Indonesia Series: Episode 2 (Digital Banks & its challenges)

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[PODCAST - INDONESIA SERIES]. Please turn on cc for English subtitles. In this podcast, we talked about the challenges facing digital banks in Indonesia and the proposed solutions.

[PODCAST - INDONESIA SERIES]. Please turn on cc for English subtitles. In this podcast, we talked about the challenges facing digital banks in Indonesia and the proposed solutions.

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Welcome to credolab's monthly podcast.


Welcome listeners, this month we have again Mrs. ParamitaWikansari, Sales Director & Country Director of credolab Indonesia.


This month we will be talking about Digital Banks.


Lately Digital banks are popping up around the world including Indonesia.


Aside from banks and financial institutions,


Now tech giants in Indonesia such as Gojek is investing in Bank Jago


SEA Group acquitted Bank Kesejahteraan Ekonomi and rebranded it into SEA Bank, and more.


Digital banks or challenger banks are banks that challenge traditional banks


Where digital banks are seen as a younger, more dynamic, and innovative rival.


It has now became a trend around the world.


A survey by Kearney in the U.K shows that


1 of 5 customers and 1 of 3 millennials use challenger banks as their primary account.


Also, 1 of 8 customers show preference in using challenger banks to shop online. why is that?


The reason, the survey found, is because challenger is easier to use.


Easier for opening an account and more compatible with other apps


It is interesting that people aged 16 - 22 years old are the ones who said that. That is a big percentage.


53% of those customers think that challengers banks are very easy to use, easier to open an account and has high compatibility with otherapps.


58% of 23 - 38 year olds think the same. The number is even bigger.


29 - 54 year olds that think the same dropped to 36%, and for 55 - 73 year olds is only 20%, because of technological barrier.


The prevalence of challenger banks is very good forIndonesia.


It will help reach 83 million people or 1/3 of Indonesian population who lacks access to informal financial services.


It is hard for traditional banks to reach all the people inIndonesian archipelago


So smartphone based financial services becomes the solution.As long as a person has a smartphone, he / she will be able to access financial services.


There are 3 main challenges digital banks / challenger banks face.


The first is habit, second is security, and the third is other technical issues.


First, let's talk about habit. Indonesian people are very accustomed to traditional banking.


For example, they are accustomed to getting full help and service from banks' customer service,


while digital bank is self service. So the challenge is they have to make things fast and easy to get a high adoption rate.


One of the main thing is ease of account opening within minutes from anywhere.


Also ease of onboarding process with e-KYC, with minimal steps such as picture upload and ID card number.


And then an easy, simple and transparent UI & UX.


Lastly, ease of access. Accessibility through smartphones and / or websites. All that is important to tackle the habit challenge.


The second and third challenge; security and technicalities.


To tackle this challenge, digital banks can adopt newest technologies to support their digital banking processes.


With technological adoption, the fees incurred can be lowered.


Digital banks are leaner and more efficient due to adopting technology and ecosystem, thus increasing consumer trust.


Like I said, Digital Banks could adopt the newest technology and the supporting ecosystem.


For example, the usage of e-KYC for onboarding customers ought to be common practice.


For the credit side, the newest innovation is real time credit scoring which is credolab's main offering.


Our technology could complement their existing conventional credit scoring.


With the use of our technology, Digital Banks and other financial institutions all people; be it the banked, underbanked, and unbanked people.


With conventional credit scoring, only some people can be scored.


We keep hearing about financial inclusion in Indonesia which needs to be improved, since only 61,7% of Indonesian people has a bank account.


Approximately 38,3% of the people are financially excluded.


Conventional credit scoring used by traditional banks are not without its own shortcomings.


People who scored high on traditional credit scoring is not guaranteed to be a good payor, because conventional credit scoring onlyevaluate people's capacity.


While people who can afford to pay on paper, are not necessarily people who have high willingness to pay.


This is also a problem for Digital Banks.


This is where credolab comes in. We measure people's willingness to pay an then calculate their probability of default.


Digital banks can use these alternative data to score people who do not have credit history or also known as thin-files, which usually have difficulties in getting loans.


But with credolab's alternative data derived from smartphones and / or website behavior metadata (data derived from another data)


In credolab, we only use the said metadata. No PII(Personally Indentifiable Information) being accessed.


With these smartphones and website behavior metadata, digital banks can get an accurate prediction on who would make creditworthy consumers.


Another use of credolab's behavioral credit scoring is,Digital Banks or other financial institutions can build products tailored to their consumers.


They can make more contextual offers, and more importantly, it will lower the cost of risk


Credolab uses SDK (Software Development Kit) which we embed into the digital banks' app, or any other mobile financial apps.


From this SDK, we can derive insights about the consumer.


We can score their creditworthiness, as well as give their digital footprint insight.


One of digital banks that uses our SDK and credit modelling is TONIK.


When TONIK's customer onboards, they can opt to give permission for us to analyse their digital footprint.


This is important because credolab and TONIK honour consumers' privacy rights and only evaluate data from people who give us permission to do so.


However the point I want to convey is; customers who fall into thin-file category with little to no credit history,


with digital behavioral credit scoring from credolab, financial institutions such as digital banks, digital lenders, or even traditional banks


can give financial access to customers who fall into thin-file category.


Thank you for inviting me to talk in this podcast. My closing words are, by partnering with fintech providers such as credolab,


digital banks and other digital lenders can reach more customers safely.


Fintechs, credolab included, have the ability and technology to help financial institutions make fair financial inclusion a reality.


With credolab, digital banks and digital lenders can have healthy growth. That's it for me, and thank you.


Thank you so much Mrs. Paramita for your useful insights in digital banks


See you on next month's podcast, good afternoon!


This concludes this month's podcast. Stay tuned for our nextone with more interesting topics and speakers. Thank you!