank. In the current banking act in Indonesia, we only recognize two types of banks, namely Commercial Banks and Rural Banks (BPR). 

Differences with conventional banks 

In terms of services, there is no significant difference between digital banks and conventional banks. Both can offer banking services such as savings, deposits, withdrawals, transfers, investments, and loans. 

The difference lies in its form. Conventional banks have a physical form in the form of a head office and branches, while digital banks can operate only with a head office and usually do not require the presence of a branch office. 

In addition, usually, other differences are found and visible from the advantages offered. Examples include lower administrative fees, cheaper or even no transfer fees, and higher interest rates. Of course, with the applicable terms and conditions issued from the bank. 

Banking transformation needs to be supported 

The term digital bank that is on the rise does not change the bank institutionally because the bank is still a bank. A bank is a financial institution that provides services to save, distribute, and provide loans to the public. Digital banks themselves can be present in two ways, according to POJK 12/POJK.03/2021. 

The first method is by establishing a new bank as a digital bank. The second method is by transforming an existing bank into a digital bank like BRI Agro when changing its name to Bank Raya and officially changing its business model to a digital bank. 

OJK does not issue special licenses for digital bank operations. However, to transform into a digital bank, existing banks need to meet several applicable requirements, such as: 

  • Have a business model using innovative and secure technology to serve customer needs. 
  • Have the ability to manage a prudent and sustainable digital banking business model. 
  • Have adequate risk management. 
  • Fulfill governance aspects such as the fulfillment of directors who have competence in the information technology field and other competencies under OJK regulations regarding the fit and proper test for the main parties of financial service institutions. 
  • Actualize protection against customer data security. 
  • Contribute to the advancement of a digital financial ecosystem and financial inclusion. 

In the end, the presence of digital banks inan alternative to accessing financial services that are easier, faster, and transparent. People only need a smartphone and an internet connection to access banking services with their hands. 

The wth groof digital banks in Indonesia has also just begun, so we can see many industry players rushing to establish digital banks in various ways. Start from acquiring a small bank and turning it into a digital bank to incorporate a new entity. It is inseparable from the extensive range of unexplored potential.

However, on the other hand, digital banks also have lots of homework that needs to be solved well, namely security. The threat of cyber-attacks cannot be underestimated in this technological era.

However, we also cannot deny that all the advantages offered by digital banks, of course, still need support to transform banking services. Its presence can make Indonesian banking more efficient, adaptive to technological developments, make a better contribution to the national economy, and provide broader benefits for the people of Indonesia.