Get to Know Digital Banks in Indonesia and its Establishment Requirements

PERTANYAAN

What is a digital bank and what are the list of digital banks in Indonesia?

INTISARI JAWABAN

Digital banks are here to answer the challenges of transforming conventional banking into a digital model using innovative and secure technology business models to serve customer needs. What are the basic regulations for digital banks? Then what are the requirements for establishing a digital bank?

Please read the review below for a further explanation.

ULASAN LENGKAP

This article is an English translation of Kenali Bank Digital di Indonesia dan Syarat Pendiriannya written by Bernadetha Aurelia Oktavira, S.H. on Thursday, 23 June 2022.

All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.

What is Digital Bank?

As the transformation of bank operations from conventional models to digital models, the era of digital banks has emerged. The use of an innovative and secure technology business model serves the needs of customers. Not only that, the operation of this digital bank also cuts the existence of physical offices from banks.

The regulation of digital banks in general can be found in POJK 12/2021. Furthermore, you can find the definition of a digital bank in Article 1 number 22 POJK/2021:

Digital Banks are BHI Banks that provide and carry out business activities mainly through the electronic channel without a physical office other than KP or that use limited physical offices.

Banks Incorporated in Indonesian Legal Entities (Bank Berbadan Hukum Indonesia/ “Bank BHI”), from this point onward is referred to as BHI Banks, are banks that carry out banking business activities in the form of Indonesian legal entities in accordance with provisions of the laws and regulations, including intermediary banks.[1]

BHI Banks operating as Digital Banks are required to have one physical office as their Head Office (“HO”).[2] Digital Banks shall carry out business activities through electronic channels without physical offices other than the HO, or may use limited physical offices.[3]

Also read: Financial Services Authority (OJK) Issues Three Regulations Related to Commercial Banks and Digital Banks

Requirements of Establishing a Digital Bank

BHI Banks that operate as a Digital Bank must meet the following requirements:[4]

1. have a business model with the use of innovative and safe technology to serve customers’ needs;
2. have the ability to manage a prudent and sustainable digital banking business model;
3. have adequate risk management;
4. fulfill the governance aspect, including the fulfillment of the Boards of Directors that has competency in the field of information technology and other competencies in accordance with provisions of the OJK on fit and proper tests for primary parties of financial service institutions;
5. implement protection of customer data security; and
6. provide efforts that contribute to the development of a digital financial ecosystem and/or financial
   inclusion

As we have mentioned that the digital bank is a BHI Bank, we would like to point out that the digital bank can operate through:[5]

1. establishment of a new BHI Bank as a Digital Bank; or
2. transformation from a BHI Bank into a Digital Bank.

It should be emphasized that the provisions regarding the establishment of a BHI Bank as referred to in Article 11 to Article 22 POJK 12/2021 apply mutatis mutandis to the establishment of a new BHI Bank that will operate as a digital bank.

In the following, we explain the establishment of a digital bank from a new BHI Bank or transformation of a BHI Bank, namely:[6]

1. In the event that a BHI Bank operating as a digital bank through the establishment of a new BHI bank, will open an office network other than Headquarters, the opening of an office network in the form of a Branch Office and/or Functional Office that performs activities other than operations and/or can provide Electronic Banking Terminals.

The opening of an office network in the form of a Branch Office and/or Functional Office that conducts activities other than operations and/or providing is stated in the business plan at the time of application to obtain approval in principle for the establishment of a BHI Bank.

2. BHI banks that will transform into digital banks must fulfil the requirements in Article 24 POJK 12/2021. The fulfilment is stated in the bank's business plan.

In the event that the BHI Bank has fulfilled the requirements, it can:

1. maintain the existing office network and/or Electronic Banking Terminal;
2. close the office network owned other than Headquarter and/or Electronic Banking Terminals simultaneously or gradually; and/or
3. add office networks and/or Electronic Banking Terminals.

According to our research, the list of digital banks in Indonesia are Jenius, Bank Jago, Blu, and etc.

Also read: Legal Challenges of Digital Banks

These are the answers we can provide about digital banks in Indonesia, we hope you will find them useful.

Legal Basis:

Regulation of the Financial Services Authority Number 12/Pojk.03/2021 of 2021 on Commercial Banks.

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[1] Article 1 number 2 Regulation of the Financial Services Authority Number 12/Pojk.03/2021 of 2021 on Commercial Banks (“POJK 12/2021”).

[2] Article 23 section (1) and (2) POJK 12/2021.

[3] Article 23 section (3) POJK 12/2021.

[4] Article 24 section (1) POJK 12/2021.

[5] Article 25 POJK 12/2021.

[6] Article 26 section (3) and (4) jo. Article 27 POJK 12/2021.