UNAIR Economist: Neobank and Fintech cannot completely replace conventional banks

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Source: Kemenkeu

UNAIR NEWS – The digitalization process of the economy is accelerating rapidly. The development of this digitalization is triggered by the rapid advancement of information and communication technology and a shift in the pattern of economic interaction. It creates a strong ecosystem for the development of neobanks.

UNAIR Economist, Dr. Wisnu Wibowo SE., M.Si., said that neobanks, known as challenger banks, are a form of breakthrough innovation in financial technology that offers digital-based banking services (branchless). According to him, neobanks do not have a physical form as bank services in general, but they are fully online.

“In accordance with the characteristics of the business, neobanks are targeting tech-savvy customers or those who understand the technology and do not mind doing most of their financial management through a mobile application,” he said.

Referring to the McKinsey report, Indonesian consumers are very open to digital banking. The prospect of digital banks in Indonesia is very promising. As stated in the report, the monthly usage of digital banking in Indonesia has grown twice as fast as in other developing Asian countries.

“This is also supported by several advantages of digital banks which cannot be found in conventional banks,” he said.

The Vice Dean I of the Faculty of Economics and Business (FEB) UNAIR said that neobanks have not only user-friendly characteristics, but also advantages in features as part of the customer’s lifestyle. The presence of neobanks will clearly affect the millennial customer groups and other groups who are close to the use of smartphones.

Unable to completely replace conventional banks

Neobanks and financial technology (fintech) will not immediately replace conventional banks. Trust and security factors will also greatly influence a person’s decision to take a financial product.

“The bigger and more recognized a financial institution is, the more people trust the industry,” he said.

It is undeniable that problems regarding consumer protection from possible risks become a concern for neobank activities. The most likely condition is that conventional banks are able to innovate and adapt or neobanks will coexist and compete in providing financial products and services to the public.

“Conditions like this will clearly benefit the community because they will get more efficient and valuable financial services as a result of the increasingly attractive competition among retail banking,” he said.

Conventional Bank Strategy

The Chief Regional Economist of Bank BNI said that to survive amid intense competition with neo-banks and fintech, conventional banks must take the initiative to strengthen digital products and services. The transformation to a digital bank requires large capital, so it is strongly encouraged for the conventional banking industry to consolidate its business.

“Therefore, it is necessary for small and medium-sized banks to carry out mergers and acquisitions in order to strengthen their capital structure so that they can adapt agilely to the challenges and needs of financial digitization,” he said.

Innovation in financial services is a must for the sustainability of conventional bank business. Conventional banks should be able to utilize financial technology for financial services that are able to reach all levels of society quickly and safely as part of the consumers’ lifestyle.

“Conventional banks together with neobanks and fintech can collaborate to help the digital financial revolution by working on the huge potential of the digital bank market through mutually beneficial cooperation,” he concluded. (*)

Author: Sandi Prabowo

Editor: Binti Q. Masruroh

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