Understanding digital banks: What they are and examples in Indonesia

What is a digital bank?

According to the Indonesian Financial Services Agency (Otoritas Jasa Keuangan or OJK), a digital bank is a bank licensed in Indonesia that conducts its banking business exclusively through digital or electronic channels. These banks use state-of-the-art technology to provide fully digitized banking services that simplify financial management for their customers.

With digital banks, there is no need to visit a physical branch. You can open accounts, make transfers, receive payments, check account balances and even apply for loans from your smartphone or computer.

Digital banking services are offered by both new banks and traditional banks that have embraced digital transformation. However, OJK regulations require digital banks to maintain at least one physical office as their head office to comply with local banking laws.

The advantages of digital banks

Digital banking has revolutionized financial transactions and offers numerous advantages for personal and business use. Here are the most important advantages:

1. Fast, convenient and secure transactions

Digital banks make it easy to conduct transactions quickly and securely, eliminating the need to visit branches. With robust security features such as PIN codes, OTPs (one-time passwords) and biometric authentication, digital banking ensures that your money is safe.

Plus, cashless payments don't require you to carry large amounts of cash, reducing the risk of theft.

2. 24/7 access to banking services

Unlike traditional banks with limited opening hours, digital banks are available around the clock. Whether it’s midnight or a public holiday, you can access your account and make transactions at any time.

3. Lower fees for transactions and administration

Digital banks often have lower administration fees than traditional banks. For example, there are usually no additional fees for checking your account balance or transferring funds via smartphone or internet banking.

Many digital banks also offer very low transfer fees and special promotions. A few of these banks even provide free interbank transfers.

4. Provide inclusive financial services

Opening an account with a digital bank is hassle-free and requires only a few steps via an app. No extensive paperwork or visits to a branch are required.

This accessibility makes digital banks important for extending financial services to underserved populations, promoting financial inclusion, economic growth and improving living standards.

5. Access to innovative banking products

Digital banks often offer unique products that are not available from traditional banks. For example, some digital banks offer ultra-flexible deposit terms, such as short-term deposits with a maturity of just seven days, to meet a wide range of financial needs.

Factors driving the growth of digital banking

The rise of digital banking in Indonesia did not happen overnight. It is the result of several key factors:

1. Increasing internet usage

High internet penetration has familiarized people with online activities, from accessing information to making payments, creating a fertile environment for digital banking.

2. The growth of mobile apps

The proliferation of mobile apps tailored to everyday needs has driven the adoption of digital banking. By offering banking solutions directly through smartphones, digital banks have become an integral part of modern lifestyles.

3. Digital transformation of businesses

As the industry shifts to digital platforms to better serve its customers, the banking sector has also undergone this transformation, leading to more advanced digital banking services.

Forms of digital banking

Digital banking comprises a range of services that can be accessed via various digital channels. Here are the main forms of digital banking:

1. Mobile banking

Mobile banking or m-banking is a type of digital banking service that can be accessed through smartphone apps. These apps offer features such as balance inquiries, transfers, e-wallet top-ups and bill payments, and are often used for everyday transactions due to their convenience.

2. Internet banking

Internet banking offers similar functions to mobile banking but often includes additional features. It is accessed via laptops or smartphones that are connected to the internet.

3. Telephone banking

With telephone banking, you can contact the bank’s customer service by telephone to obtain services such as transfers, account inquiries or general help.

4. SMS banking

With SMS banking, customers can send specific text commands to a bank’s service number to perform actions such as account balance inquiries, money transfers or account statements.

Key services of digital banks

Digital banks cater to modern financial needs with a range of services designed for convenience and efficiency:

1. Online account opening

Opening an account with a digital bank is as simple as downloading a digital banking app, filling out a form and submitting documents electronically. Most banks will verify your identity by phone or video call, which simplifies the process.

2. Quick and easy financial transactions

Digital banks enable seamless financial transactions, from checking account balances to making transfers or online purchases. Many also support QRIS (Quick Response Code Indonesia Standard) for quick and easy payments.

Digital banks also simplify bill payments (such as utilities and insurance) with automatic payment options to avoid missed deadlines.

3. Loan applications and investments

Applying for loans or investments has never been easier. Digital banks allow you to apply for loans via their apps, including options such as the buy-now-pay-later (BNPL) loan. Some even offer investment and insurance products — all managed through a single platform.

Leading digital banks in Indonesia

The digital banking landscape in Indonesia has grown rapidly and has produced some outstanding players:

• SeaBank: SeaBank is integrated into the Shopee ecosystem, simplifying transactions for Shopee users and offers low transfer fees.
• Bank Neo Commerce (Neo Bank): A partner of Akulaku, Neo Bank offers high-interest savings, lending options and seamless integration with Akulaku services.
• Bank Jago: As part of the GoTo ecosystem, Bank Jago offers unique collaborative savings accounts and innovative money management tools.
• Blu by BCA Digital: Blu is a subsidiary of BCA and offers free inter-bank transfers, mutual fund investments and bill payment options.

Disadvantages of digital banks

While digital banks offer numerous conveniences, they also have some disadvantages that should not be overlooked. It is important to carefully weigh the pros and cons in order to choose a digital bank that best suits your needs and preferences.

Here are some of the main disadvantages of digital banks:

1. Lack of physical services

Digital banks typically do not have physical branches or in-person services, which can be a disadvantage for customers who are less familiar with digital technology. This limitation can also be a problem when customers need assistance with tasks that are difficult to accomplish online, such as opening corporate accounts or accessing premium services.

2. Dependence on internet connectivity

The quality of digital banking transactions depends heavily on the strength of the internet. A weak connection can cause transactions to fail or be delayed. In addition, faults in the bank’s server or the internet provider's server can temporarily interrupt digital banking services.

3. The need for technological adaptation

For some customers, especially older generations, it can be a challenge to navigate digital banking applications or technologies. A lack of knowledge about the available digital banking services can lead to errors in transactions. Switching to a digital banking platform can take time and may not be appealing to those who are used to traditional banking methods.

4. Security risks

Digital banks are vulnerable to cybersecurity threats, including online fraud, hacking and identity theft. Customers need to be vigilant about protecting their personal information and login credentials. Using strong passwords and enabling additional security features offered by the bank are important precautions to mitigate these risks.

Manage digital transactions more effectively with Aspire

Digital banks have become a hallmark of technological progress in the banking and financial sector. This development is in line with the increasing acceptance of digital transactions among various segments of the population. Convenience and efficiency are the main reasons why many people prefer digital banks for their transactions.

This trend is also extending to the business world, where many entrepreneurs and companies are now turning to digital transaction methods to streamline payment processes.

However, as a business owner, you need to monitor these transactions carefully. Frequent transactions can lead to higher transfer fees, and without a complete overview of your financial activity, you risk fraud and mismanagement.

To manage your company’s digital transactions more effectively, Aspire offers the perfect solution. 

With an Aspire Business Account, you can process transactions quickly and transparently. You can send and receive payments in over 30 currencies at competitive rates and lower transfer fees than traditional banks. In addition, you also get 10 free local transfers to any bank in Indonesia per month.

But that’s not all. Aspire also allows you to receive payments from customers through its payment gateway, which supports more than 26 payment methods, including bank transfers, digital wallets and QRIS.

There’s much more Aspire can do to help your business grow. Want to find out more? Contact our team today!