The rise and stagnation of digital banks – Academia
he rise of digital banking is a global phenomenon. Not only are new digital-only banks emerging, but traditional banks enter the field through subsidiaries. Is it worth it for traditional banks to establish digital banking subsidiaries, or should they focus on developing their own digital banking services?
The arrival of digital banks into the banking industry has encouraged banks to innovate, forcing them to be more responsive. These disruptors have been more creative and mission-driven, with a particular appeal to future generations of consumers.
Traditional banks have faced a tough battle as COVID-19 pandemic drove global adoption of the digital model. It turned out, however, that banking leaders have become extremely focused on it. Launching digital banks with their own distinct branding has become popular among established traditional banks. They own dozens of Indonesian digital banks.
Perhaps the pressure from digital banks was just what traditional banks needed to get a better understanding of their customers. And maybe they can finally seize the momentum, given that they have a solid foundation and are familiarizing themselves with the technology required to retain customers who would otherwise leave them for the upstarts.
In Indonesia, it must be admitted that for a customer, the advantage of a digital bank is the promise of higher returns and cash back. Their expense base is significantly reduced because they do not have to pay for physical branch offices or personnel to staff them. However, the strategy is also a need to convert traditional banks’ customer bases to their side.
According to Bank Indonesia data, despite the predicted growth of 27.3 percent in digital bank transactions, the realization in 2023 increased by only 13.48 percent. Predictions for 2024 have also been significantly reduced, with only a 9.11 percent year-on-year (yoy) increase expected.
So, why haven’t digital banks flourished? Currently, digital banks are a niche market because they have not yet realized their potential to provide the necessary customer experience and range of products, services and support to gain significant market share.
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