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The Future and Prospects of Digital Banking in Indonesia

The development of information technology has led to an evolution that leads to digital banking services. Digital bank aims to improve the efficiency of operational activities and the quality of bank services to their customers wherever they are. The pandemic condition that has accelerated the adoption of digital technology in Indonesia's aspects of social life, including banking services, is one of the main factors that encourage foreign investors to invest in domestic banks. In the future, they will invest more significantly when the pandemic has subsided and people's buying power has returned.

Digital banking services are banking services or activities using electronic or digital facilities. It enables customers to obtain information, communicate, register, open accounts, banking transactions, and close accounts, including obtaining other information and transactions outside of banking products, including financial advice, investment, electronic-based trading system transactions (e-commerce), and financial analysis without having to establish physical bank branches.

Currently, most investors interested in investing in digital banks have quite a variety of factors. One thing is that the prospects for the development of digital banking in Indonesia are promising. In the next 10 years, digital banks are expected to make banking industry competition more efficient, increase the number of business sectors financed by loans, less underbanked people, and create a complete digital ecosystem. In the future, only 20% of conventional banks will survive in the era of digital competition. In addition, 46.9% share of stock market capitalization to GDP is still relatively small. The presence of digital banks can trigger an increase in investment interest in the capital market. The presence of digital banks is also expected to accelerate bank consolidation. Those who are inefficient will lose to compete.

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Economists say that the Indonesian people are infrastructure-ready for digital banking. The government will add more hardware investment in digital infrastructure in the future. In addition, regulatory support through the POJK for Commercial Banks is a driving force for foreign investors to invest in Indonesian banking, especially digital banks. The promising prospect of digital banking development attracts foreign investors. After Ribbit Capital announced its investment in PT Bank Jago Tbk. (ARTO), now it's Alibaba's turn, through Akulaku Silvrr, to win the support of the majority of shareholders to become the controller of PT Bank Neo Commerce Tbk. (BBYB). Apart from Ribbit and Alibaba, other prominent investors like Grab are also reportedly eyeing small banks to convert to digital. Technology companies such as e-commerce and fintech are also increasingly aggressively acquiring small banks. These acts will strengthen the digital ecosystem that has been owned in terms of the financial business.

At least three things trigger the interest of foreign investors in Indonesian banking—first, the large population of In