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Financial wellness apps are winning customers and protecting the vulnerable as the race for engagement banking in Indonesia heats up

Outdated technology, organisational silos, and competing priorities are the main barriers to upgrading and implementing financial wellness and digital money management tools and apps

A new study has revealed around 80% of Indonesian banks plan to execute or expand their use of financial literacy tools over the next 12 months, making it the second-highest rate in the Asian Pacific.

The number of people using their smartphones for banking in the region is one of the highest, sitting at 75%, according to a Backbase commissioned study, conducted by Forrester Consulting. While this was largely driven by younger Indonesians, it also shows the increased demand for more digital services through mobile devices such as savings and budgeting tools, spending analysis, and automatic debt repayments.

Backbase APAC Regional Vice President, Iman Ghodosi, believes that banks are becoming more mindful of the financial decisions of their customers and banks are going ‘all in’. Mr Ghodosi said:

“It’s a very exciting time for the digital banking industry and what we’re noticing is that as the competition heats up, banks are finding improved ways to keep their customers interested in their services. There are also wider social issues such as financial literacy and inclusion that banks are actively addressing. 58% of banks in the region plan to increase their spend on financial wellness initiatives over the next 12 months. 94% are also planning to or are actively expanding their digital money management and financial wellness tools for customers.”

There’s also a bigger push to drive growth for the digital banking industry following new banking rules in Indonesia that allows almost full foreign ownership of local lenders. Mr Ghodosi added:

“It’s more important than ever to own the relationship with your customer to stay ahead of the pack in the engagement banking era. This future-proof way of operating stresses a one-platform approach for banking. It completely re-architects the bank to focus on the customer, moving away from siloed technology investments.”

Financial wellness apps is a solution to protect the vulnerable

Indonesia’s IT Ministry blocked almost 450 illegal technology providers in the first half of 2021 alone. This has brought the low financial literacy into the national spotlight, showing just how vulnerable unprepared customers can be.

As a solution to this rising issue and the growing gap in financial inclusion, banks are leaning on financial wellness apps as a way to provide access to useful and affordable financial products and services.

Mr Ghodosi stresses that low financial literacy has become the greatest barrier to financial inclusion:

“These apps empower users by providing them with tools, suggestions, and guidelines for better financial living, Banks want to protect their vulnerable customers, keep them for longer, and help to prevent some of the illegal activity happening in the industry.”

This vision is echoed by the recent findings that show banks are focusing on caring for and protecting their customers through advancements in artificial intelligence and data analytics. For instance, of the Indonesian retail banking business decision-makers interviewed;

  • 68% said preventing exploitation of vulnerable and older customers was an important aspect of financial wellness apps;
  • 66% believed identifying risks of vulnerability and financial difficulty in their customers was important;
  • 76% wanted to encourage customers to build better financial habits for a successful future.

Outdated technology and silos key roadblocks

Success in the engagement banking era isn’t without its challenges for banks. The new study uncovered that 66% of retail banking business decision-makers feel that outdated technology is a roadblock to complete transformation. Organizational silos and competing priorities are also a barrier when trying to implement a future-proof digital banking platform. Mr Ghodosi said:

“Banks need to address these challenges as quickly as possible, as whoever succeeds first will have a clear competitive advantage over the others. Another aspect that is sometimes forgotten in the process is the immense data collection opportunities available. Consumers are waiting for these services. At the end of the day, It’s a win-win for both customers and institutions, and we can’t wait to see what happens next.”