To be sure, certain incumbent banks have already played a key role in the digitization of Indonesia’s financial sector. For instance, one favored model for digital bank development has been the acquisition of smaller incumbent lenders by Big Tech and/or conglomerates, which are then converted into a brand-new digital lender. One of the most prominent examples is SeaBank Indonesia, formerly Bank BKE.
However, larger incumbent lenders are unlikely to be acquired by foreign tech companies. And given their existing resources, they could become major players in Indonesia’s digital banking sector.
One incumbent bank planning to step up its digital game is Bank BTPN, which merged with Bank Sumitomo Mitsui Indonesia in 2019 to become Indonesia’s 12th-largest bank by total assets (US$12.7 trillion) can cater to both retail and corporate customers. The former has been its historic strength while the latter is possible now thanks to the merger with SMBC. According to Nikkei Asia, Bank BTPN currently has about 10 million customers.
Another traditional bank focusing on digital opportunities is the large state lender Bank Mandiri, whose revamped app now boasts nearly 90 features, allowing users to perform many functions in-app, from regular banking services and cross-border money transfers to investing in mutual funds and buying airline and concert tickets. The app has about 20 million monthly users, up fivefold from two years ago.
These efforts appear to be bearing fruit. Mandiri’s net income rose 27% annually to 39 trillion rupiah in the first three quarters of 2023. Research firm CreditSights reckons that higher transactions on Mandiri's digital platforms contributed to a 10% increase in its fee-based income, adding that the bank posted “the strongest returns among the Indonesian banks.” Further, Mandiri’s share price rose about 20% last year, outperforming other major Indonesian banks and the benchmark Jakarta Composite Index.
Looking ahead, we like the prospects and Mandiri and other big incumbents. The Indonesian market still has tens of millions of unbanked people and tens of millions of others who are underbanked. Large incumbent banks can undertake targeted digitization initiatives that leverage their existing customer bases while benefiting from being more trusted than tech companies – which are always looking for the next chance to monetize user data – when it comes to financial services.