IDC PERSPECTIVE

Key Drivers in Creating IT Strategy 2017–2020 for Indonesian

Banks
Handojo Triyanto

EXECUTIVE SNAPSHOT

FIGURE 1

Executive Snapshot: Key Drivers in Creating IT Strategy 2017–2020 for Indonesian

Banks

Source: IDC, 2017

June 2017, IDC #AP42818817

SITUATION OVERVIEW

This IDC Financial Insights Perspective discusses the key external drivers (from a bank's perspective)
that should be considered by Indonesian banks in creating an IT strategy for 2017–2020. For the
whole of the IT strategy plan, banks still need to consider the internal drivers that are specific to them.
The key external drivers cover three main drivers:

 Technology
 Regulatory and security
 Competitor or banking landscape
The technology driver includes direct and indirect influences to the Indonesian banking industry. There
are three types of drivers:

 Technology influences some nonbanking industries, then the industries influence the banking
industry
 Technology influences consumers, then the consumers influence the banking industry
 Technology directly influences the banking industry
All types of the technology driver cover all potential drivers, either the current observed drivers in
Indonesia or the incoming drivers to Indonesia.

The regulatory driver only includes Indonesian regulations, while the security driver covers worldwide
and regional potential drivers.

In creating the IT strategy of a bank, it needs to consider what other banks have done and will do. This
driver is covered by the competitor or banking landscape main driver. The scope of the driver is limited
to Indonesia.

Technology Driver
The technology driver includes direct and indirect influences to the Indonesian banking industry. There
are three types of drivers:

 Type 1: Technology influences some nonbanking industries, then the industries influence the
banking industry
 Type 2: Technology influences consumers, then the consumers influence the banking industry
 Type 3: Technology directly influences the banking industry
Type 1
Technology catalyzes new innovations and requirements for the retail industry (ecommerce), sharing
economy, social business, telecommunications industry, financial technology (fintech) start-ups, and
government and utilities.

eCommerce
IDC predicts that by 2019, retailers in the Asia/Pacific region will pursue alternatives for secure
networks that protect data and eliminate or lower fees. Consumer digital empowerment and the never-
ending search for ease and convenience drive the demand for faster, easier payment strategies that
can accommodate shop anywhere, anytime, and in any way the customer wants, in an industry
environment of retail hypercompetitiveness and rising cybersecurity threats.

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Adoption and deployment of the Europay, Mastercard, and Visa (EMV) technology are progressing in
the United States and critical to addressing the issue of credit card fraud. With the breadth and
sophistication of cyberthreats growing rapidly, retailers have to continue on the path to greater
security, with end-to-end encryption and tokenization being technologies that supplement EMV and
further extend security into the enterprise and to the channel between retailers and banks.

The pressure to increase cybersecurity is happening during a time of considerable industry disruption
and rising tension between merchants and banks over interchange fees. With increased security
measures undercutting some of the justification and basis for interchange fees being higher in the
United States than in other countries, the resistance by banks and card issuers to lower fees and the
imminent arrival and adoption of digital wallet technologies make retail payment ripe for further
disruption. The cybersecurity technologies (end-to-end encryption and tokenization) and the growing
tension between merchants and banks set the stage for the arrival of blockchain into the retail industry,
which will introduce more disruption into the retail industry, with consumers on the winning end — for
once.

eCommerce platforms, both locally and globally, have penetrated the Indonesian market aggressively.
Key regional and global players such as Lazada, Zalora, and Rakuten have brought in convenient
services and stimulated potential market through online transactions. At the moment, ecommerce has
grown massively with the arrival of local ecommerce sites to join the competition such as Tokopedia,
Bukalapak, Blibli, MatahariMall, and so forth.

The rise of online marketplace has created an alert to more traditional companies to join in the online
channel. Brick-and-mortar companies, especially on retail and travel businesses, have pushed the
organization to innovate and develop new channels to compete in the market. Mobile applications and
ecommerce sites as well as social media engagement for customer relationship have been elevated to
meet the demands in the market.

While the government has introduced some ecommerce initiatives in the country, the online payment
platform will then be significant for the ecommerce ecosystem. The push and support from the
government are important, especially on key regulations for the industry. Government from the Central
Bank of Indonesia has allowed private sectors to compete as well in payment solution provision to
achieve financial inclusivity and less-cash society.

Sharing Economy
The sharing economy is gaining steam across countries in Asia/Pacific, stemming from foods, rooms,
hobbies, and car services, with people sharing and renting out what they are not using. Tapping into
the growing participation in this pool of shared resources, companies have sprung up to serve as
technology platforms for people or firms to give access to their possessions and make use of any
spare capacity. These peer-to-peer services are increasingly seen as a disruptor for traditional
businesses of providing accommodation, transport, or more, posing threats from large hotel chains to
taxi companies. For instance, Uber takes a 5–20% commission on all the ride-sharing made through
its service. Since all payments are done automatically through the app, Uber makes sure that it
captures a part of the transaction. Airbnb provides the platform for "free," but it will take a 3%
commission on the host's earnings and ask a booking fee of 6–12% to guests for every booking they
make. Similar to Uber and Airbnb are other service providers such as Go-Jek (business model similar
to Uber), Go-Food (food delivery features), and Grab (business model similar to Uber).

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As the megatrends evolve, the sharing economy is becoming an increasingly important "collaborative
consumption." Nevertheless, the main worry is regulatory uncertainty. Peer-to-peer services such as
Go-Jek, Uber, and Grab have triggered social conflicts in Indonesia. Such businesses will need to
refine their offerings to hold their own as they challenge the status quo. In a nutshell, IDC believes that
the sharing economy will continue to grow in the region, particularly in Indonesia, although the
regulatory framework needs to be considered. If the regulatory framework can be changed or adapted,
companies will expand in a popular way.

Social Business
As social network services represented by Facebook, Twitter, LinkedIn, and Instagram turn the
Internet into a social web, both the traditional ecommerce and the emerging mcommerce are
leveraging social network and over-the-top players (OTTPs) for growth in an approach that fuses
ecommerce and social networking. Effective social marketing represents real value; it offers new ways
to first-time customers, engages and rewards existing customers, and showcases the best brand that
can be offered. According to IDC's Asia/Pacific social and marketing prediction, business-to-business
(B2B) buyers will increasingly leverage social networks for buying support. This prediction was based
on the results of IDC's Social Buying Survey, which stated that approximately 66% of B2B buyers in
the region have been increasingly using social media to improve their purchasing decisions. An
evidence suggests that companies using social selling tools and approaches can become more
competitive to differentiate leaders from followers.

Social messaging will continue to play an integral role in the marketing mix as it continues to add
business-to-consumer (B2C) capabilities. We have seen Alibaba heavily investing in Sina Weibo.
Tencent opened its social ecommerce platform based on a traffic allocation model to share its user
resources and traffic with ecommerce platforms. eCommerce enterprises created their social shops
and Weibo shops to attract followers and gain more traffic through interactions with other users,
leading to improve user experience and reduce marketing costs. Weixin, China's WeChat version, and
LINE provide official accounts for brands as well as a platform for ecommerce. Weixin Xiaodian allows
micro- and small-sized retailers to open online stores on WeChat. The fusion of social media and
ecommerce will grow in importance in the region because of its highly engaged community of users.

Social media platform LINE has released the payment feature called LINE Pay. It offers easy payment
services in partnership with global credit card brands to make online payments using their credit cards
and any other payment methods in future development.

LINE in Indonesia has released "LINE Pay e-cash." It is a payment service that integrates LINE Pay
and Mandiri e-cash (from Bank Mandiri), allowing users to send money to friends, make online or in-
store payments, and pay bills using Mandiri e-cash. The service offers features that allow you to add,
send, and withdraw money as well as make payments using Madiri e-cash; it does not offer a feature
for making payments with credit cards.

Telecommunications Industry
Several telecommunications companies in Indonesia have released their payment products. They
launched server-based electronic money (e-money). Table 1 shows the telecommunications
companies in Indonesia and their product names.

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 TABLE 1

List of Indonesian Telecommunications Firms That Launched E-Money Products

No. Issuer Institution Product Name Type

1 PT. Telekomunikasi Indonesia T-Money Server-based

2 PT. Telekomunikasi Selular TCASH Server-based

3 PT. Indosat Dompetku Server-based

4 PT. XL Axiata XL Tunai Server-based

5 PT. Smartfren Telecom Uangku, Smart Dompet Server-based

Source: Bank Indonesia, February 2017

TCASH
For great payment experience, Telkomsel has been focusing on creating a digital financial ecosystem
by offering various digital payment solutions to ease transactions in the online marketplace. In 2015,
some innovations were introduced to enhance its digital payment services such as the launch of the
new TCASH and TCASH Tap with near-field communication (NFC) technology. The new TCASH
enables customers and merchants to experience a new payment method for any mobile transactions.
TCASH Tap itself is already widely accepted in more than 2,500 merchants within the Jabodetabek
area, and an expansion plan is underway to cater to more cities in Indonesia. TCASH Tap features
TCASH mobile money services (i.e., quick payment using tap, online shopping, buy and pay through
mobile phone, and money transfer). Meanwhile, Telkomsel also sealed partnership with communities
and organizations, such as schools and Islamic boarding schools (Pesantren), to introduce e-money
transactions to rural communities, representing Telkomsel's commitment to support the government's
National Non-Cash Movement. Therefore, the effort to continue developing Telkomsel's Digital
Payment services is expected to accelerate the financial inclusion program by promoting partnership
with related organizations and government bodies.

Fintech Start-Ups
Several fintech start-ups have emerged in Indonesia such as DOKU, Amartha, Bareksa, Midtrans, and
so forth.

DOKU
Since its inception in 2007, DOKU, formerly known as PT. Nusa Satu Inti Artha, has earned
recognition as the first electronic payment provider and risk management company in Indonesia. With
hard work and totality in supporting the online businesses of its merchants, DOKU has proven itself
trustworthy and became the electronic payment service of choice for both national and international
merchants.

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In line with the growth of DOKU's merchant portfolio, both in terms of number and industry type,
DOKU's risk management system is more refined and efficient in analyzing various transactions, which
plays a significant role in boosting successful transactions for merchants.

Thanks to strong relations the company has cultivated for years with its national and international
payment partners, DOKU is able to offer the most comprehensive payment method options, even
facilitating transactions using foreign currencies; DOKU is ready to support merchants to expand their
markets and increase their business revenues.

Being at the forefront of the online payment sector for the corporate segment has lent DOKU new
motivation to widen its reach to consumers. Having secured an e-money license from Bank Indonesia
in 2012, DOKU then launched its e-money product for the first time in April 2013. Today, DOKU's
electronic money has been used by more than 1 million Indonesian consumers, and DOKU has
teamed up with more than 22,000 merchants. DOKU continues to develop its electronic money product
to further support and become part of today's consumers' lifestyles.

"Limitless innovation" is DOKU's commitment to retain its position as the leading payment company
that is reliable and to preserve its role in advancing Indonesia's digital economy.

Amartha
It focuses on microfinance and enables online microbusiness and small business lending.

Bareksa
It is an integrated investment portal that offers data services and investment tools, news and
information, learning center, and an investor community.

Midtrans
It is an online payment gateway, supporting Indonesian ecommerce to easily receive online payments
made by shoppers through credit card, direct debit, bank transfer, and e-wallet.

Government and Utilities

The Indonesian government has released the Modul Penerimaan Negara Generasi 2 (MPN G2), a
government incoming payment system that uses e-receipt. E-receipt is a receipt based on a billing
system. Banks can provide payment services to people who want to pay to the government for certain
purposes. Banks have linked system to the MPN G2.

Banks can provide payment services to people who want to pay to Indonesian electricity provider
Perusahaan Listrik Negara (PLN) or National Electrical Company. They have linked system to the PLN
system. It is similar to several clean water providers and telecommunications companies.

Type 2
Technology changes social lifestyle (retail banking) and cash management system (corporate
banking).

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Retail Banking
Smartphone Penetration Is High
One of the key considerations on the upsurge of payment platforms is the high penetration and
utilization of smartphone in the country. The use of social media, OTT that indirectly drives the society
to be more engaged in the digital ecosystem, has led consumers to try ecommerce and payment
platforms. High smartphone penetration has driven consumers to be well-adapted with digital
transactions in the market.

Internet or Data Services Promotion Is More Aggressive

Telecommunications and Internet service providers offer a lot of competitive product packages with
aggressive sales promotions. The price per bandwidth is cheaper than before.

High Unbanked People, High Cash Payment

The potential of payment platform, especially electronic money, is likely high. While majority of the
population remains unbanked, 85% of the banked population is dominated by cash payment. This is
indicated as the new potential market for payment solutions providers. Payment solutions, such as
electronic money, are expected to grow in Indonesia, considering the opportunities in the ecommerce
market.

Corporate Banking
Cash management system is a popular system to provide services to the corporate banking segment.
The application has features managing a full range of advanced products and services to efficiently
process company customers' receivables and payables to optimize the cash flow position and ensure
the effective management of a customer's business operation.

Type 3
Technology affects banking products, services, and operations. IDC has identified technologies such
as the four pillars of the 3rd Platform and six innovation accelerators. IDC also identified the
transformation process needed by banks to adapt with the technology impacts. Furthermore, it created
a framework for digital transformation (DX).

Four Pillars of the 3rd Platform

In decades of bank technology growth, IT has moved from the back office, IDC's 1st Platform (e.g.,
mainframe core banking systems tied to branch controllers); to the front office, the 2nd Platform
client/server paradigm; and, finally, to the 3rd Platform, including mobile, social media, cloud, and Big
Data and analytics (BDA). These are the DX technologies that promise to transform the bank's entire
IT portfolio, from back-office systems to customer contact, and, in doing so, transform the banking
business model itself.

Cloud
IDC defines cloud as a model for enabling ubiquitous, convenient, and on-demand network access to a
shared pool of configurable computing resources (e.g., networks, servers, storage, applications, and
services) that can be rapidly provisioned and released with minimal management effort or service
provider interaction.

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Cloud continues to be a highly disruptive force, reshaping datacenter and application architectures and
transforming the way that IT resources and applications are created, bought, and managed. Enterprise
IT teams cannot ignore the challenges and opportunities created by cloud in its many shapes and
forms.

As the use of public, private, and hybrid cloud becomes mainstream, and more enterprises rely on
various types of cloud to support mission-critical business processes, it is imperative that IT teams join
with business and developer partners to create a comprehensive set of cloud policies. Specifically,
these groups need to agree on how to best satisfy corporate data and regulatory data management
requirements, maintain consistent end-to-end service levels, and gain competitive advantage across
all dimensions of the business.

By taking full advantage of cloud, IT decision makers can help their organizations become more agile,
reduce IT operational costs, and improve business performance.

IDC predicts that:

 By 2019, cloud adoption will reduce infrastructure spend by 20% among top-tier Asia/Pacific
(excluding Japan) (APEJ) banks.
 By 2018, more than 85% of enterprise IT organizations will commit to multicloud architecture.
 By 2018, 75% of developer teams will include cognitive/artificial intelligence (AI) functionality
in one or more applications, and virtually all of those AI services will be sourced from the
cloud.
 By 2020, cloud will be where secure and trusted IT services live, largely because of the
proliferation of cloud-based encryption, threat analytics, behavior analytics, blockchain, and
compliance services.
Big Data and Analytics
IDC defines Big Data and analytics as a new generation of technologies and architectures designed to
economically extract value from very large volumes of a wide variety of data by enabling high-velocity
capture, discovery, and/or analysis.

Big Data and analytics is increasingly a game of inches — a bit more investment and differentiation will
yield massive paybacks. IDC's research shows that cognitive systems will be a major disruption and
significantly impact businesses, healthcare, work, society, and economies.

IDC predicts that:

 Behavioral analytics across compliance, fraud, and cyberdetection/cyberprevention will be in

place in 35% of banks in 2017 to help avoid regulatory fines and sanctions.
 By 2018, growth in visual discovery tools slows, and products rapidly commoditize.
 By 2020, new cloud pricing models will service specific analytics workloads, contributing to five
times higher spending growth on cloud versus on-premise analytics.
 By 2026, G2000 enterprises will have practices to prevent unintended consequences
(including noncompliance and ethical issues) derived by cognitive systems.
Social Business
It is the use of social science theories and methods, via specific technologies, for social purposes to
ease social procedures and build communities via social software and social hardware.

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IDC's research shows that the market for social technologies will top US$85 billion by 2019, and that
customer experience (CX) will become increasingly important. Beyond the social technology,
competitive differentiation is changing the nature of experiences across customers, partners, and
suppliers.

IDC predicts that:

 By 2019, socially enabled sports will exceed US$1 billion in total revenue, including 50% of
major championship broadcasts.
 By 2020, 40% of ecommerce will be enabled by cognitive personal shoppers and social
networks.
Mobility
It is the ability of an enterprise to deliver IT solutions to customers, employees, partners, and others
working anywhere on any device.

With the mobile device and single-use wearable markets slowing down, new trends in mobility will
drive growth such as the emergence of smart clothing, which IDC predicts will be 15% of wearables
market spending by 2020.

 By 2018, APEJ will see a 25% increase in mobile payments using NFC, reflecting a continued
uncertainty on who will "own" the device.
 By 2018, PC as a service will be 20% of top-tier commercial shipments, and by 2021, it will be
50%.
 By 2020, the number of connected cars worldwide will be 1/2 of the number of smartphones
shipped in Europe, the Middle East, and Africa.
 By 2021, foldable displays will represent 45% of the worldwide premium smartphone market.
Six Innovation Accelerators
IDC has also identified other technologies that leverage the 3rd Platform IT to more quickly transform
organizations. These are called innovation accelerators.

Internet of Things
IDC defines the Internet of Things (IoT) as a network of uniquely identifiable end points (or things) that
communicate bi-directionally without human interaction using IP connectivity.

IoT is a dynamic collection of devices, and more importantly, the data they produce, that takes mobility
and geo-presence to the next step. Many industries are already leveraging the power of IoT, but it is
still a nascent technology in banking in terms of real implementations. Many institutions are
experimenting with or piloting IoT in the form of beacons or payments schemes. Here, the use cases
can vary from beacons that signal an ATM nearby for the customer in a shopping plaza to an oil tank
that senses a low-oil condition and places an order with a home heating company for fill-up. Once the
tank senses a full condition, it can automatically send payment from the customer's bank account to
the fuel contractor. In the sense that IoT proposes to connect everything to everything else, it
represents an unlimited opportunity for banks to support the consumer's life. The next three to five
years will see solid use cases that will become the first real entrance to IoT in banking.

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IDC predicts that:

 By 2018, the "open data platform" will emerge as the next frontier, driving higher IoT adoption.
 By 2019, over 75% of IoT device manufacturers will use security and privacy as competitive
positioning.
 By 2021, IoT and blockchain services will accelerate micro-payments in healthcare, media,
and publishing.
Cognitive/AI Systems
IDC defines cognitive/AI systems as a set of technologies that use deep natural language processing
and understanding to answer questions and provide recommendations and direction.

Cognitive technologies are context-driven systems that analyze, organize, access, and provide
advisory services based on a range of heterogeneous information, usually with an intuitive interface
that may include voice and/or text analysis. The basic proposition of cognitive technology is the
improved ability to make decisions. In this context, "improved" takes on different meanings based on
the deployment model.

IDC predicts that:

 By 2018, over 20 million U.S. households will own electronics integrating cognitive systems.
 By 2019, a national debate will surface around recommendation bias from machine learning
and cognitive applications, forcing government action around personal data auditing.
 By 2018, 20% of major retailers will use AI to personalize the brand experience from
awareness through purchase.
Next-Generation Security
IDC defines next-generation data security as the recognition of the direct link between mastery of data
and the ability to protect it.

Clearly, this is the single most important innovation accelerator in banking today. The issues of
security, fraud, breach, and so forth are today's largest challenges in the financial services industry —
from moving forward with business-enabling technologies such as cloud to the concern over breach in
developing Big Data and analytics environments. Next-generation data security represents the
combination — and aggregation — of different technologies that are standing by to replace traditional
data security models and transform data-centric security solutions for both structured and unstructured
content. This includes encryption technologies, voice and phone print identification, data loss
prevention (DLP), user behavioral analytics (UBA), supervision and monitoring, blockchain, data
tokenization, masking, and cognitive computing.

IDC predicts that:

 By 2018, attacks that influence business decisions and exploitation will increase the most
rapidly.
 By 2021, a popular social platform will lose 10% of its consumer and commercial user base
after being recognized as a routine conduit for ransomware and malware.
 By 2021, an IoT trust-based protocol will emerge, supplementing current device connection
methods to determine the "right to connect" for IoT devices.

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3D Printing
IDC defines 3D printers as those which enable the creation of objects and shapes made through
material that is laid down successively upon itself from a digital model or file.

3D printing is an interesting technology that may have more immediate impact in banking, although still
somewhat far off in time frame. The ability to create objects onsite carries some characteristics of cost
and delay that may not sway the bank CIO into implementation. One use case might be the creation of
personalized debit cards printed onsite during the onboarding of a new customer. Currently, banks that
can issue cards at the branch must hold card stock in vaults until needed. There are issues of security
and control to be able to instantly issue these cards. 3D printing could eliminate these physical
challenges, but current costs models need to improve before it makes sense to transform the current
process.

IDC predicts that:

 By 2019, the 3D printing metals market value will triple to over US$1 billion.
 By 2021, 3D printing will start to supplement service parts inventory levels, and warehouse
space for parts will begin to decline.
Augmented and Virtual Reality
IDC defines augmented reality (AR) as purpose-built devices, worn on the head and over the eyes,
which allow the wearer to see their surroundings while being served data or feedback. The device may
overlay digital objects in the real world, or simply generate actionable feedback in the form of a heads-
up display (HUD).

IDC defines virtual reality (VR) as purpose-built devices, worn on the head and over the eyes, which
completely obscures the wearer's vision of the outside world, creating an all-inclusive virtual reality.

Augmented/virtual reality uses purpose-built devices, worn on the head and over the eyes, that allow
the wearer to see his/her surroundings while being served data or feedback. The device may overlay
digital objects in the real world (AR) or simply generate complete displays (VR). From the perspective
of banking, this is a futuristic technology that will be looking for a challenge to solve. Perhaps the first
entry into AR/VR may come as an extension of video advisory services that many banks are deploying
at the branch location. As institutions endeavor to conserve costs at the physical branch, more
advisory functionalities will be delivered through collaborative video sessions with product experts who
are centrally located in a bank operations area, such as the contact center. The delivery of the same
video advisory functionality could be driven to the home but lacks the intimacy of a personal visit to the
branch. AR/VR technology could support a more immersive experience by "placing" the customer at
the branch, while at his/her home, and mimicking the experience of actually being in the branch up the
street and talking to the familiar bank staff he/she has come to know.

IDC predicts that:

 By 2018, large retailers will use augmented reality-based scavenger events to attract
customers; same-day sales will spike 20% in some areas.
 By 2021, augmented reality will be used in 35% of all connected meetings to boost
productivity, disrupting a US$3 billion web conferencing market.

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Robotics
IDC defines robots as machines that can perform tasks based on current state and sensing, without
human intervention.

Robotic concierge staff have already been implemented at branches of Mitsubishi UFJ Financial
Group in Japan — although, currently, this represents more of a novelty than a game-changing
example. Use (and progress) in banking robotics will be throttled by cultural acceptance and time.

IDC predicts that:

 By 2018, 50% of large manufacturers will either be using or piloting drones for inventory and
yard management.
 By 2019, drone racing will break the top 30 most watched sports championships.
 By 2021, 50% of large retailers will use robots in customer-facing roles such as store greeters
or shopping and delivery assistants.
Transformation
Every business of every size risks fundamental disruption because of new technologies, new players,
new ecosystems, and new ways of doing business. Most businesses are beginning to invest in digital
transformation. IDC predicts that worldwide spending on digital transformation technologies will
expand at a compound annual growth rate (CAGR) of 16.8% through 2019 to more than US$2.1
trillion.

DX refers to the application of digital technologies to fundamentally impact all aspects of business and
society as a whole. It has become the source of innovation and creativity for new business models,
enhanced experiences, and improved financial performance. IDC defines digital transformation as an
approach by which enterprises drive changes in their business models and ecosystems by leveraging
digital competencies. There are three kinds of digital transformation:

 Using digital technologies to optimize their internal operations

 Using digital technologies to interact with their ecosystems
 Using digital technologies to create products, services, and experiences that customers want
and expect
In addition to the Omni-Experience DX, IDC believes that enterprises need to master the disciplines of
Leadership DX, WorkSource DX, Operating Model DX, and Information DX to achieve as optimized a
level of digital transformation as necessary for their specific business needs. Leaders that understand
and can exploit those synergies will be the digital disrupters of the future.

Leadership Transformation
This set of disciplines enables banks to develop the vision for digital transformation of products,
services, and experiences that are optimized to deliver value to partners, customers, and employees.
Leadership DX requires that bank executives become more sophisticated in their knowledge of the
enterprise ecosystem, including the digital accessibility of markets, customers, and service providers,
to anticipate and develop product and operational innovations that extend market share and increase
revenue by creating shared digital experiences that serve the needs of mobile, socially connected, and
digitally transformed customers and partners. It also requires the ability to communicate and embed
the vision in the organization and engage employees, customers, and partners in its execution.

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Some highlights related to this transformation area are:

 Improving awareness of and insight into business ecosystem

 Employing innovation of business model
 Fostering enterprisewide culture that quickly adopts governance and organizational changes
 Adopting agile method for planning and governance
 Driving the organization's funding and valuation criteria based on enterprisewide digital
strategies
Omni-Experience Transformation
This dimension describes an omnipresent and multidimensional ecosystem approach to continually
amplify experience excellence for bank products and services. Omni-Experience includes the infinite
combination of interactive experiences between digitally enabled businesses and their customers,
partners, employees, and things that are transforming the way people communicate with each other
and with the products and services that are increasingly needed to meet unique and individualized
demand. Further, Omni-Experience DX is not limited to electronic, online, or mobile channels.
Insomuch as customers continue to rely on traditional brick-and-mortar outlets such as the branch,
those networks must also undertake transformation to maintain the Omni-Experience continuity.

In summary, this transformation area is related to: transforming the way people communicate with
each other and with the business products and services.

Information Transformation
Information DX is the focused approach to extracting and developing the value and utility of
information relative to customers, markets, transactions, services, products, physical assets, and
business experiences. Transformed enterprises treat data and information as they would any valued
asset. Information is not only used to make better decisions and optimize operations and products but
also monetized in the form of products and services. Information is the currency of a dynamic
experience chain between the enterprise and its ecosystem that leverages information for competitive
advantage by enabling the business to respond to opportunities in less time with better intelligence.

In summary, this transformation area is related to: extracting and developing the value and utility of
information relative to customers, markets, transactions, services, products, physical assets, and
business experiences.

Operating Model Transformation

This dimension describes the ability to make business operations more responsive and effective by
leveraging digitally connected products/services, assets, people, and trading partners. Maturity in
Operating Model DX enables the enterprise to spend more of its time and energy focused on
developing new products and services by integrating the business's external digital connections to its
markets and suppliers with the internal digital processes and projects that are directly impacted by
customer requirements and ecosystem opportunities. Operating Model DX defines "how" work gets
accomplished in terms of digital transformation. Areas of bank operations that are process heavy yet
have historically provided substantial revenue streams, such as lending, are prime focal points for
Operating Model DX initiatives.

In summary, this transformation area is related to: making business operations more responsive and
effective by leveraging digitally connected products/services, assets, people, and trading partners.

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WorkSource Transformation
Perhaps the most challenging aspect of DX maturity in banking today is WorkSource DX. This
dimension covers the evolution of the way banks will achieve business objectives by effective
sourcing, deployment, integration, and retention of internal (full-time and part-time employees) and
external (contract, freelance, and partner) resources. Transformation and optimization are realized by
adopting strategies that leverage digital interactions and collaborations, connections, relationships,
and tools, including machine intelligence. WorkSource transformation optimizes the productivity and
flexibility of the internal and external contributors to organizational value; identifies the right resources
to achieve business objectives; drives business outcomes by creating a modular, agile structure;
facilitates relationships; and maximizes the productivity of interactions.

Some highlights related to this transformation area are:

 Optimizing the productivity and flexibility of internal and external contributors to organizational
value
 Identifying the right resources to achieve business objectives
 Driving business outcomes by creating a modular, agile structure
 Facilitating relationships
 Maximizing the productivity of interactions
The digital transformation agenda is organized around 32 essential themes (see Figure 2).

FIGURE 2

Digital Transformation Agenda Themes

Source: IDC, 2016

©2017 IDC #AP42818817 14

Regulatory and Security Drivers
The regulatory driver only includes Indonesian regulations, while the security driver covers worldwide
and regional potential drivers.

Regulatory
Otoritas Jasa Keuangan (Financial Services Authority)
Otoritas Jasa Keuangan (OJK) has released two regulations related to technology:

 Regulation of Financial Services Authority 38/POJK.03/2016 (December 7, 2016) on

Information Technology Risk Management (the revision from the previous one)
 Regulation of Financial Services Authority 77/POJK.01/2016 on Information Technology-
Based Money Lending and Borrowing Service
Bank Indonesia
There are two kinds of technology actions from Bank Indonesia:

 Financial system — payment system. Bank Indonesia has released two levels of regulation
about the Implementation of Payment Transaction Processing:
 Peraturan Bank Indonesia (Regulation of Bank Indonesia) No. 18/40/PBI/2016
 Surat Edaran Bank Indonesia (Distributed Letter of Bank Indonesia) No. 18/41/DKSP
(December 30, 2016)
Some important points related to the regulatory requirements are:

 Payment system service operators (company) must have approval (license) to operate from
Bank Indonesia (central bank of Indonesia).
 Payment system service operators must get approval before doing development and
cooperation with other parties.
 Payment system service operators must submit regular reports to Bank Indonesia consisting
of monthly reports, quarterly reports, yearly reports, IT audit reports, and incidental reports.
 Bank Indonesia fintech office. It was launched in Jakarta on November 14, 2016.
Government (Ministry of Economic Coordinator)
Paket Kebijakan Ekonomi (Economic Policy Package) Jilid (Volume) XIV (November 10, 2016) on E-
Commerce Roadmap

Security
For security trend, IDC predicts that:

 By 2021, 50% of online transactions will use biometric authentication that's enabled by broad
user acceptance, ubiquitous technology infrastructure, and low implementation costs.
 By 2019, more than 75% of IoT device manufacturers will improve their security and privacy
capabilities, making them more trustworthy partners for technology buyers.
 By 2019, 70% of major multinational corporations with roots in the United States and Europe
will face significant cybersecurity attacks aimed at disrupting the distribution of commodities.
 Over the next two years, 80% of consumers in developed nations will defect from a business
because their personally identifiable information is impacted in a security breach.

©2017 IDC #AP42818817 15

  By 2018, 70% of enterprise cybersecurity environments will use cognitive/AI technologies to
assist humans in dealing with the vastly increasing scale and complexity of cyberthreats.
 By 2017, 50% of enterprise customers will leverage analytics as a service to help solve the
challenge of combing through security-related data and events.
 By 2020, cloud security gateway functionality will begin to be integrated as part of web service
offerings to entice IT leaders to move offerings to the cloud.
 By 2020, 30% of U.S. broadband homes will have at least one IP-enabled home automation or
security monitoring sensor/device.
 By 2020, over 80% of enterprises worldwide will invest in incident response retainers.
 By 2020, more than 25% of enterprises will secure their IT architectures through cloud, hosted,
or SaaS security services.

Competitor or Banking Landscape

Below are the top 10 topics for the Indonesian banking technology in 2016.

#1 Digital Banking
Some banks use other terms such as ebanking (or electronic banking) for digital banking. This topic
includes mobile banking, Internet banking, branchless banking, digital lounge, phone banking, SMS
banking, cardless withdrawals, and office (including branch offices) automation. Banks in Indonesia
are generally still deep in planning, developing, releasing, and improving existing digital technologies
for their products, services, and operations. The topic also covers billing, payments, and money
transfer features under mobile banking. This initiative remains the most important area of concern that
banks in Indonesia place their technology focus on.

#2 Datacenters
This topic includes disaster recovery centers (DRCs) and business continuity plans (BCPs). IDC has
tracked several DRCs that are being created in banks of Indonesia, and large numbers of other banks
are also planning, improving, or upgrading their existing datacenters and BCPs.

#3 IT Security
This topic covers subtopics such as active directory and user ID management. Many banks in
Indonesia have formed plans to strengthen their IT security, and they are already well on their way with
such plans.

#4 Core Banking
Some banks have done some initiatives related to core banking systems such as upgrading their core
banking servers, software for new releases, and even replacing their whole core banking systems and
infrastructure. Some banks plan to adopt agile manufacturing concepts for their new banking products
in an effort to increase the efficiency of new product development and time to market for these
products.

#5 Cards
This topic includes credit, debit, and ATM cards. All of which have seen development in Indonesia in
the past year. Banks have launched a number of new credit cards and also forged partnerships with
other banks. This topic also covers the usage of chips for ATM or debit cards.

©2017 IDC #AP42818817 16

#6 Enterprise Architecture
Many banks have been seen to have future plans regarding their IT strategy to perform changes and
optimization for the overall architecture design.

#7 IT Governance
Banks plan to improve IT governance, so that it is more complete, roles are more defined, and
responsibilities for each process are clearer. There are also many moves to define how to measure the
success of such IT governance.

#8 Integrated Customer Analytics

This covers customer data management. Many banks in Indonesia are seen to be making big moves
to retrieve and analyze customer information through all channels, including the customer's profile and
segmentation, product portfolio, risk evaluation, and current loan credit. Most Indonesian banks
currently do not have a unified system that can bring all this information together. Some banks have
plans to implement Big Data and analytics in the next one to three years.

#9 EAI and STP

Banks are looking to develop automation and integration end to end by using enterprise application
integration (EAI) and straight-through processing (STP).

#10 Cash Management Systems

Lastly, banks are seen to be planning to improve cash management systems, for example, by
implementing tokens for end-user access and authorization.

For further details, IDC has observed the initiatives and plans performed by most of the banks in
Indonesia, then the information is categorized into some topics below.

Digital Banking
Some banks recognize digital banking as a key component of their overall banking strategies and have
reflected this as such in their overall IT or technology strategies, and in some cases, it has been
considered as a key part of their overall business strategies. For the other remaining banks that do not
state digital as part of their core strategies, they are highly aware of the overall fintech start-up
disruption to the conventional banking business.

Digital Channels
Most of the banks have already launched Internet banking as part their digital initiatives in addition to
the existing ATM channels. They have also released mobile banking and intensively improved the
features and customer experiences. However, the quality of the Internet and mobile banking
experience is still highly variable, and there are a range of standards of platforms that are currently in
use, ranging from the highly modern to outdated systems.

Several banks have plans to build digital lounges in their branches — similar to concepts seen in DBS
Bank in Singapore and Bank of East Asia in Hong Kong. Digital lounges are technology-based service
concepts that integrate and push both physical service concepts and digital technology forward to
create a fast and simple customer experience as well as facilitate and provide efficient solutions to
customers. Other banks have also planned initiatives to redesign their branch offices to accommodate
the digital banking experience and improve the work rate of frontline staff — aiming to reduce the
number of routine transactions done by the counter and convert these to more sales opportunity type
transactions.

©2017 IDC #AP42818817 17

Branchless Banking
As part of the Laku Pandai (the development of financial services without offices, which has been
discussed extensively in a previous work by IDC) program promoted by the Financial Services
Authority (OJK), several banks have already launched their products for the micro segment.

ATM and Branches

Currently, several banks do not have plans to expand their ATM and branch networks. The number of
branch offices are relatively stable, even though there has been an overall small reduction in usage for
ATM channels. It is commonplace in Indonesia that ATMs are often underused in remote areas.

For smaller banks, they still have plans to increase their branches and ATM numbers. The purpose is
to extend the coverage of transaction service for customers and increase the funding from the retail
segment. The branch includes both platform (account opening and sales/service) and teller
(transaction processing). Digital covers online and mobile banking, including online and mobile
development and hosting, online bill payment, inter- and intra-bank transfers, and electronic
statements.

Even though digital channels such as Internet banking, particularly mobile banking, have started to be
available to service the public, ATM and branch channels still exist and are widely used. Currently, the
financial services industry in Indonesia can be said to be in a transitional stage or period — both
physical and digital channels are still being used widely by customers; a total switch to either physical
or digital may be considered too late or too early.

Payments
With the growing trend and growth of the ecommerce market in Indonesia, payment platforms are one
of the most significant infrastructures involved in the overall ecommerce ecosystem besides logistics
and social media engagement. Generally, payment platforms are said to be a major enabler of
ecommerce uptrends in the country and are a vital part of the ecosystem that many banks are making
moves toward.

The development of payment platforms to accommodate multiple payment methodologies is seen in

the market. The aggregator, biller, e-money/e-cash, and payment gateway are all important parts of
payment platforms in commerce activity. Online payment solutions are likely to be on the rise at the
moment, especially with brick-and-mortar companies joining the ecommerce competition. There are
two categories of electronic money: "chip-based" and "server-based" (otherwise known as e-wallets).
This is similar to the e-money classification used in Thailand.

Some banks have launched their e-money products. The purpose is mainly used for physical
(contactless) payments for the chip-based type. For the server-based type, besides physical
(contactless) payments, it can be used for online payments (ecommerce) and P2P money transfers to
other people that don't have bank accounts (the phone numbers take the role of the bank's accounts).

Other Highlights
Some banks face a challenge (which is also a common issue for all banks that need to create various
and complex products) to adopt "agile manufacturing" for product configuration (able to modify the
product specification easily and quickly) for their banking products. It also includes the "product
bundling" concept. Banks are eager to benefit by shortening the time to market for products. These
matters are closely related to their legacy core banking systems. Core banking covers core processing
and accounting system for deposit and loan management. For each new product created, banks would
like to set up easily for the accounting-related matters in the system.

©2017 IDC #AP42818817 18

IDC has also observed that banks have plans to improve their analytics capability, including the
incorporation of customer insights. It makes sense when digital banking is fully implemented, and all
data (customer, transaction, and behavior) are being monitored and stored to expand on these
capabilities and leverage such tools to improve customer service and cross-selling ability.

Banks need to improve the availability of customer information throughout all their channels, including
the customer's profile and segmentation, product portfolio, risk evaluation, and current loan credit.
They have clear aims to develop a 360-degree customer visibility capability (master customer
information file) for a complete and consistent view of the customer across all businesses and product
departments.

Banks have plans to improve their customer management capability to support customer analytics and
business intelligence. This initiative is part of a larger theme and program of customer relationship
management (CRM) implementation.

Several banks have different focuses for the lending product category. Some banks, for example, have
placed focus on mortgage loans. Other banks have a different focus and may cover the micro market
segments.

These banks have in general sought to improve consumer lending originations, which include
application processing, underwriting, and document generation/archival. They have also made
significant moves to improve consumer lending servicing, mostly focusing on covering processes that
occur after the loan has closed. This includes payment processing for securitized lenders.

Some banks have implemented enterprise risk management, accommodating the implementation of
Basel II and III. They also have plans to improve their fraud risk management strategies.

In terms of customer service, some banks have implemented live chat and social media complaint
handling (capture, categorize, and distribute). They will continue the improvement for the end to end of
social media complaint handling.

A few banks have built their application programming interface (API) system to accommodate external
parties such as fintech start-ups, ecommerce firms, and so forth.

IDC'S POINT OF VIEW

IDC believes that Indonesian banks should consider below important actions in creating their
strategies. The actions are categorized into the following:

 Digital transformation plan

 Electronic payments (epayments)
 Fintech start-up (Fintech Sandbox)
 Mobile banking
 Preparing for new technologies (including the four pillars of the 3rd Platform and six innovation
accelerators)
 IT security requirements
 Customer relationship management

©2017 IDC #AP42818817 19

Digital Transformation Plan
Digital transformation represents the best way for Indonesian banks to prepare to respond to rapidly
changing customer behaviors and market conditions. At the root of DX is the acknowledgment that
front-office experiences (Omni-Experience DX) must be enabled by enterprise-enabling process and
information (Operating Model DX and Information DX). And to accomplish these enabling
technologies, commitment from the C-suite and board (Leadership DX) must drive organizational
change to ensure that internal staff and external partners (WorkSource DX) have a vested interest in
the long-term success of the institution. Those banks that are able to reach the level of optimized
maturity will break business barriers and create new opportunities for growth.

 Assess the bank's level of maturity and capability in each of the five dimensions of DX:
 Leadership
 Omni-Experience
 Information
 Operating Model
 WorkSource
 Assess the current state of leadership and its ability to create and execute the vision for the
digital transformation of the business. Assign leadership roles to develop DX plans and
governance frameworks for operations, marketing, infrastructure, culture/organization, and so
forth as appropriate.
 Assess the bank's strengths in each of the other disciplines and develop a plan and process
for building necessary competencies. Digital transformation is a journey, and agile practices
combined with road maps can help drive forward progress punctuated by identifying short-term
potential for achievements and "wins."
 Develop and implement a plan to integrate DX initiatives and programs into the existing culture
— inside and out — including organizational changes, new digital roles, funding, talent
management, operations, and information requirements. Restructure the "people" parts of the
business — process, structure, skill sets, incentives, roles, and communication — to optimize
the ability to improve in maturity.
 Revise the strategic planning process to incorporate next-generation changes/threats and
developments in DX. Redesign the enterprise IT operational model to allow proper alignment
with business and function partners. Ensure that communication between the bank's line-of-
business (LOB) and IT groups is transparent and in sync.

ePayments
 Assess the different business models in the market. The business model of mpayment for the
bank to consider is grouped into three scenarios:
 Existing bank-driven model. A bank deploys mobile payment applications to customers
and ensures merchants have the required mpayment point-of-sale (POS) devices to
accept the mobile payment. Payments are processed over the existing financial networks
with credits and debits to the appropriate accounts. The bank owns the relationship with
the customer and is responsible for processing the payment. This model is simplified by
the fact that the value chain for each participant is relatively clear and easily understood,
enabling merchants to offer additional payment options besides cash and credit/debit card.
DBS Bank, for example, provides tap and pay services using Android Pay.

©2017 IDC #AP42818817 20

  Peer-to-peer model. An independent peer-to-peer service provider provides secure mobile
payments between customers or between customers and merchants. The peer-to-peer
model enables newcomers in the mobile payments industry to process payments without
using existing wire transfer and bank card processing networks. The key difference
between this model and the others discussed in this report is that this model uses the
mobile phone to eliminate the existing payment ecosystem that consists of POS terminals,
acquirers, processors, and payment networks that route and settle the transactions. This
model is attractive to merchants looking to reduce the costs of processing credit and debit
payments, to customers who cannot access traditional bank cards, and to marketplaces
seeking to sell overseas (cross-border remittance). Alipay in China is a good example of
this model as it could rapidly expand its business without any technology upgrade at the
merchant's existing environment.
 Collaboration model. This model involves collaboration between banks, telco operators,
smartphone manufacturers, social channels, mobile platforms, and merchants in the value
chain, including a potential trusted third party that manages the deployment of mobile
applications and provides a secure transactions platform. Payments in this model are
processed over the existing financial networks with credits and debits to the appropriate
accounts. The key benefit of the collaboration model is that each stakeholder focuses on
its own core competencies, opens the door for new revenue streams from incremental
services, drives customer retention and loyalty, and responds to fundamental demand
from customers. The recent collaboration between DBS Bank, EZ-Link,
telecommunications companies, and device manufacturers in Singapore has opened up
new business opportunities for them as well as retailers.
 Consider whether the bank will also implement the peer-to-peer and collaboration models.

Fintech Start-Up
 Understand the motivation for fintech. Much of what animates the fintech space is an antipathy
(often vocal) to traditional financial institutions (FIs), financial technology vendors, and the way
they deliver financial services today. There is also a perceived arrogance in fintech companies
entering a market as complex as financial services. The combination of antipathy and
arrogance has inspired a reflexive attitude within traditional financial services to discount
fintech as being naïve or uninformed. Within fintech, however, there is plenty to understand
and incorporate. Fintech is about a better delivery of financial services and reaching new
markets. Discounting fintech is a mistake.
 Evaluate each technology on its own. Not every idea labeled fintech, even those receiving
attention and funding, is viable or even smart. Fintech is coming from outside of traditional
banking and financial technology. There is much to appreciate in the push for innovation and
improvement, but the genesis of fintech outside of financial services means many products
and services simply will not work within financial services. Technology leaders must separate
each new technology or product from the enthusiasm for fintech in general. These leaders
must objectively evaluate each technology or product by how it fits with a company's long-term
strategy, risk tolerance, existing systems, culture, and so forth. They must also be willing to
pass on those technologies they find unfeasible and champion those that represent a genuine
improvement.
 Focus on the customer. The problem in the past that continues today is that consumers are
not interested in any extra effort required to participate in financial services. For a fintech to
thrive is to minimize the effort required by the consumer. The same advice applies to FIs and
their vendors: provide tools that make banking, payments, and insurance more convenient and
simpler for consumers. A consumer-oriented approach that uses technology to deliver better

©2017 IDC #AP42818817 21

 services to underserved or untouched markets is at the heart of fintech. Those that fail to keep
ethos in mind will find businesses and opportunities carved away.
 Build long-term value. Not every segment of financial services lends itself to disruption. And
not every disruption is a business. It's possible to shake up an industry by giving away
services for free; it would certainly disrupt things, but it wouldn't be a viable long-term venture.
That will be an issue for many fintech companies that are well funded but haven't figured out
how to turn their disruption into a profitable enterprise. That is something that only time will
sort out. FIs and technology vendors must take that into account as they evaluate new
products, companies, and competitors.
 Monitor (and work with) regulators. The role of many regulators overseeing financial services
is not often appreciated, but it is a role that is important to protect consumers and the financial
system. That role has become increasingly difficult as financial services and technology have
changed rapidly. Regulators will have a part in the development of fintech, and as fintech
affects financial services, so will the regulatory response to fintech have a larger effect on the
larger market. Therefore, it behooves fintech companies and incumbent players to monitor
regulators' approaches to fintech while helping educate regulators on the benefits of new
models and providers in financial services.
 Think long term. Financial services and financial technology are beginning to comprehend
what fintech will mean to the market. It was understandable that incumbents already dealing
with a shifting market and the fallout from the 2008 banking crises were slow to acknowledge
fintech initially. That's okay. The changes fintech will produce are going to take place over
years. Technology leaders must avoid giving in to short-term thinking and instead consider
what fintech is and how it offers them options to change their long-term strategies to retain
customers and lower costs. A long-term view also will help FIs and their partners identify
places where they can find new partnerships with fintechs, opportunities to collaborate, or
even targets for acquisitions.
 Build Fintech Sandbox. Banks should be open for collaboration with fintechs and their
merchants to ensure that the existing bank's customers get benefits. To facilitate the
openness, banks should build Fintech Sandbox where other external parties can do simulation
when they develop their own applications/systems.

Mobile Banking
 Platform selection. The wide variety of different phones and the much lower penetration of
smartphones in emerging markets urge banks to clearly define their audience and functionality
to select the best mobile technology. This is a necessity not only in emerging markets, where
feature phones are still widespread, but also in mature markets. Selecting the right operating
system for native applications versus building an application cross-platform on HTML5 or
hybrid apps is a difficult decision. There is no one-size-fits-all solution for the mobile
development process. The choice between native and hybrid approaches depends on
business needs, app requirements, developer skill, development timeline, security
requirements, mobile connectivity, hardware integration, and others. Financial institutions
need to be aware of the changing landscapes in mobile technology and adapt to them quickly.
Technology this year may soon become obsolete because of the shifting consumer
preferences. Institutions need to be aware of how their customers want to deal with financial
matters on the mobile.
 User experience. The customer centricity paradigm urges banks to take their customers'
needs and behaviors into account. User-friendliness and simplicity are the key drivers.
Successful banks are trying to embrace this, not only by including and surveying customers
but also by using labs in the development process to test, adjust, and fine-tune the user
experience.

©2017 IDC #AP42818817 22

  Security. With mobile malware growing rapidly and a growing share of rooted/jailbroken
devices, security is becoming a growing concern for banks. Transaction signing tokens, as
required in Singapore, that add a level of security for high-risk transactions minimize this risk,
but they are inconvenient for consumers. Inconvenience and fraud incidents counter the use of
mobile banking. IDC believes that banks will have to increase the protection of their mobile
applications, acknowledging that most phones have been or can be compromised. We expect
the industry to move toward MAM and build self-defending, encrypted applications, but it will
eventually have to define a holistic MEM strategy securing the device, data at rest, data in
transit, and the application. Tokenization may also move to the next level in form of software
tokens, which are cheaper and better secured today. Furthermore, they come with the
advantage that most consumers/staff carry smartphones at all times, but not a hardware
token.
 Omni-channel. Putting the mobile at the heart of an omni-channel strategy will require
developers to build applications that cater to the devices' intrinsic strengths and weaknesses.
Mobile will not succeed by simply mimicking online banking, but by realizing what the mobile
channel can do best and what it cannot do. Uniquely mobile, personalized, and relevant
functionalities, such as location-based offers, coupon management, personal financial
management (PFM) tools, and mobile payments through mobile wallets and P2P payments,
are likely the drivers of mass adoption. New technologies to autocomplete application forms
based on document scanning (e.g., ID cards or utility bills) and better reusability of already
existing data will help mitigate some of the barriers of the mobile channel.
 Redefining channel strategy. Mobile laggards that have shied away the mobile transformation
so far will need to adapt their mobile strategy to the new omni-channel doctrine. Moving
forward, the mobile channel will play a crucial role in delivering a customer-centric, direct, and
cost-efficient customer experience. The challenge today lies in taking mobile beyond simple
transactions, such as checking account balances, and moving it into new areas of potential
business. It is time to rethink the mobile strategy turning the channel into a profit center. The
convergence of data analytics and mobility may offer exactly that.

Preparing for New Technologies

 Behavioral analytics will become a key component in identifying and preventing fraud.
 Blockchain and distributed ledger will provide tools to move away from processes that are
paper-based and inherently inefficient.
 Having a cloud adoption framework will expedite savings related to infrastructure investments.
 Increased efficiencies and enhanced customer engagement will mean that cognitive, robotic
process automation, and blockchain solutions will begin to be deployed.
 Banks should begin experiments with conversational technology safely by adding a
conversational element to their static FAQ and help sections.
 Robo-advisor solutions will challenge organizations to find the right balance between robotics
and human touch.
 Voice technology added to the customer experience can be used to improve the level of
interaction but should also be considered as an additional layer of security.

IT Security Requirements
Regarding the security requirements, the IT strategy process should consider:

 Data visibility. Discover and classify the unstructured data within the environment and
determine whether controls are in place to effectively enforce data governance policies.
Collaborate with data owners and senior management to identify ways to assess the risk
associated with the data life cycle.

©2017 IDC #AP42818817 23

  Data policy and controls. Determine ways to control data in various environments, from
scanning and discovery to monitoring and encrypting. Identify potential architecture changes
associated with cloud adoption and gauge the impact to the effectiveness of existing security
policies and controls.
 Data defense. Assess existing solutions used for vulnerability scanning, threat detection, and
prevention and determine if they adequately protect the high-risk assets. Consider evaluating
user behavioral analytics solutions and modern endpoint and networking solutions designed to
monitor system processes and network traffic to identify signs of suspicious behavior.
 Convergence. Take advantage of converged technologies. While businesses continue their
march to the cloud, and IoT has become an important part of the security discussion, there
hasn't necessarily been disruption in the security approach. As a result, maturing product
offerings can offer tremendous value.
 Support and managed service capabilities. Is your team capable of supporting this product?
It's a question every technology buyer should be asking. With added functionality, new
products also bring added complication. Advanced features and concepts could be
overwhelming for relatively inexperienced staff or security generalists. Search for products
backed by strong support or managed services (full or on demand) to avoid expensive
shelfware.

Customer Relationship Management

When all banks do the same things by providing omni-channel experiences to their customers, there
are relatively no competitive advantages among them. To differentiate from other competitors, banks
should implement the CRM concept to grow their customers' loyalty. Banks should do below actions:

 Cooperate between LOB and IT to determine and socialize the selected CRM framework to
use. The framework should include four main processes: identify, differentiate, interact, and
customize.
 Identify the technologies supporting the CRM implementation. Several technologies covered
are as follows:
 Master data management
 Big Data and analytics
 Contact centers
 Marketing applications
 Sales applications

LEARN MORE

Related Research
 Mapping Out the Next Opportunity: Online Payments in the Greater Southeast Asian Region
(IDC #AP42495917, May 2017)
 First List of 50 Fintechs to Watch in Asia/Pacific (IDC #AP42328417, March 2017)
 IDC FutureScape: Worldwide Security Products and Services 2017 Predictions (IDC
#US41866116, November 2016)
 IDC FutureScape: Worldwide Retail 2017 Predictions (IDC #US40518816, November 2016)

©2017 IDC #AP42818817 24

  IDC FutureScape: Worldwide Financial Services 2017 Predictions (IDC #US40132516,
November 2016)
 IDC FutureScape: Worldwide Digital Transformation 2017 Predictions (IDC #US40526216,
November 2016)
 Business Strategy: Understanding and Responding to "Fintech" (IDC Financial Insights
#US41565016, July 2016)
 IDC MaturityScape: Digital Transformation in Banking 1.0 (IDC #US41117816, March 2016)
 Leading in 3D: Becoming a Digital Business (IDC #US41012216, February 2016)
 Perspective: Innovation Accelerators — Next-Gen IT in the Global Banking Industry (IDC
Financial Insights #US40681015, December 2015)

Synopsis
This IDC Financial Insights Perspective discusses the key external drivers (from a bank's perspective)
that should be considered by Indonesian banks in creating an IT strategy for 2017–2020. The key
external drivers cover three main drivers: technology, regulatory and security, and competitor or
banking landscape. The drivers are derived from observing the technology and industry trends as well
as predictions on global, regional, and local (Indonesia) scales. The main topics include digital
banking, online payments, fintech start-ups, 3rd Platform, innovation accelerators, and digital
transformation framework.

"Most of Indonesian banks have started their digital banking journeys by providing Internet and mobile
banking to customers, but they don't have a digital transformation framework for the long-term journey.
The framework is very important for banks to deliver reliable and consistent products and services.
Among the important things are differentiation from others and customer loyalty. For those things,
banks should build technologies that support the customer relationship management implementation,"
says Handojo Triyanto, senior research manager, IDC Financial Insights Indonesia.

©2017 IDC #AP42818817 25

About IDC
International Data Corporation (IDC) is the premier global provider of market intelligence, advisory
services, and events for the information technology, telecommunications and consumer technology
markets. IDC helps IT professionals, business executives, and the investment community make fact-
based decisions on technology purchases and business strategy. More than 1,100 IDC analysts
provide global, regional, and local expertise on technology and industry opportunities and trends in
over 110 countries worldwide. For 50 years, IDC has provided strategic insights to help our clients
achieve their key business objectives. IDC is a subsidiary of IDG, the world's leading technology
media, research, and events company.

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