Rise of Digital Banks

in Indonesia
digibank

March 2021 (Updated May 2021)

This report is part of Momentum Works’ Digital banks series

Digital banks Case study Decoding digital bank

in Southeast Asia Who is Nubank best practices

Coming soon

Click cover to download

Get in touch:
hello@mworks.asia
Burning questions, report enquiries 3
List of contents

1. Introduction
2. Background & opportunity
3. Development
Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
4. Policies & regulations Momentum Works. Any reliance on such material is made at
users’ own risk.

5. Growth & competitive landscape

6. Conclusion & perspectives

2
 Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.

1. Introduction

3
@The Jakarta Post
Introduction
• The digital banking scene has been heating up in Indonesia - with a number of digital launches, investments and
acquisitions, as well as offline promotional booths in key Indonesia cities. We estimate that there were 3 million new
users that signed up for digital bank services in 2020.
• The opportunity is obvious: More than 77% of the 270 million Indonesians are unbanked, underbanked, or underserved.
These people will be looking for suitable banking services.
• The timing for digital banking acceleration is right. The development of fintech lending from 2015-2019 had accelerated
fintech infrastructure. Together with the growth of transactional digital services, led by ecommerce and food delivery,
digital payment and customer awareness had grown leaps and bounds. So it’s only natural that under Covid-19, adoption
of digital economy has surged and will remain the status quo going forward.
• Digital banks, with its optimised cost structure and mass appeal, could offer an opportunity to close the financial gap in
a sustainable way. The entry of tech players into this foray have prompted traditional banks to move faster.
• Participants of the digital bank contest fall into three major categories: large domestic commercial banks (e.g. BCA,
BTPN), regional banks (e.g. DBS, OCBC, UOB), as well as tech players (e.g. Gojek, SEA Group). Jenius by BTPN is currently
the leading player in user numbers, with regional banks following aggressively. Meanwhile, Gojek and SEA Group have not
made their strategies public.
• It is still early days for digital banks in Indonesia. The three categories of digital bank players have their own strategies,
objectives and resources to leverage on. Ultimately, it is the consumers and the Indonesia economy that will benefit from
the rise in digital banks.

4
© Momentum Works
 Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.

2. Background and opportunity

5
@FikriRasyid
 Background and opportunity
Banking online ≠ Digital bank
While most banks have made foray into digitalisation, not all banks operating online are digital banks. In our report, a digital bank is
a financial institution that manages the customer lifecycle effectively online - from onboarding to withdrawal - whilst having a certain
level of security similar to that of a traditional bank. Here, we deep dive into digital banks, as well as explore the differences with
pseudo digital banks and traditional banks with online features.

Digital-as-a... Feature Division Venture

1 Traditional bank with online features 2 Pseudo digital bank 3 Digital bank

Operates through physical branches across the
nation, incorporates mobile banking features to
accommodate online transactions and manage
depositors’ accounts
Operates as an ‘online’ product option of
commercial banks, the system is not separated
from the commercial banks main offerings (shared
the same mobile app with the regular commercial
bank users)
Operates without any physical branches, relies on
online process for full customer life cycle
starting from account opening; there are three
main categories of digital banks based on their
ownership (which also implies strategy):

By domestic commercial or rural banks

By regional banks By tech players

As comparison Key focus of this report

Source: Momentum Works research

6
© Momentum Works
 Background and opportunity
Conventional banking leaves huge gap of unmet needs

Traditional banks focus on capturing

Conventional focus User profile Landscape and retaining customers with
relatively certain high lifetime value.

Banked Existing bank Middle - high income population with savings

Their main revenue will be from these
Priority

and asset; Generally high credit score; high

23% Saving + Loan + customers existing bank customers with
Investment savings and investment rate ; relative high
lifetime values for banks untapped opportunities over their
lifetime. They may not be allocating
Conventional bank focus

Underserved bank Younger people who have started working; significant resources to attract other
Underbanked
26%
Saving only customers (Median age 31.1), entrepreneurial, demanding types of customers whose lifetime
fast financial solution (e.g.: Credit access) ; value is uncertain (ie. the
uncertain savings and investment rates; underbanked and unbanked) as the
uncertain lifetime values for banks. customer acquisition, maintenance
Limited access People from the rural area (85% resides and opportunity cost is generally high.
outside Tier 1 cities, across 6000 islands),
51% those people with limited personal finance As such, there is huge value for
Unbanked
anyone who is able to address any
No incentive

education ; uncertain lifetime values for banks

part of this unmet need in a
Limited financial 37% working age population without basic profitable and sustainable manner.
education; intimidated by banks
exposure
Population
Source: World Bank, 2010; Google, Temasek, Bain & Company E-Conomy SEA 2020, Momentum Works research

7
© Momentum Works
 Background and opportunity
Social development & Covid-19 have accelerated digitalisation at scale

Deepened digital Awareness, Access, Active engagement and Adoption

High Active digital transactions with

4 $B
mobile payment
Fintech investments and support from
Spending

‘19 6.8

Jan - Aug
Total electronic money
regulators in recent years have driven
transaction 8M2020 grew 8.9
‘20 infrastructure & financial awareness.
31% to $8.9B

Active digital presence Covid-19 has accelerated the inclusion of

Financial empowerment

hr/day
3
Engagement

Time spent online grew to Pre-covid 3.6 mass public into digital economy.
4.3hr/day post-covid, from
Post-covid 4.3 These factors have pushed Indonesians
3.6 hr (#3 in APAC)
to:
Mobile internet access - be more digitally and financially
2 ‘16 38%
Smart phone internet penetration aware;
Access

at 63% 2019, to reach 81% by 2022 ‘19 63% - have greater access to the Internet;
- start engaging and spending more
‘22F 81%
time and money online.
Education & literacy
Awareness

1 Working population with basic

‘16
61%
education grew to 63% 2019 ‘19 63%
Low

Source: World Bank, 2019; Google, Temasek, Bain & Company E-Conomy SEA 2020, Momentum Works research

8
© Momentum Works

Digital banks primed to realise the value of financial inclusion success
Digital bank well-positioned to bridge gap of unmet needs
Conventional bank
Assistance at branches to guide complex 24/7 digital support; travel-free in-app
Access
transactions (mainly in cities)
Private advisor to guide investment;
Offering
Reliable credit access
(Selective, complex process)
Established, foolproof institution
Source: Momentum Works research
© Momentum Works
Digital bank
transactions; Easy and fast
Know-Your-Customer (KYC) process
Entry level / Personalised offerings -
Investment combining human expertise,
data optimisation and robo-tech; Easy
credit access
Intuitive, fun and easy solution
Background and opportunity
Compared to traditional banks, digital banks have less IT
legacy baggage, less business cannibalisation, lower
operating costs (where physical presence is concerned),
and can react faster to customers’ demands. This leads to
4 distinct advantages that can help a digital bank grow:
1. Access to more customers across the country
digitally.
2. Service more effectively: Can provide more
customised or personalised services to different
customer segments online
3. Agile product and offering: Able to track and analyse
all customer interactions and make iterative
improvements on products and services
4. Mass appeal: As the population is becoming more
accustomed to mobile-based services, digital banks
can provide intuitive interface, with fewer jargons.
However, there will be many other challenges that a digital
bank will need to address to be sustainable and profitable
in the longer term.
9
 Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.

3. Development

10
@AgnisYulia
 Development
2020 sees accelerated development, tech players enter the digital banking foray

Domestic commercial banks, regional banks and tech players race to own a piece in Indonesia digital banking play.

2016 2017 2018 2019 2020 2021 2022F

by by
by
Digital bank transformation

by
by by
by by
by by Tech players join
the foray
by

BI introduced new Mobile wallet subsidy OJK push for consolidation; OJK further push for consolidation;
OJK launched Fintech
e-money regulations war
Policy changes

P2P lending framework

Mandate minimum total equity Mandate minimum capital of
POJK Number 12 set out
BI introduced Indonesia of IDR 1 trillion ($70M) for bank IDR 3 trillion ($210M)
legal regulation on
payment system 2025 to operate
digital bank
Vision Framework
POJK Number 13 allows
use of AI and Indonesia launched
robo-advice in financial National QR payment
services standard (QRIS)
Source: Momentum Works research
11
© Momentum Works
 Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of

4. Policies & regulations

Momentum Works. Any reliance on such material is made at
users’ own risk.

12
 Policy & regulations
Players need licences from both BI and OJK to operate digital banking services

Key regulatory body and officials Regulators have been supportive on digital economy and
financial inclusion/education. They are encouraging banks
1 Perry Warjiyo to consolidate and undergo digital transformation.
Governor of BI
Main banking Gives approval
license Indonesia does not grant digital bank-only licence
Conventional Bank Licence All digital banks require OJK (Financial Services Authority)
Min capital IDR 2 Trillion ($140M) (2021) → IDR 3 Trillion ($210M) (2022) digital banking services licence in addition to Bank
up to 99% foreign ownership Indonesia conventional bank licence.
allows bank to do:
For foreign investors, best option to tap into digital
banking in Indonesia is through acquisition of an existing
Savings Loan Investment Others commercial or rural bank.1

Wimboh Santoso As of March 2021, OJK and BI are in the middle of preparing
2 Head of the board of new digital bank regulations under OJK (POJK), to be
Additional digital commissioners released mid 2021, which outlines key guiding principles:
Signs regulations
banking services
license Anung Herlianto ● Minimum capital injected by investors into digital
Digital Banking Services Licence Director of banking research bank: IDR 10 Trillion (USD 695 mil)
and regulation ● Having to maintain certain levels of liquidity
allows bank to do: Conducts due diligence ● Tech companies are able to acquire existing banks
and transform them into digital banks or issue
digital bank licence to investors
Online banking Online user Online distribution ● No firm decision has been made on granting digital
services verification channels only banking licenses to investors
Notes: BI regulations for banks: Peraturan Pemerintah Republik Indonesia Nomor 70 Tahun 1992; Undang-Undang Nomor 10 Tahun 1998; OJK regulations for digital banking services license: Peraturan Otoritas Jasa Keuangan
Nomor 12/POJK.03/2018 1. As of March 2021 regulations
Source: Momentum Works research 13
© Momentum Works
 Momentum Works 2021. All rights reserved. The material

5. Growth and competitive

contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.

landscape

14
 Growth & competitive landscape
2020 sees steady industry growth, with rapidly changing competitive dynamics

Download growth reflects stronger digital bank adoption

# 365 days downloads (M)
Overall industry new downloads, a proxy of user growth and
7% 4.1 also of awareness growth, increased by 7% yoy in 2020.
3.8
0.2 BTPN Jenius, OCBC Nyala and Permata bank lead in absolute
0.3
0.3 numbers. While UOB TMRW and OCBC Nyala achieve high
0.4 growth,~5x and ~2x yoy respectively:
0.7 ● TMRW (officially launched in 2020) on strong start;
0.7 innovative gamification features and incentive effect help
0.1

0.8 0.7
DBS Digibank declines (-59% yoy), partially due to online
registration with offline verification process (affected by social
restriction).
0.4
1.9
1.6 We believe that current digital banking penetration remains
concentrated among the more tech-savvy banking
population looking for alternatives.

Many early digital banking adopters will try out a few different
digital banks to test out their features / timely incentives.

2019 2020
Source: AppAnnie, SensorTower, SimilarWeb, Momentum Works analysis
15
© Momentum Works
 Growth & competitive landscape
1
Indonesia added 3 million new users in 2020 , with Jenius leading

Digital bank Pseudo

Regional banks
Year established 2016 2017 2020 2021 2019 2018 2019
Parent’s total
asset (USD B) 2
12.6 6.2 8.0 74.2 14.2 13.6 13.9
# users added
in 2020 (M)
1.4 0.20 0.27 N/A3 0.51 0.50 0.17

As the first mover, Jenius is now leading with 3 million total users
from more than 5 million total downloads4. PermataMe, Nyala by
SG OCBC NISP and D-Bank by Danamon have not separated their
digital bank app from commercial bank app. TMRW by UOB is
Local commercial / rural bank
ID catching up fast, while BCA, the largest private bank in Indonesia,
is ready to launch its own digital bank in 2021.
Tech / Fintech players
A number of the tech players, including Gojek and
SG SEA Group, have fintech/payment licences that already allow
them to offer many digital financial services, including lending
CN and consumer credit to their vast customer base. Some have also
acquired banking licence - that will lend them both credibility and
ID operational flexibility. What is unclear, is whether or how these
tech players intend to compete in the digital banking space.
1. Including digital bank and pseudo digital bank 2.Based on 2020, except DBS, based on 2019 3. Not active yet, as of March 2021 4. At end of 2020
Source: AppAnnie, SensorTower, SimilarWeb, company annual report, Momentum Works estimates 16
© Momentum Works
 Growth & competitive landscape
Digital banks offer attractive terms to onboard customers

Benchmarks
TMRW, Digibank and PermataMe
offer the most aggressive (i.e. Digital bank Pseudo Tech Conventional
attractive) terms to sign up new Rank:
customers.
More Attractive

That said, there are more to these Less attractive

terms that determine how
attractive a particular digital bank Monthly fee (IDR) 10k Free Free 20k2 Free Free Free 15-20k4 12.5k
is to consumers. Free transfer Free up Free1 Free Free Interbank Interbank
Free1 Free Free1 25x 6.5K 6.5K
(monthly) to 25x 10x 10x
These include:
Minimum deposit 0 0 0 200k 0 0 0 500k 500k
1. Relevance to needs Saving interest
4% 3% 4% n/a 3% 3% 3.5% ~0.18 ~1.5%
(investment, loan, savings, (p.a.)
%
foreign transactions, etc.) Verification Online, Offline, Online, Online, Online, Online, Online, Offline Offline
process vid call agents vid call vid call3 vid call videcall videcall branch branch
2. Ease of processes
Cash withdrawal Free up
(KYC, login, transfer, buying Free1 Free Free 1 Free1 Free
n/a*
Interbank Interbank
(month) to 25x 15x 10x 10x 6.5K 6.5K
investment, taking loan) ; Free
eWallet top up fees Up to Up to Up to Up to Up to 25x Up to Up to
3. Attractiveness of platform (IDR) 5k 2k
Free
2k 1k 3k monthl 1k5 1.5k
including its features and y
Bill payment fees Up to Up to Up to Up to Up to Up to Up to Up to
gamification; Free
5k 3k 3k
(IDR) 1.5k 5k 3k 3k 10k
4. The brand trust;
Note: 1. With average account balance 1mil in the previous month 2. For account with previous month balance below IDR 1 mil ; 3. The
5. Quality of customer service video call verification needs to be done by waiting for OCBC agents to call users *Bank Jago does not have debit card as of Apr 2021
Source: Momentum Works research as at March 2021 , except for Jago, Mandiri and BNI which is as at April 2021.
17
© Momentum Works
 Growth & competitive landscape
Dissecting leading players: Strengths, Weaknesses, Focus
Company Strengths Weaknesses Target and focus
As it is part of bank BTPN (a local rural bank), its’ asset base,
regional experience, and tech expertise could be limited,
compared to the larger national/ international banks.
First mover into full digital banking in Indonesia- with most complete
product features addressing what the young customers want. Their product and operation capabilities are not catching up Young millennials to help them
with fast growing user base. An example is that their customer save and get loan with targeted
Strong marketing and community building efforts that appeal to service is slow and unresponsive. goals (i.e: to buy cars , house)
young users (offer free financial classes, etc.).
Many users have stopped using its service once it started
charging a fee in Jan 2021. This could make its leading
position vulnerable to other digital banking competitors.
Although registration process can be done online, offline Young working adults who are
verification process is still required, with either a visit from keen to save for investment and
Strong, trusted brand name (Singapore’s largest government-owned
agent or booth visit from users. foreign exchange.
bank) drives users’ confidence.
It is slower in adapting new features compared to other It seems that the strategy still
Strong regional data and execution capabilities to leverage on,
digital banks but focus on creating a “best product experience” focuses on the relatively
especially in investments and wealth management.
before launching. well-off, rather than true
masses.

Backed by strong and trusted brand name from Singapore (UOB).

Only connected to GPN (Indonesian payment gateway) at the
TMRW had been launched in Thailand before Indonesia - able to draw moment while others are connected to Visa and Mastercard
Young professional and young
learnings and experience. Growing aggressively (officially launched in allowing for transactions outside of Indonesia.
professional family who are
Indonesia in Aug 2020), and building partnerships with local players
looking to save, invest and
(e.g. GoPay) They have mainly savings products at the moment and could
spend.
give an impression that they are targeted to a limited niche
Strong digital bank UI/CX capabilities including unique customer segment.
engagement methods e.g. gamification saving features.
Source: Momentum Works research as at March - May 2021
18
© Momentum Works
 Growth & competitive landscape
How are key players meeting consumer expectations

Four dimensions that contribute to organic growth

(0 to 10, with 10 being the best)

Mobile application From the consumers’ lens, the major digital banks
Friendliness of user
0 10 are reputable and trustworthy. With all other
interface, customer factors equal, the consumer expectations mainly
experience , stability and concentrate on:
application reach

Price 0 10 1. The mobile product (app);

Fee for every transactions
(transfer, payment, top up etc.) 2. Price, including fees, interests etc. ;
3. The banking products offered (which serve
Banking products the purpose of the users);
0 10
E.g. savings, loans,
investment that serve the
4. Quality of customer service
need of people

Customer service We collected user feedback on 4 key dimensions

Clear communication,
0 10 - reflected on the left.
knowledgeable, and responsive
to problems

1. Source: Momentum Works research as at March 2021 based on customer survey

19
© Momentum Works
 Momentum Works 2021. All rights reserved. The material
contained in this document is the exclusive property of
Momentum Works. Any reliance on such material is made at
users’ own risk.

6. Conclusion & perspectives

20
@NickGunner
Highlights / Key facts

1 The emergence of digital banks in Indonesia is well-timed and strategic.

● Fintech and digital economy development have pushed infrastructure and educated customers.
● Tech players move in to acquire banking licences; while traditional banks launch digital banks to defend, and grow.
● Supportive regulators drive banks to consolidate and undergo digital transformation.

2 Lots of noise in the market, absolute growth looks good but slow (industry downloads 7% yoy 2020);
penetration remains the same - among savvy banking population.
● Banks focus marketing and acquisition channels (ie: booth) on digital and financial savvy, cities population.
● Early adopters are receptive & shopping around for different offerings (migrating portion of savings to digital bank).
3 With 3 million new users added in 2020, key players are aggressive to capture market share through deals and
promotions, retention is the key.
● Increasingly competitive landscape: 3 active digital bank players (Jenius, Digibank, TMRW) leading the scene.
● Tech players as dark horses: Gojek and Sea Group have acquired banking licences, but might compete elsewhere.
● Challenge of scaling: Balancing massive user growth with key consumer expectations: product, price, features and
customer service can be challenging.
4 Ample opportunities still untapped (77% population unbanked/underbanked/underserved) , those who are able to take
long-term view to penetrate, acquire and retain mass market could carve out significant economic value.

21
© Momentum Works
Conclusion / Perspectives

Indonesia is a vast country with a large, young population, and significant gap in banking services. The underserved
(especially the young), the underbanked and the unbanked present prime opportunities for digital banks. The confluence
of infrastructure development, consumer education and regulatory/policy support make the timing perfect.

While a few large domestic and regional banks have launched their digital banks/digital banking services, we sense that
banks are taking a more cautious approach before expanding their offerings outside of Tier 1 cities and/ or to other
customer base. This is the same trend that we are seeing in the fintech lending space.

As we have seen, whilst it may be easy to acquire a customer, many of these customers are shopping around, and retention
of the customer will be the key. This boils down to product, price, features and customer service. For example, whilst
Jenius has been quite successful in acquiring customers in the past, their product and customer service have not caught up
with the growth - and this results in bad experience and may lead their customers to move to other competitors. Digital
banks will need to invest significant time and resources in key areas that customers find important.

Digital banks will also need to reassess how they intend to gain market share whilst remain profitable. Tech players are
encroaching into the foray, and tech players usually move stealthy but strike fast and hard.

The digital bank scene in Indonesia is still in its early stages, where many things might change. We expect more players to
join and the competition for especially the young customers to heat up. For the long term, we expect an equilibrium of a few
large players (through competition and consolidation) to emerge, with a suite of smaller players to focus on niche areas.

It is too early to tell who will come out on top.

22
© Momentum Works
 About Momentum Works

A Singapore-headquartered venture outfit, Momentum Works builds, scales and manages tech ventures across the emerging world.

We also leverage our knowledge, community and experience to inform, connect and enable the tech/new economy ecosystem.

Find more reports from Momentum Works at:

Connect Inform Enable
insights.momentum.asia

Subscribe to our blog The Low Down (TLD) to get our updates:

thelowdown.momentum.asia

Community Ventures Experience Join our exclusive Impulso community:

Knowledge

27
© Momentum Works
 How can you take these insights further

Corporates:
Talks, simulations and other immersive learning experiences on fintech (payment, lending),
ecommerce, electric vehicles, sustainability, disruptive companies, culture and more
through Momentum Academy

Leaders:
Insights and advice on investment, market expansion, innovation and building innovative
teams in the new economy on Momentum Insights & Momentum Advisory

Investors:
Curated reports / customised research / due diligence to help you navigate the labyrinth
of emerging markets and identify real, worthy investment opportunities via Momentum
Insights & Momentum Deals (coming soon)

Get in touch: hello@mworks.asia

28
© Momentum Works
 Knowledge Community Experience

Knowledge | Community | Experience

Inform, Connect and Enable tech and Ventures

new economy in emerging markets

hello@mworks.asia

© Momentum Works 29