Over the past five years queues at banks have become a thing of the past. Rather than lining up just to perform a single transaction or get some cash, now it’s only necessary to go to the bank once every three months at most to re-arrange your finances. Now most people can relax at home and log in to their accounts to make transactions, top up their phones, pay their credit cards and buy goods or services. Traveling overseas no longer needs a trip to the bank to buy travelers’ checks: with a few exceptions your ATM card works everywhere in the world. Indonesia’s largest bank in terms of customers, Bank Rakyat Indonesia (BRI), has thrown off the conservative air that the country’s state-owned banks used to take pride in, and has become a leader in technology.
Two years ago it invested in its own satellite, BRIsat, to support its digital strategy across the country, successfully launched earlier this year. Recently it recruited a veteran of the telecommunication industry, Indra Utoyo, to lay down the bank’s digital transformation strategy and to oversee implementation over the next two years.
A 1985 graduate of the Bandung Institute of Technology, he studied for a Master of Science in communication and signal processing at the Imperial College of Science, Technology and Medicine at the University of London, graduating in 1994. He served as the director of digital and strategic portfolio at PT Telkom starting in 2012 and as acting president director of the company for two months at the end of 2014. He sat down with GlobeAsia’s Albert W Nonto and Gilang Al Farisi to share his insights into BRI’s digital transformation strategy. Excerpts of the interview:
GA: How do you see the digital transformation of the banking industry and how has BRI adapted to the trend? IU: The shift to digital technology has become an important need that every industry has to go through to keep up with the demands of customers. The change has come rapidly because of several reasons including the emergence of disruptive financial technology companies that have unbundled banking services. These fintech companies have made their services more accommodating to their customers and have become ‘category killers’ because of their focus on specific services, such as peer-to-peer lending, crowd-funding and payments. These businesses capitalized on the fact that with the current digital technology they do not need a large startup to launch their business or large costs to maintain it. Another reason why digitization has come rapidly into play in the industry is the availability of digital technology.
There are four areas that we need to improve to succeed in the digital race. One is how we engage our customers and personalize the services of the bank to suit the needs of individuals. Another aspect where digitization has been utilized is the empowerment of our employees to better serve the customer and be more productive in their jobs. Third is the optimization of our operation, and finally the most essential is the way we design our product has been transformed to provide better customer satisfaction. All in all, the shift to the digital age is about the mindset of the users, not all about the technology. BRI has been busy digitizing its core business. An example of this is the change in our product design to be more sympathetic to customers’ needs and wants. Our account officers’ duties, for example, have shifted to be more digitally friendly. We also put a large amount of effort into big data analytics that allow us to provide more agile services in detecting fraud or large risks in our investment. On the other hand, we have also been active in seeking digital partnerships with several fintech companies to expand our business and provide better services. We see several of these fintech companies having a better presence and better front-end services.
What stage has BRI reached in the digital transformation, and what has been implemented? We have already developed several strategies to help the bank shift into a more digital company. Chief among them is the adoption of the hybrid model of transformation. The model allows us to combine the current business discipline but also to seek out new business plans and implement the changes to further improve the bank’s overall performance within the national industry.
The two activities are maintained simultaneously to preserve the traditional aspects of the business - discipline, efficiency and resource management - but at the same time we need to adopt a startup mindset to seek out the best trend to complement and innovate our business principles. With this model we are able to experiment with business trends and innovation to supplement the bank and we have a dedicated team to help with the development.
BRI has a Digital Center of Excellence aimed at seeking new avenues to excel in the business aspect and services of the bank in the digital industry. We also seek out talents who are willing to work with us to design products that can attract the customers and change the mindset of the bank. In designing our products, we realize that the quality of the products we launch is not determined by the number of downloads of the apps, but by the traffic of the product. That is why we try to help the growth by measuring and continuing to improve the exposure of our products to customers. In our digital partnerships platform, we have opened around 20 application programming interfaces (API) to monitor for example the balance of accounts and transfers to not only help expose BRI’s products, but also to help grow the fintech businesses. We have also dedicated a team to analyze big data within our Digital Center of Excellence in order to target the needs and wants of our customers.
What challenges exist at BRI that affect the shift to the digital age? We have a couple of challenges in the shift to the new technology, the first being the governance aspect. The governance model that we are slowly changing, “the waterfall model,” is when there’s a problem, there’s a solution. That is no longer current in today’s industry. We are slowly but surely improving the governance model by implementing and adapting a more current model. The second problem within our bank is the digital architecture of the system that needs to be layered in order to provide front-, middle- and back-end divisions so that the company can be flexible in adapting to the innovations as they are implemented. We also need to modernize our infrastructure in our core banking to be able to maneuver through the trends.
How long will the process take? I believe the process will be fully in place within two years. We have already been working toward the goal for a while and hopefully by next year we can already see the difference.
What are your targets when all the systems have been fully implemented and what is the likely impact to the company’s bottom line? We have already been targeting to double our market cap in 2020 and also to revolutionize our vision. We are working toward the goal of being the most valuable bank in Southeast Asia, and home to the best businesses. We are also targeting to shift our portfolio from credit-based banking, or conventional banking, into fee-based banking. The shift is being done in the hope that we will create a new source of revenue for the bank. These targets have been written into our road map of the future of BRI. We are targeting by 2020 that our net profit will rise to Rp40.6 billion, up from Rp25 trillion in 2016, with the changes fully implemented into our business.
How much do you need to invest to transform the bank into a digital company? For the IT costs we are dedicating 6% of total operational cost. This includes the investment in new avenues of business and partnerships. With the dedicated budget we are continuing to implement innovations and changes to bolster our performance to meet the targets.
How is BRI’s strategy to grow your fintech service? Does the bank try to grow your own operation or acquire existing startups? In the current digital age we face the demand of being a speedy service provider without disregarding compliance. This means that we can’t depend solely on our abilities to provide the services, therefore we implement a strategic collaboration with other fintech companies. At the same time we are also developing our own fintech solutions that will inevitably compete with the financial technology companies out there. We also invest in areas that we think will complement the strategy for BRI’s growth.
Is there currently an example of a fully digital bank in the world? Well every industry in the current age has aspects that are digital, and every market has its own nature. We can see that an example of a fully digital bank is Spain’s BBVA, which has transformed fully in order to meet the needs of its customers. In the US there are a large number of digital banks because of the lack of fintech companies, as is happening in China with Alibaba. And I think Indonesia has good potential to pursue this avenue of business.
Is there a risk of lay-offs due to the shift to digital? There is going to be a lot of repurposing, those whose jobs can be replaced with technology will be removed in order for the bank to become more efficient. But this does not mean lay-offs of those employees, it means that some employees will be placed into jobs where the need for a human touch is essential. Employees will have to be retrained to be shifted to become front-end workers in order to serve customers, for example in the marketing division.
Are other banks in Indonesia undergoing the same process as BRI? I think there are several banks that are in the process of modernizing their services, or have gone through the process ahead of BRI. As we all know there are many banks in the country that offer digital banking to their customers. What’s unique in BRI’s case is that we are currently going through a multitrack project to renew the bank, keeping our traditional banking services while at the same time modernizing them. Essentially we are looking for the best way to serve consumers as a bank using our time and experience.
BRI has already entered into several partnerships with fintech companies. How does the bank view these companies? I personally see them as potential partners, and hope that whatever the fintech may be, the platform they use is BRI. But there are companies that are disruptive and polar opposites of our business model that we could not do business with. In those cases, we would prefer to compete with them rather then put them into business with us.
How many fintech companies has BRI collaborated with? We have been working with around 24 fintech companies with various focuses in their businesses. A big part we want to establish ourself is the digital ecosystem; that is why we want to be a platform for startup businesses.