Petrolida 2021 • Business Case Competition
Adapting to Consumer Behavior During
a Time of Crisis
Finance and Banking Industry
Ever since the dawn of mankind, the
banking industry has always been one of the
most crucial industries. Banking opens up
many chances to obtain money for people
that don’t have enough money. People with
bright ideas but no money to realize those
ideas can borrow money from the bank, or
people with too much money can invest in
those bright ideas through banks. Not only
that, banking also allows people to store
their money safely, transfer their money
easily, and many more.
Over the years, the banking industry
became a crucial part of the modern
economy, where the role of banks is
inseparable from almost every aspect of our
life, from where we store our money, where
we borrow money, and how we send money
to others. The dependency of our economy
on banks can yield both positive and
negative impacts. A study by Claessens and
Laeven in 2005 shows that financially
dependent industries are able to grow faster
in countries where the financial and banking
industry has more competition (Claessens &
Laeven, 2005). This dependence, however,
also creates a dangerous situation, if the big
banks crash or collapse, chances are
everything else will be affected too, and not
in a good way. Take the global financial crisis
of 2008 for example, where the deregulation
of the financial industry in the USA allows
banks to engage in hedge fund trading with
derivatives, which in turn requires banks to
demand more mortgages to support the
sale of these derivatives.
1
When the housing price started to fall in
2007 due to excess supply, the value of
derivatives crumbled, which led to the banks
stopped lending to each other. This chain of
actions results in what is known as the
financial crisis of 2008, which led to the
great recession. Due to the high dependency
of the world to the banking industry, this
crisis caused widespread chaos, ranging
from loss of net worth to the loss of jobs.
In Indonesia, the finance and banking
industry has been operating since the dutch
colonialism era. The Dutch East India
Company (VOC), which was the main
trading company operating in Indonesia at
the time, acted not only as a trading
company, but eventually as a commercial
bank named De Javasche Bank. This bank
went through the nationalisation process in
1953, becoming the current central bank of
Indonesia, Bank Indonesia (BI). In modern
day Indonesia, banking institutions are
classified into two, commercial or regional
banks. The main difference is in the
operating area, where rural banks are
restricted to certain areas and are not
directly involved in payment systems. The
commercial banks are also further classified
into either conventional bank, or sharia bank,
which adheres to Islamic principles.
Indonesia has more than 120 commercial
banks (Asialink Business, n.d.), of which 4
are state-owned and the rest are private.
Petrolida 2021 • Business Case Competition
COVID-19 Impact to the Banking Sector
The World Health Organization
(WHO) declared a public health emergency
on the COVID-19 virus outbreak back on
January 30, 2020. Not even two months
later on March 11, the status quickly
escalated, what started as a mere public
health emergency quickly evolved into a
global pandemic. Initially, many thought that
this is just another virus, thinking that the
marvel of modern medicine can easily
overcome the outbreak. The virus has had
an unexpected toll, both on public health and
the world economy. Economic
consequences across many countries
include significant market and interest rate
volatility.
Just like any other sector, the
financial and banking sector is facing an
unprecedented challenge, revenue and profit
sources are shifting, cost pressures are
rising, business models are transforming,
and customer behaviors are evolving.
Lockdowns aimed to prevent the spread of
COVID-19 has stopped economic activities.
Though the finance and banking sector can
provide their services indirectly without
physical contact, the linkage of the sector
with other sectors as the payment services
provider or the credit and risk management
provider extends the impact of COVID-19 to
the financial and banking sector. The
financial and banking sector also has a key
role in supporting firms and households
during this period of low income and
revenue, which triggers important actions by
both financial supervisors and
governments. Due to this fairly diverse range
of customers handled by the financial and
banking institutions, the challenges they
face during the pandemic also varies widely
from customer to customer.
2
According to a report by Deloitte, there are
four main challenges that the banking sector
may face during the pandemic, which are:
Potential draw-down on credit facilities by
clients
Revision to loan loss provision estimates
Additional capital requirements to
maintain capital adequacy ratio
Compressed net interest income margin
What makes this issue a particularly
challenging one is the fact that the length
and severity of the crisis is still unknown.
Even with the existence of vaccines, there is
still no certain prediction as to how the
future will turn out.
Customer Behaviour During COVID-19
The COVID-19 pandemic that struck
the world lately undoubtedly affect many
activities and industries. The banking
service industry is one of the industry
sectors that are heavily affected by the
pandemic. According to the study
conducted by KPMG, there are several
things to be focused on by banking
industries during uncertain times like this,
which are financial risk management,
securitization landscape, business
continuity and resilience, and customer
relationship (KPMG International, 2020).
Customer relationship is emphasized
because there will be a shifting trend and
behavior due to the pandemic. The
customer needs a reliable, real-time, and
secure banking platform that can be
accessed even though they are in social
distancing condition. Thus, the acceleration
and strong foundation of digitalization is
needed (Deloitte., 2020). Customers are
Petrolida 2021 • Business Case Competition
more likely to prefer cashless or even
card-less transactions. The use of
contactless transactions is already done in
many countries even before the pandemic,
but the adoption will soar high during and
probably after the pandemic due to
customer preferences (Cuthell et al., 2020).
A report by EY sees four ways
consumer banking behavior will change in
response to the pandemic, from the way
customers bank, the end of cash, the
importance of responsible banking, and the
need for more flexibility and security. The
way customers bank will change in a way
that pushes for the digitalization of banks.
According to the same report by EY, 24% of
their respondents in the EY Future
Consumer Index expect banks to operate
more digitally for the next year or so. The
end of cash is also closer than ever, even
before the pandemic with the rise of digital
payments or even cryptocurrencies. The
fear of spreading the coronavirus via
physical contact done when exchanging
cash also results in a 57% drop in cash
usage, which also increases the preferability
of contactless payments by 34%.
To sum up the behavioral changes of
customers in the banking sector, the push
for banking digitalization is increasingly
more important, the full transition away
from cash is also getting closer, and
customers are also demanding more
flexibility, proven by the 27% of consumers
who agree that bank will be more flexible in
the next year or so. At a glance, the solution
for these problems might be quick and
simple: push for digitalization in banking.
However, this is not easy to achieve, there
are multiple different kinds of banks, and
though one might benefit from the
digitalization of banks, others may not.
3
Looking Forward
Based on their function, banks
commonly operating in Indonesia can be
divided into two categories: retail &
commercial banks and people’s credit bank
(Bank Perkreditan Rakyat) or Rural Banks.
Each type of bank has its own challenges
during this pandemic, which differs from
one another. Retail & commercial banks may
face difficulties in serving their customers
the usual way, or even face difficulties in
getting back loans, where customers who
are affected strongly by the pandemic may
not be able to pay back loans on time. Rural
Banks may face challenges in keeping
operations running smoothly, as the
Indonesia Deposit Insurance Corporation
(LPS) stated that many Rural Banks in
Indonesia failed to operate during the
pandemic, even reaching a -200% capital
adequacy ratio.
The general public mostly interacts
with retail banks and rural banks, which
experiences the most challenges during
this pandemic. Provide a general solution
for retail banks and rural banks that could
help them maintain a smooth operation
during the COVID-19 pandemic and also
prepare for the changing customer
behavior in the future of banking after the
pandemic. If deemed relevant, you may add
problems and solutions regarding the
operation of investment banks in this
pandemic. The problems that need to be
addressed include but not limited to the
problems mentioned above. Keep in mind
that the solution should be comprehensive
for each type of bank, feasible, and also
executable.
Petrolida 2021 • Business Case Competition

Further Readings Paper Format

Indonesian Banking Industry Writing Format
https://www.ojk.go.id/en/kanal/perbankan/ Title : Times New Roman, 16pt Bold
data-dan-statistik/laporan-profil-industri-per Body : Times New Roman, 12pt
bankan/default.aspx Layout : Justified
Paper Size : A4
Conventional Bank Line Spacing : 1.5 lines, no before after
https://www.ojk.go.id/en/kanal/perbankan/ Margin : 2.5 cm (top & bottom), 2 cm
Pages/Bank-Umum.aspx -------------------------(left and right)
File Format : PDF
People’s Credit Bank File Name : Preliminary_Team Name
https://www.ojk.go.id/en/kanal/perbankan/ Header : Paper Title - Petrolida Business
Pages/Bank-Perkreditan-Rakyat.aspx ----------------------- Case Competition
https://www.perbarindo.or.id/ Footer : Page number (middle of the
------------------------ page, starts after cover)
Financial Services Authority Website
https://www.ojk.go.id/en/Default.aspx The paper should not exceed 4 pages, not
including:
Central Bank of Indonesia Website Cover (should include team name and team
https://www.bi.go.id/en/default.aspx leader email)
References
*Some resources might not be available in Appendix (optional)
English
The minimum content of the paper are as
follows:
Background of the problem
Key problem
Initial proposed solution

Submission
Email to bcc.petrolida@gmail.com by the
team leader with the email subject
Preliminary_Team Name. The deadline is at
January 28th 23.59 GMT +7.

Submitting past the deadline will result in a

15% score reduction

4
Petrolida 2021 • Business Case Competition
References
Asialink Business. (n.d.). Business Banking and
Finance in Indonesia. Asialink Business.
https://asialinkbusiness.com.au/indonesia/
business-practicalities-in-indonesia/busine
ss-banking-and-finance-in-indonesia?doNot
hing=1
Bellens, J., & Meekings, K. (2020, August 31).
Four ways COVID-19 is reshaping consumer
banking behavior. EY Global.
https://www.ey.com/en_gl/banking-capital-
markets/four-ways-covid-19-is-reshaping-c
onsumer-banking-behavior
Claessens, S., & Laeven, L. (2005). FINANCIAL
DEPENDENCE, BANKING SECTOR
COMPETITION, AND ECONOMIC GROWTH.
Journal of the European Economic
Association, 3(1), 179-207. JSTOR.
Cuthell, K., Toit, G. d., Fielding, J., & Glusac, N.
(2020, September 08). More Digital, More
Flex: Retail Banking Behavior amid Covid-19.
Bain & Company. Retrieved December 11,
2020, from
https://www.bain.com/insights/more-digita
l-more-flex-retail-banking-behavior-amid-co
vid-19/
Deloitte. (2020). Impact of COVID-19 to the
Banking Sector. Deloitte.
https://www2.deloitte.com/cn/en/pages/ri
sk/articles/covid-19-impact-on-banks.html
Deloitte. (2020, May). Retail banking in the age of
COVID-19. Deloitte. Retrieved December 11,
2020, from
https://www2.deloitte.com/us/en/pages/fi
nancial-services/articles/retail-banking-rem
ade-by-covid-19.html
5
Jones, L., Palumbo, D., & Brown, D. (2020, June
29). Coronavirus: A visual guide to the
economic impact. BBC News.
https://www.bbc.com/news/business-5170
6225
KPMG International. (2020, July). COVID-19:
Impact on the banking sector. KPMG
I n t e r n a t i o n a l .
https://home.kpmg/xx/en/home/insights/2
020/07/covid-19-impact-on-banking-m-and
-a-2020.html
KPMG International. (2020, July). Standing firm
on shifting sands. KPMG. Retrieved
December 11, 2020, from
https://home.kpmg/xx/en/home/insights/2
020/07/standing-firm-on-shifting-sands.ht
ml
McKinsey Global. (2020, December 18). The
coronavirus effect on global economic
sentiment. McKinsey & Company.
https://www.mckinsey.com/business-functi
ons/strategy-and-corporate-finance/our-ins
ights/the-coronavirus-effect-on-global-econ
omic-sentiment
Petrolida 2021 • Business Case Competition

Good Luck