International Journal of Accounting, Management and Economics

url: https://ijame.id
Volume 1 Number 1 page 64 - 71

DIGITAL TRANSFORMATION IN THE BANKING INDUSTRY

CHALLENGES AND OPPORTUNITIES

Siti Nurjanah1, Vilza Shalshabilla2 and Adinda Tri Widya Wulan Dari3
Email : sitinurjanah7120@gmail.com
1,2,3
Universitas Samudra

ABSTRACT
This research was conducted to see how digital transformation is in the banking industry,
in terms of the challenges and opportunities of this digital transformation. Based on the literature
research from several previous studies, it can be concluded that almost on average the results of
previous research conducted by several studies state that digital transformation has a significant
influence on banking development. Apart from that, with digital transformation providing new
opportunities for banking, banking development has also increased due to this digital
transformation. As for the challenges, namely the changes felt by employees who carry out
systems that are usually traditional and now changes in digitalization, requires employees to be
provided with trainings that improve their ability to use digital systems. Apart from that, another
challenge is in the form of maintaining the system which must be carried out periodically.
Remembering attackscybertechnology is common. So this must be considered in carrying out
digital transformation.
Keynotes:Digital Transformation, Challenges, Opportunities.

INTRODUCTION
The banking industry has undergone a significant transformation with advances in digital
technology. This shift includes the use of technology such as online banking, mobile banking,
and digital payments. At the same time, customers are also increasingly choosing banking
services that are easy to access, fast and safe. Therefore, banks must be ready to face challenges
and take advantage of opportunities that arise from this transition. Banking is a very important
element for a country's economy, because without banking economic activity will be paralyzed.
If the banking world progresses, it will have an impact on national and global economic growth.
Banking is also a center for economic transactions, including retail banking which is determined
by the absorption of third party funds and the expansion of the banking business is determined
by financing.
The demand for banking digitization is also reinforced by the shift in society to the
digitalization era, which is currently dominated by the millennial generation, who prefer the
convenience of online transactions through digital platforms. The number of internet users in
Indonesia, reaches 54.68% of the total population of 262 million people, of which 87% are active
users of chat applications and 74.84% are active users of social media applications. This data
illustrates the transformation of digitalization in people who are starting to follow the
development of the digital era, which promises banks to change marketing strategies from
conventional to digital, thus encouraging increased literacy in digital banking services. The

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url: https://ijame.id
Volume 1 Number 1 page 64 - 71

urgency of the banking transformation process was also driven by the emergence of new
competitors, namely non-banking financial service providers, or commonly known as fintech.
The fintech business is starting to erode banking services because of the various conveniences it
offers without complicated bureaucracy. Data from Capgemini, illustrates that globally more than
63% of banking customers also use the services of fintech companies. In Indonesia, the fintech
business has boomed in 2018 until now with the convenience of cross-platform digital payments.
Even some start-up companies are starting to look at this business because of the growing
prospects and market share. The widespread use of payment applications and digital money has
resulted in a decrease in the demand for paper money and a decrease in the growth of credit card
users. illustrates that globally more than 63% of banking customers also use the services of fintech
companies. In Indonesia, the fintech business has boomed in 2018 until now with the convenience
of cross-platform digital payments. Even some start-up companies are starting to look at this
business because of the growing prospects and market share. The widespread use of payment
applications and digital money has resulted in a decrease in the demand for paper money and a
decrease in the growth of credit card users. illustrates that globally more than 63% of banking
customers also use the services of fintech companies. In Indonesia, the fintech business has
boomed in 2018 until now with the convenience of cross-platform digital payments. Even some
start-up companies are starting to look at this business because of the growing prospects and
market share. The widespread use of payment applications and digital money has resulted in a
decrease in the demand for paper money and a decrease in the growth of credit card users. started
to look at this business because of the prospects and market share that continues to grow. The
widespread use of payment applications and digital money has resulted in a decrease in the
demand for paper money and a decrease in the growth of credit card users. started to look at this
business because of the prospects and market share that continues to grow. The widespread use
of payment applications and digital money has resulted in a decrease in the demand for paper
money and a decrease in the growth of credit card users.
So based on these changes, it encourages banks to develop information technology and
bring about major changes, namely shifting from traditional systems to digitalization systems,
because current business success is more influenced by how quickly companies can respond to
changes that occur. The transformation that is urgent for banking today is the digitization of
banking services, not just digitization by simply moving manual transactions into automatic
transactions. However, banking digitization has a broader meaning, especially to meet banking
business needs, namely by providing the latest services with the aim of strengthening customer
transactional behavior. Based on this, the authors want to conduct literature research on banking
digital transformation. What are the challenges and opportunities that banks have if they carry
out transformations into the banking digitalization era, will there be opportunities to get positive
responses from the public or are there challenges from the banking management system or other
challenges.

LITERATURE REVIEW
Digital Transformation
Digital transformation is a process of utilizing digital technology such as cloud computing,
mobile computing, and virtualization technology where all system components within the

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International Journal of Accounting, Management and Economics
url: https://ijame.id
Volume 1 Number 1 page 64 - 71

organization are integrated with each other. In addition, digital transformation can also be
interpreted as a result of a combination of a business and digital innovation that has an impact in
the form of changes in structure, values, processes, positions, and ecosystems inside and outside
an organization's environment. Digital transformation is needed to develop business in the
digitalization era where organizations and people are very dependent on data and technology, so
that digital transformation is expected to increase efficiency in operations and provide added
value to customers (Ernita, 2012).
In the Big Indonesian Dictionary (KBBI), transformation means change. These changes can
be in the form of changes in form, changes in nature, changes in function and so on.
Transformation is a process of changing something for the better. The transformation has several
characteristics including:
a. There is a change or difference in form, nature and so on.
b. There are differences in the concept of characteristics or identity.
c. There are different conditions and times.

Banking Digital Transformation Challenges

According to Roberto Akyuwen as OJK Senior Executive Analyst on the newsetup kontan
website (2022), there are 9 challenges that must be faced by actors in banking digital
transformation, namely:
1. Data Leakage Risk
Data leaks are prone to occur in the digital era, and the banking system is no exception. So a
system is needed that regulates protection, prevention and ways to deal with leakage of
personal data.
2. IT Investment Strategic Risk
It is important to pay attention to the selection of third-party hardware and software providers.
Errors in choosing a vendor can have a negative impact on the data migration that is carried
out. Such as data leaks, phishing, and so on.
3. Cyber Attack
Cyber attacks are very likely to occur if there are no deterrents or barricades installed to
contain them. Forming a cyber security team as the vanguard in tackling cyber crime is an
important thing that must be prepared.
4. Human Resources
Organizational readiness in welcoming change, especially human resources that must be
prepared through direction, counseling, and training. As well as relevant skills in the digital
era.
5. Communication Network Infrastructure
Communication networks need to be carefully designed so that they can support the
acceleration of digital transformation. This communication network will facilitate the process
of internet-based communication.
6. Regulatory Framework
Regulatory framework is the rule of law that regulates how the transformation is carried out
and the Government's support in this regard.

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International Journal of Accounting, Management and Economics
url: https://ijame.id
Volume 1 Number 1 page 64 - 71

Digital Transformation Opportunities

In the Financial Services Authority website (2022) The demand for banking digitalization
is strengthened by various factors driving the development of digital banks in Indonesia,
considering that Indonesia is an economy with great potential to absorb digitalization flows.
These driving factors are reflected in 3 (three) main aspects, namely digital opportunities, digital
behavior, and digital transactions. Digital opportunities include demographic potential, digital
economic and financial potential, potential for penetration of internet use, and potential for
increased consumers. Digital behavior includes ownership of devices and use of mobile
applications (mobile apps). Digital transactions include online trading transactions (e-commerce),
digital banking transactions, and electronic money transactions.

METHODS
In this study, we use a qualitative descriptive analysis approach to identify opportunities
and challenges for digital transition in the banking industry. We collect data through literature
reviews and case studies from banks that have successfully implemented digital strategies. We
also analyze industry trends and regulatory policies related to the digital transition in the banking
industry. In this research the type of research used is library research or literature study where
researchers rely on various literature to obtain research data and use a qualitative approach
because the data produced is in the form of narratives or descriptions.

RESULTS AND DISCUSSION

1. Kurniawan, et al. (2022). The research they conducted aims to find out how much influence
digital transformation has on bank performance. Digital transformation is a trend and a
necessity to survive in the current pandemic era. The banking industry as one of the
industries that is required to be very responsive and fundamental in nature also needs to carry
out digital transformation. This study examines the effect of digital transformation and
innovation on the performance of Bank BJB. Respondents in this study were leaders from
65 branch offices of Bank BJB in Indonesia. This study uses PLS-SEM and proves that there
is a positive and significant effect of digital transformation and innovation on company
performance.
2. Ngamal, Y., & Perajaka, MA (2022). Their research discusses trends in the use of digital
technology in the banking industry that are happening in the world, specifically in Indonesia.
This study found that the use of digital technology (digitalization) has made the global
financial ecosystem change rapidly. This is happening because the public's demand for
digital services will continue to increase. This opens up opportunities for the banking
industry to increase the number of customers and increase profits. However, on the other
hand there are a number of channels where banking institutions have the potential to
experience potential losses due to cybercrime which will continue to increase.
3. Maulidya, GP, & Afifah, N. (2021). In his research stated that, Digital transformation is not
just moving from traditional banking to the digital world, but an important change in the way
banks and other financial institutions learn about interacting and satisfying customers.
Digital transformation begins with an understanding of digital customer behavior,
preferences, likes and dislikes and changes that lead to major changes in organizations, and

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url: https://ijame.id
Volume 1 Number 1 page 64 - 71

from product centric to customer centric. Banking demands in this digital era are anytime
and anywhere. This makes banks need innovation, toughness, safety, optimization and ready
to meet the expectations of technology-savvy customers. If banks do not meet customer
needs, then customers are willing to leave a bank for another bank that meets their needs.
4. Hartono, B., & Atmaja, HE (2021). In their research, the main reason why digital
transformation in HR is because digital technology has the potential and ability to transform
HR as we know it today to become more efficient. The purpose of this research is to explore
how the practice of Human Resource Management (HRM/HRM) can be the key to the
success of the banking industry in responding to increasingly complex competition. digital.
HRM plays a role in creating changes in digital habits within the company, preparing digital
HR in the company, and developing digital capabilities.
5. Abubakar, L., & Handayani, T. (2022). In his research stated, The digital era encourages
national banking to transform into a Digital Bank. This transformation gave birth to banks
that are more efficient, innovative and able to create financial inclusion. The challenges
include large investments; rapid product and service innovation; the presence of alternative
non-bank financial services (Fintech); and the potential for misuse and security of customer
data. Therefore, it is necessary to strengthen regulations in several aspects so that banking
digital transformation can achieve its goal, namely to create a banking that is resilient,
competitive and contributive. In addition to the implementation of prudential banking
principles, regulations that need to be strengthened are information technology governance
and risk management in digital banks, which have different characteristics from traditional
banks.
6. Buwono, SR, Abubakar, L., & Handayani, T. (2022). Their research states, in the financial
services sector, especially banking, digital transformation acceleration is expected to be an
alternative after the Covid-19 pandemic to encourage performance improvement, accelerate
financial access and national economic growth. In its development, currently financial
interactions and transactions rely heavily on technology, as do digital technology-based
products such as e-money, e-wallet, internet banking and mobile banking. however, the
digital transformation process also needs to be supported by adequate risk mitigation and
requires policy support, as well as an active oversight role from the Financial Services
Authority (OJK) and Bank Indonesia (BI) as regulators, so that the digital transformation
process from licensing,
7. Maru'ao, SEP (2020). This study investigates the impact of digitalization on the efficiency
of the banking industry. Researchers used financial report data from 80 banks in the 2015-
2019 period. Data Envelopment Analysis (DEA) is used to measure the efficiency of bank
intermediation and a digital banking index is built through content analysis on bank financial
reports. The results of the Moderated Regression Analysis (MRA) method in this study show
that digitalization has a positive relationship to banking efficiency. However, when looking
at the interaction between bank size and digitalization, there is a downward trend in total
intermediation efficiency. When compared to small banks, digitization at large banks tends
to result in lower intermediation efficiency increases. Collaboration between large banks and
small banks in digitalization is an important policy implication in this research. In addition,

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Volume 1 Number 1 page 64 - 71

the synergy between banks and fintech should be a crucial strategy in optimizing the impact
of digitalization, especially in the context of increasing intermediation efficiency.
8. Suharbi, MA, & Margono, H. (2022). In their research, it aims to analyze the transformation
of the banking industry into a digital bank in providing services to customers. This research
is a type of qualitative research using secondary data from reliable literacy. The results of
this study indicate that transforming into a digital bank provides many advantages for banks
to be able to continue to survive in running their business. Where digital banks are the choice
of customers in transactions in the financial sector because they are easy, fast and efficient.
Transforming into a digital bank can also increase more customers and fee base income for
banks because they can collaborate with fintech and e-commerce and can efficiently manage
bank assets which in turn can increase bank profits exponentially. However, in transforming
into a digital bank, banks must have a strong foundation, especially in terms of infrastructure
and security of customer data which are vulnerable to hacking attacks (cyber crime). So that
in the era of the Industrial Revolution 4.0 technology is the main key in winning the
competition and remaining sustainable in running a business, for this reason the banking
sector in Indonesia is required to be able to continue to innovate in providing the best service
to its customers. banking must have a strong foundation, especially in terms of infrastructure
and security of customer data which is vulnerable to hacking attacks (cyber crime). So that
in the era of the Industrial Revolution 4.0 technology is the main key in winning the
competition and remaining sustainable in running a business, for this reason the banking
sector in Indonesia is required to be able to continue to innovate in providing the best service
to its customers. banking must have a strong foundation, especially in terms of infrastructure
and security of customer data which is vulnerable to hacking attacks (cyber crime). So that
in the era of the Industrial Revolution 4.0 technology is the main key in winning the
competition and remaining sustainable in running a business, for this reason the banking
sector in Indonesia is required to be able to continue to innovate in providing the best service
to its customers.
9. Linggadjaya, RIT, Sitio, B., & Situmorang, P. (2022). Their research aims to conduct a study
of the business strategy transformation of PT Bank Jago Tbk (Bank Jago), which is a digital
transformation from previously Bank Artos which was a conventional bank, then turned into
a digital bank. This study carries a relatively new research topic, namely digital
transformation in banks in Indonesia. The research population is all digital banks in
Indonesia, with a total of 5 digital banks and 7 banks that are in the process of going digital.
However, with the limited data available regarding digital banks, the discussion was carried
out on Bank Jago from a financial perspective, the five domains of digital transformation
according to Rogers (2016), and limited comparative studies of bank performance with Buku
III banks (where Bank Jago is one of the Buku III banks) and aggregate banks in general.
The results of this study are that Bank Jago has carried out the right business strategy in
accordance with the five domains of digital transformation according to Rogers (2016),
whereby this digital transformation has achieved better business growth compared to Buku
III banks and aggregate banks in general. Practical implications: (1) the success of Bank
Jago can be used as a role model for other digital banks and conventional banks who wish
to change the business model through digital transformation, (2) For OJK: make further

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regulations for reporting digital banks, which are separate from reporting for commercial
banks so that Indonesian banks have data on the development of digital banking.
10. SD, AA (2022). Their research explains that, in 2021 PT. Bank Negara Indonesia (Persero)
or BNI took the initiative to carry out digital transformation as a form of business to compete
with digital banks which are increasingly prevalent in Indonesia. However, based on
statistical data the failure rate of digital transformation is very high, reaching 60-85%. This
is a concern for BNI, which has just started a digital transformation initiative to compete
with digital banks that are increasingly prevalent in Indonesia. The purpose of this research
is to describe the internal and external conditions of BNI which can affect the
implementation of digital transformation. Furthermore, this study also aims to describe
BNI's business strategy in carrying out digital transformation so that it can compete with
digital banks in Indonesia. The data collection method used in this study is through semi-
structured interviews with internal company sources. The analytical framework used in this
research includes PESTEL Analysis, Porter's Five Forces Analysis and SWOT Analysis.
Based on PESTEL analysis, BNI's digital transformation is heavily influenced by the social
and technological environment in facing digital bank competition in Indonesia. Meanwhile,
based on Porter's analysis of five strengths, it was found that the level of competition in the
banking industry in digital transformation was a high threat to BNI. Based on this analysis,
an alternative strategy is obtained where BNI needs to develop a digital bank to provide
banking services that are easier, faster and safer.

CONCLUSION
Based on the literature research from several previous studies, it can be concluded that
almost on average the results of previous research conducted by several studies state that digital
transformation has a significant influence on banking development. Apart from that, with digital
transformation providing new opportunities for banking, banking development has also increased
due to this digital transformation. As for the challenges, namely the changes felt by employees
who carry out systems that are usually traditional and now changes in digitalization, require
employees to be given training that increases the ability of employees to use digital systems.
Apart from that, another challenge is in the form of maintaining the system which must be carried
out periodically. Given the frequent technological cyber attacks. So this must be considered in
carrying out digital transformation.
Because basically the digital transition in the banking industry provides a great
opportunity for banks to improve their performance and serve customers better. However, the
challenges associated with changes in technology, regulation and organizational culture should
not be ignored. To successfully deal with this shift, banks need to adopt the right strategy,
strengthen their technology infrastructure, and continue to pay attention to customer needs and
preferences. This conclusion can provide guidance for banks in planning and implementing an
effective digital strategy to deal with the digital transition in the banking industry in the future.

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