Impact Analysis of Fintech on Banking Industry
Michael Siek
Business Information Systems Program,
Information Systems Department,
Faculty of Computing and Media
Bina Nusantara University
Jakarta, Indonesia 11480
michael.s@binus.edu
Abstract—Disruptive innovation related modern
information systems has recently altered the ways the
companies do their businesses and it has positive impacts to
those that are willing to adapt to it. The fast development of
fintech startups on creating payment gateway and peer-to-peer
(P2P) lending applications is one of examples for the modern
disruptive innovations affecting to traditional financial
business. The problem arises when the digital disruption
affects the bank’s business models due to change in customer
trends with additional impacts to conventional companies. This
paper presents the quantitative approaches like statistical
hypothesis testing and analysis of regression using convenient
random sampling for better analyzing the impacts of fintech on
conventional banking industry in Indonesia. A number of
important and realistic variables, such as customer
satisfaction, net promotion score, promotion, ease of use, etc.,
were considered in this research in order to find a variety of
the value propositions that dominantly influence to the
adoption of fintech or banking products. The results show that
the banks have been disrupted by the payment fintech since the
emergence of fintech companies in around 2015, mainly due to
superior value propositions, like promotion with standardized
beta value of 0.349 and wide range of merchants with 0.153,
respectively. In addition, the fintech startups have digital
strategies on adopting a customer-centric mindset and
developing a product that gives their customer a high customer
satisfaction. However, in the current time, P2P fintechs do not
have that significant disruption to the banks, mainly due to the
fact that the customers consider more on safety reasons.
Keywords—digital disruption, payment gateway, peer-to-peer,
customer satisfaction, net promoter score, analysis of regression
I. INTRODUCTION
The emergence of financial technology (fintech) startups
[1] starting from the payment gateway to peer to peer (P2P)
lending [2, 3] have changed customer trends, which causes
some threats to the conventional banks [4, 5]. Although
banks have been adapting to several challenges faced and has
grown to be a huge corporate, the banks are now faced with
new challenges [6]. Non-traditional firms like fintech which
adopt agile methodology are trying to compete with banks
and are doing exceptionally well in spite of being new IT
startups in financial industry [7]. Bank’s financial services
which were inevitably needed by the consumers are now
being altered by an alternative firm which offers better value
proposition. The phenomenon is called ‘Digital Disruption’
because the value proposition of bank’s product is being
affected by the fintech. The fintechs are the disruptors
because they create a customer-centric product whereas the
banks have product-centric orientation [8-10].
Fintech startups are called disruptors because they bring
forward disruptive innovation, which creates a phenomenon
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Andrew Sutanto
Business Information Systems Program,
Information Systems Department,
Faculty of Computing and Media
Bina Nusantara University
Jakarta, Indonesia 11480
andrew.sutanto001@binus.ac.id
called ‘Digital Disruption’. The digital disruptions due to
fintechs in Europe [10, 11], United States [4] and China [12]
have been reported. In Indonesia, these disruptive
innovations are e-commerce and payment applications such
as Tokopedia, Ovo, Go-pay from Gojek and Peer to peer
lending fintech are also contributing to the digital disruption.
Digital disruption happens when new digital technologies
invention and business models affect existing goods and
services [13]. Disruption can come in many forms other than
digital technologies for example, nitrogen ice cream is more
popular than normal ice cream or portable chair is more
convenient than normal ones. For a product to be disruptive,
it should start from an innovation that eventually opens a
new market and value network that affects existing markets
causing existing firms to slowly lose customer access.
This research has two objectives. The first one is to
answer whether fintech startup will bring a positive or
negative impact to conventional banks in the short run and
long run through quantitative approaches like hypothesis
testing and analysis of regression. A number of identified
variables include: Promotion, Ease of use, Convenience,
Faster Transaction, Wide range of merchant, Safety, many
top up methods and customer satisfaction/refer to friends and
family from payment application were utilized to determine
their influences to the end user’s customer experience
towards banking and fintech products, which may affect their
brand loyalty and brand awareness. In the case of P2P
fintech, six dominant variables are used: Interest rate,
Approval process speed, Convenience, Ease of obtaining
loan/deposit, Accessibility, Safety, and Customer satisfaction
or refer to friends and family. The second objective is to
conclude whether fintech startups and traditional banks
should collaborate due to the impact or it turns out to be a
healthy competition and collaboration is only an option and
not necessary [14, 15].
II. IDENTIFICATION OF FINTECH IMPACTS
A. Positive Impact of Fintech on the Banking Industry
Despite the disruptive nature of fintech that can affect the
value proposition of banks, the banks are huge corporates
with a huge capital where they can try to compete by creating
a similar product. The bank and fintech competing with each
other brings positive impact to the economy as well as
customers can gain a more diversify range of services.
According to Thomas Nyholm [16], fintech is not disrupting
the banking industry but is bringing a healthy competition
because if fintech was disrupting the bank completely, the
banks would collapse. The financial services of banks are
still needed and loyal customers will always remain.
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 B. Negative Impact of Fintech on the Banking Industry satisfaction.
The digital disruption effect can vary depending on the : :
fintech type however, it cannot be argued that the threat is Peer-to-Peer Fintech Hypotheses
quite significant and growing. A prominent financial
magazine, Forbes [17] explained that one example is the H10: Interest rate contributes to a good customer satisfaction
revenue growth of e-commerce in the US has acquired H1a: Interest rate does not contribute to a good customer satisfaction
around one third of bank’s revenue. The revenue growth of
e-commerce in Indonesia is also growing every year and A. Formulating hypothesis
payment fintech acts as their digital wallet, which means that
fintech can indirectly acquire the revenue growth of fintech There will be two hypothesis diagram for each digital
as they are the frequently used method of payment. disruption and since the digital disruption comes in two
forms: payment fintech and P2P fintech (Table I). The
Another impact is the loss in value proposition in Bank’s payment fintech has nine hypotheses with seven hypotheses
product. This was a theory by Haering who is a Forbes writer to prove whether the independent variables have an effect on
where he came up that bank’s are being disrupted by “4 the dependent variables or not. Subsequently, the hypotheses
horsemen of e-pocalypse”. Haering [18] stated that there are are used to indicate whether it is a healthy competition
four digital disruption effect: Disintermediation, Invisibility, between banks and fintech or it is a digital disruption.
Unbundling and Commoditization. Disintermediation means
that banks are slowly losing access to customers as banks can On the other hand, the P2P fintech has seven variables
now gain access to financial services other than banks, with 5 hypotheses for the independent variables and the other
Invisibility means that banks are losing brand awareness as two for determining whether it is a healthy competition or a
consumer can gain financial services from other provider, digital disruption. Both NPS and customer satisfaction are
Unbundling means that banks product are being unbundled dependent variables (Table II).
as consumer can now choose from a single provider and
TABLE II. HYPOTHESIS VARIABLES OR INDICATORS THAT DIGITALLY
commoditization means that banks can no longer identify DISRUPT THE BANKS
themselves as banks are comparing themselves with non-
Payment 1. Frequent Promotion
banking company.
2. Convenience
According to a PWC survey [19], companies that offers 3. Ease of Use
4. Faster Transaction
better customer experience to their customer will increase
5. Wide range of merchant
their brand loyalty and brand awareness thus bring more 6. Accepts many top up methods
customers. The fintech, which has an agile and customer- 7. Safety
centric mindset, are certainly taking note of these and the fact 8. NPS
that banks have bad customer experience means they have 9. Customer satisfaction
bad digital strategy. The banks do not know that customer Peer-to-Peer 1. Interest rate
2. Ease of obtaining loan or deposit
behavior and trends are slowly changing favoring the fintech 3. Accessibility
where the banks are forced to change their business models 4. Safety
in order to compete because customer are preferring a more 5. Approval process speed
digital services and product [20]. Hence, the changes on
customer trends and behaviors that push the bank to change B. Research designs
are some impacts of a digital disruption. These are the impact In order to investigate the impacts of fintech on banking
examples of a digital disruption currently induced by industry, we differentiate the research design into two: (1)
payment fintech. research design for payment fintech (Fig.1), and (2) research
design for P2P fintech (Fig.2), both with NPS as a dependent
As for P2P fintech company, they can disrupt banking variable.
deposits through higher interest rate up to 20% per annum,
faster approval process, can be deposited through electronic
gadgets and has a safe principal protection feature. The
banking loan can also be disrupted due to credit approval
speed that can be received in a few minute compared to
banks, the credit proposal can also be made through phone
which is convenience and interest rate are not that high
compared to banks.
III. STATISTICAL ANALYSIS OF FINTECH IMPACTS
The methodology of this research is to formulate the
hypothesis, research questions, the variables included and
research diagram. The methodology also includes research
design, data collection methods, data analysis methods and
instrument testing.

TABLE I. FRAGMENT OF HYPOTHESES FOR PAYMENT AND PEER-TO-

PEER FINTECH
Payment Fintech Hypotheses Fig. 1. Research design for payment fintech with NPS indicator

H10: Frequent promotion contributes to a good customer satisfaction.

H1a: Frequent promotion does not contribute to a good customer
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 C. Data collection and analysis methods
This research utilized a quantitative research method with
data collection using convenience random sampling through
questionnaire created in Google forms. The main reason is
because quantitative method can be further formulated using
data analysis method to get a more accurate and detailed
results. Therefore, the questionnaire was designed using
likert scale style for numeric data in order to be measured
and analyzed. The data collected from the questionnaire were
then analyzed using SPSS software. The data analysis
methods include linear regression analysis, reliability
analysis, validity analysis, correlation analysis.
Fig. 2. Research design for P2P fintech with NPS indicator
D. Validity and reliability of questonaire responses
Dimensionality reduction analysis based on Principal
Component Analysis (PCA) was performed before the
validity and reliability were tested using validity test and
Cronbach alpha analysis. The Cronbach alpha result for
fintech payment application responses is .934 using 8
variables, which indicate that the questionnaire question
responses are very reliable (Table III). As well as the
correlation, the variables are well correlated with each other
where the reliability test was calculated using Pearson
analysis as well. The lowest correlated variables are
promotions and safety.
TABLE III. INTER ITEM CORRELATION FOR PAYMENT APPLICATION
FINTECH RESPONSES
The validity testing using factor dimension reduction is
also carried out for both banks and fintech payment
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application responses. The validity testing result using KMO
Measure of sampling adequacy for the fintech is .871 which
shows that the responses for the fintech are quite valid (Table
IV). While the validity testing result also using KMO
measuring for the bank’s responses is .800 and although
lower than the fintech responses, the bank’s responses is
shown to be quite valid.
IV. DISCUSSION
This research indicates that the fintech is winning over
banks over a number of reasons. However, there are
anticipation made by banks that suppresses the digital
disruption posed by the fintech. The payment fintech has
proved to beat the bank while P2P fintech disrupts the bank
less significantly.
TABLE IV. VALIDITY TEST RESULT FOR FINTECH PAYMENT
APPLICATION RESPONSES
A. Payment based services are winning
Result shows that fintech is leading by a huge margin
where fintech have higher customer acquisitions, higher
brand awareness, brand loyalty and offer better customer
experience which seems to lower the value proposition of
bank’s product thus causing digital disruptions. There are
about two ways it is disrupting: (1) the fact that it is offering
product with better customer experience thus increasing their
brand loyalty and awareness while lowering bank’s product
loyalty and awareness and (2) changing the customer trends
or lifestyle forcing banks to do the same and change their
business models in the near future to compete.
TABLE V. FRAGMENT OF IMPORTANT VARIABLES AND THEIR SURVEY
RESULTS
Positive Negative
Variables
(yes) (no)
Awareness of payment applications provided 98.1% 1.9%
by the fintech
Currently using payment application by 91.3% 8.7%
fintech, like Gopay, Ovo
Brand awareness of P2P lending fintech, like 56.9% 43.1%
Investree, Modalku
Preference on bank’s deposit products 88.1% 11.9%
Preference on bank’s loan products 85.3% 14.7%
On the basis of the survey result in Table V, more than
95% of the respondents answered that they are aware of
payment application by fintech and more that 90% of
respondents are using those payment application made by
fintech companies. The result is that they are far more
satisfied in using fintech and are also willing to share it with
their friends and family compare to banks.
Consumers in Indonesia like promotion very much that
their satisfaction level is higher in the presence of discounts,
cash backs or free bank transfer fee for instance (Fig.3).
Fintech is leading as compared to banks because not only
their promotion is very appealing, its very frequent or
everlasting and consumer can use the fintech product in
almost any merchant store while banks does offer huge
discount in selected store only with many terms and
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 condition. Consumers feel it is very convenience because
they can have fast transaction in many merchant store and is
easy to use because consumer doesn’t have to open any
account like in banks to use the services. Top up methods
also vary from topping up from Convenience store to booths
at shopping malls while banks, you need to have a saving
account at that bank to top up for example, you need to have
Tahapan BCA to top up Sakuku. Another thing to mention is
that fintech likes to acquire consumer belonging in the
middle to lower class people, which is why most stores
selling foods and beverages from Rp 10.000- 100.000 are
merchants of fintech. Banks admit in the PWC survey [19]
that mass banking segment that is the middle to lower class
people are their frontier of banking however banks only offer
promotions to the privilege like those who owns credit card
or those who has saving account (bankable population) [9].
Fig. 3. Customer motivation to choose fintech payment applications
After finding out the reason people selecting fintech
products, the second survey is to find out which of the
variables are the most significant. Table VI shows the
analysis of variance and the analysis of regression. These
analyzes indicate that promotion has the most significant
impact to the customer satisfactions which leads to good
customer experience. Promotion leads far ahead in the
unstandardized coefficients with .557 and .349 in the beta
standardized coefficients. Using a 95% confidence interval,
promotion has .001 in the significance and a very confidence
result.
TABLE VI. LINEAR REGRESSION ANALYSIS OF PAYMENT APPLICATION
LEADING TO CUSTOMER SATISFACTION
Other than promotion, wide range of merchant plays a
huge role as it has .153 standardized coefficients, the fintech
users favors promotion given by fintech because user can get
promotions in almost any store they can find from
restaurants, snacks & drink store, barbers, stationery and
many others. Surprisingly, convenience and ease of use does
not have a significant role in customer satisfaction despite
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people answering it as a reason to use fintech. However, the
convenience and ease of use in their case does not have to
bring their wallet while ease of use is paying the exact
amount of money during transactions. It seems that all
fintech application already create a UI that offers
convenience and ease of use to even first time users so
people don’t really mind however, different fintech company
offers different promotions like different maximum cash
backs to different store.
Another variable to notice is faster transactions, when
people hear fast transaction using fintech payment
applications, people assume that each transaction will take
less than a minute however, in Indonesia promotions has
more impact. An example is people would line up for 10-15
minutes for a 50% cashbacks for their favourite drink or
snacks because it is cheaper, another case is sometimes the
device for accepting payment from customers has problems
which can make simple transactions longer however, user
would not mind as long as they can get cashbacks promotion.
The last but not least, many top up method again differs like
Ovo offers free top up fee while gopay charges Rp1000. In
contrast, the banks payment application have low brand
awareness and brand loyalty which is a digital disruption
effect as defined by Haering [18]. Disintermediation and
Invisibility are the current effect happening to the banking
industry where Disintermediation is when banks start to lose
access to customer as customer move to non-banking
products and invisibility where bank’s product start to lose
brand awareness as people can choose non-banking product.
In linear scale [0,10], the customer satisfaction for payment
application by fintech is very high achieving 23 responses for
very satisfied (Fig.4). In addition, none of the respondent
answered very unsatisfied despite answering 4 in the linear
scale.
Fig. 4. Customer satisfaction response for payment application by fintech
Moreover, the respondents were asked to rate 1 to 10 on
how willing they are to refer the fintech apps to their
friends. Most of them are very willing to refer it to their
friends. Based on Net Promoter Score for fintech app, the
promoter has 38.3% respondent, neutral has 44.8% and
detractors has 16.8% thus, NPS is 38.3% - 16.8% which
equals to 21.5% or +21.5.
In addition to support the analysis of the results, the
recent changes to government’s digital wallet Telkomsel’s T-
cash are not only an alteration of its name to ‘Linkaja’ but
also provide an entire wide variety of services identical to
fintech like Gopay, Ovo or Dana. Linkaja is the result of a
product from a merge of four different digital wallets that
have already been established a long time before Gopay or
Ovo. It consist of Mandiri bank e-cash, BRI bank T-bank,
BNI bank UnikQu and Telkomsel’s T-cash. Linkaja which
was launched on February 2019 and is managed by
Telkomsel and three government’s banks (BNI, BRI and
19-20 August 2019, Jakarta & Bali, Indonesia
 Mandiri) has a total of more than 60% of LinkAja’s share
making the government the legitimate owner [21]. We can
conclude that huge banks in Indonesia has already
acknowledge the digital disruption by these digital wallet by
fintech and has already made their own digital wallet
however, even big government nor private bank’s digital
wallet does not compete well against the rising fintech. The
top 10 banks in Indonesia was focusing to invest in digital
banking or to improve their digital strategy in the next 5
years, this is a weakness exposed by fintech that banks have
bad digital strategy and hence is a digital disruption. The
difference in term of the number of users using fintech’s
payment application and bank’s payment application is very
huge. This is another digital disruption because it will be a
challenge for bank to compete in the same level.
B. Loan and deposit services
Results from the P2P survey and bank’s survey show that
P2P fintech are not posing significant threat to cause a digital
disruption to the banking industry. The main reason is
because they do not have the powerful brand awareness that
payment fintech possesses (Fig.5). Banking loan and deposit
product will be disrupted if most people are using P2P
services of both loan or deposit lowering the bank’s LDR or
Loan to Deposit ratio and third party funds (bank consumer’s
deposit used for offering loan). Payment application fintech
is surpassing payment application for banks because the
fintech has a high brand loyalty and awareness while causing
a low brand loyalty and awareness for the other. The brand
loyalty and brand awareness for P2P fintech are lower than
banks and that is the main and primary reason that P2P is not
causing digital disruption because P2P can acquisition bank’s
consumer segment completely.
Fig. 5. NPS result for payment application by fintech
Both the response for loan and deposit is similar that
people still prefer to choose to use bank’s services than P2P
fintech’s services (Table V). P2P fintech can cause digital
disruption to that banking industry if bank’s LDR ration
drops and automatically affects their profit however, P2P
fintech needs to have a high customer acquisition obtaining
the banking consumer. High customer acquisition is not
possible if the products brand loyalty and brand awareness is
very low. More than 80% of respondent prefer to use banks
for loan and deposit services which shows high brand loyalty
to the banking industry side. This is an indicator that bank is
leading compared to fintech.
C. P2P fintech is growing fast
The conventional bank is leading in terms of brand
loyalty and awareness followed by an increase in profit made
from its year on year performance however, there is a sign
that banks may lose profits in coming years due to rapid
growth of fintech. There is a study saying that banks have the
risk of losing potential customer as number of P2P increases
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[3], currently in Indonesia there are 105 P2P fintech
companies operating as per February 2019 [22]. This means
that as the number of P2P fintech increases, people who is
previously saving money from the bank can switch to an
alternative deposit investment that gives higher interest rate.
The number of people who deposit their money on P2P
fintech have increase by 28,91% from December 2018 to
267.496 account in January 2019 an still increasing (Fig.6).
The amount of money channeled as loan also increase from
Rp 2,56 trillion in December 2017 to Rp 22,6 Trillion in
December 2018, in a year its loan distributed increase by
784,3%.
Fig. 6. Growth comparison of third party funds and given loan (2015-
2018), source: Indonesian Banking statistic OJK (modified)
Although bank is leading, the fintech still pose a threat
that can disrupt banking industry. One of the indicator is the
high Loan to Deposit (LDR) ratio of around 94,78% in
December 2018 (Fig.7). A high LDR can mean that banks
are having difficulty in finding third party funds to be
distributed as loan to customers. The LDR had an increase of
around 4% from December 2017 which has LDR of 90,04%.
A high LDR is also interpreted that Loan credit given is
increasing faster than the third party funds. This indicates
people are reluctant to deposit to the bank despite interest
rate in banks increases. On the bank side, they want to have
12 month deposit for longer term but lower interest rate,
which makes customer reluctant. Therefore, bank increases
its interest rate for 1 month fixed deposit due to high
demands. According to the Indonesia banking statistic, the
total amount of loan credit given from December 2015 to
December 2018 has increase up to 30,9% from Rp4.092.104
to Rp5.358.012(in Billion Rupiah) while the third party
funds only increase by 27.6% from Rp4.413.056 in
December 2015 to Rp5.630.448 (in billions rupiah) [22].
One the reason that banks are having troubles of finding third
party funds is that people are depositing their money on P2P
fintech due to higher interest. External factors affecting
LDR, third party funds and loan to increase (in terms of
amount of money) are fluctuating interest rate, inflation of
around 3.5% per year and economic growth of around 5%
per year.
Moreover, the path of P2P fintech to disrupt banking
industry is different from payment fintech. Payment fintech
disrupt banking industry in terms of customer acquisition and
changing customer’s trends where banks are forced to follow
in order to compete. However, in P2P fintech the disruption
only start with customer acquisition but does not end there
because to disrupt completely it needs to take control of both
of the bank’s core function. By increasing P2P fintech brand
loyalty and brand awareness through customer acquisition,
P2P fintech can disrupt bank’s deposit with their already
well-known high interest rate and convenience. Currently,
banks are having a hard time in increasing their third party
funds despite increasing interest rate where not only they are
19-20 August 2019, Jakarta & Bali, Indonesia
 increasing expenses paying existing consumer interest while
not getting expected third party funds. If most who are
reluctant to deposit to banks start switching to alternate
investment that is P2P, then the deposit for banking industry
can be disrupted. The loan for banking industry can be
disrupted only when banks are too selective in their loan
distribution just to lower their NPL, currently, banks NPL are
lowering from December 2017 to December 2018 because
banks are rejecting more loan proposal. Consumers of banks
who cannot borrow from banks will borrow from fintech
because the demand for loan is very high.
Fig. 7. Growth comparison of LDR, NPL ratio and FD interest rate (2015-
2018), source: Indonesian banking statistic (modified)
V. CONCLUSION
Banks have already been disrupted for a few years now
since the booming of fintech company in around 2015 by
payment fintech where payment fintech such as Gopay and
Ovo gives superior value proposition like promotion,
convenience, wide range of merchant and many other where
they start to have high customer acquisition level. However,
the bank was anticipating it rather slowly or not in a
competitive manner because they feel that fintech startups
are new and consider them a small rival. The bank did not
foresee the fintech’s digital strategy in adopting a customer-
centric mindset and developing a product that gives their
customer a high customer satisfaction. Eventually, even after
developing a similar product to the fintech which is a digital
payment wallet, they still lacks brand loyalty and brand
awareness despite majority of their customer segment are
consumer of bank. The end result is that payment fintech is
far ahead of banks where banks are forced to work together
with fintech companies to compete because banks have bad
digital strategy. A merging three Indonesian government
banks with Telkomsel’s Tcash into LinkAja has the status of
a fintech product managed by Telkomsel. This is the one of
the bank’s digital strategy to adopt a new product name
entirely with similar services provided by Gopay or Ovo.
This research results provide an outlook for the banks to be
agile and the banks have to work together with fintech to
compete with other fintech.
As for P2P fintech, although the digital disruption is
rather insignificant the banks have been developing a new
digital product and services coming in future time to make
sure that it will not disrupt as bad as the payment fintech.
Since P2P fintech comes later after payment fintech, the
digital disruption will not happen at the same time because
P2P fintech has to be booming first however, banks in
Indonesia have been investing in improving their digital
strategy. As for P2P fintech’s disruption, banks doesn’t feel
that they need to work together with fintech because in this
case bank prefers quantity over quality hence, it is a healthy
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competition as long as bank anticipates the digital disruption
with caution.
This research result can be as a reference for the fintech
and the banks in making a crucial strategic decision whether
they want to collaborate or to compete. Our next step for this
research are to extend this research equipped with more
number of samples or respondents to provide better
convergence towards more realistic statistical parameters of
population; and to employ more reliable statistical method,
like Partial Least Square Linear Regression.
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