Banking on the New Normal



Efficiency is the name of the game in banking nowadays, a sector that has kept notoriously high overhead costs. Statistics from the OJK, the country’s financial services authority, shows that the operating expense ratio across the Indonesian banking sector is quite high. January 2020 numbers put the ratio at nearly 83.5 percent, which is just a slight decrease from 87.9 percent a year earlier. The post-pandemic ratio should be much lower given that COVID-19 has wiped out any need to spend on business travel, overtime, promotional events and entertainment.

The money saved during the pandemic, combined with profits earned, puts banks on stronger footing in the face of non performing loans and the major drop in credit demand from consumers, SMEs and wholesalers. Central bank data shows that when the pandemic began at roughly the start of Q2 credit demand had dropped to nearly 25 percent, whereas Q1 2020 credit demand was still quite healthy at 70.6 percent.

Just like every other sector, COVID-19 has forced banks into survival mode. For the banking sector it’s an issue of trimming the fat from operational costs and to continue serving customers in more efficient and innovative ways. For the latter part: read it as “going online”. Obviously every major bank in Indonesia has a mobile banking app and has made digital marketing a firm part of their regular spend.

The pandemic however has forced banks to go that extra mile online. In line with the nationwide call to stay at home, more major banks are making it possible to open new accounts online and offering a slew of new services, such as cashless transactions, promos with e-commerce platforms, even the ability to make cash donations. With shift-work and working from home being the pandemic norm, banks are also relying more heavily on IT to make internal operations flow more fluidly.

Seeking ways for banks to overcome inefficiencies, reduce operational costs and do more for customers online are what brought Silot into the fintech arena in the first place, back in 2018. Silot CEO Andy Li has been quoted as saying “the existing banking infrastructure is not in tandem with the evolving consumer behavior and has led to complacency and redundancies in the industry.” The existing infrastructure Li refers to stayed true to the regular payment methods of cash and credit cards, while Indonesia’s huge consumer market demanded online payment options. Seeing an opportunity, Silot built new digital payment engines that could be embedded into existing bank infrastructure. Since these new payment engines incorporated QR code transactions, this created an entry point for commercial banks to accept e-payments.

The main problem Silot identified with existing bank infrastructure is that different functions and batches of information were locked up in silos (kind of like the right hand not knowing what the left hand is doing), ergo: inefficiencies and high operational costs. By partnering with banks that recognize this main problem, Silot has been able to break down the silos and simplify the processes for onboarding, underwriting and managing security. The benefits? Banks can view these simplified processes through a single platform, making it easier to gain more customers within the SME sector and facilitate their need for e-payments. On the customer side, SMEs who had long been underserved by commercial banks are now able to apply for loans, make e-payments and keep track of their finances through a smart phone app.

Silot is unique in the Indonesian fintech space in that it uses technology to help banks and non bank financing institutions make faster decisions to help SMEs grow and thrive. It’s a win-win for both banks and SMEs since it provides opportunities for growth, while the ability to offer and receive credible loans and banking services from a distance becomes an attractive option as Indonesia eventually transitions into the “new normal”.

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