Updated Digital Banking Framework Introduced by Indonesia’s Financial Services Authority

Virtual banks in Indonesia must have minimum paid-up capital of IDR 10 trillion (appr. $694 million). But the capital deposit needed when submitting an application is only IDR 3 trillion.

Indonesia’s OJK (Financial Services Authority), the nation’s financial regulator, has shared an update to its regulatory guidelines for commercial banks. The new regulations include a framework for virtual banks operating in the Southeast Asian country.

As first reported by Regulation Asia, the updated regulatory framework is meant to support ongoing digital transformation initiatives in the country’s banking sector, promote the development of innovative banking products, and enable local banks to operate efficiently, while adapting services to the requirement of consumers.

Under the updated regulatory guidelines, Indonesia-based digital banks may offer services with just one physical location serving as their head office and with physical locations for clients. Limited physical offices will also be permitted under the new rules.

OJK has provided several requirements for virtual banks.

Indonesian digital banks must have a business model that leverages innovative and safe technology to address customer requirements. Additionally, the banks must have the ability to manage a prudent and sustainable virtual banking business model. Virtual banks in the country must also have adequate risk management.

Furthermore, they need to fulfill governance aspects, such as the requirement for the board of directors to have competence in the field of IT and various other competencies (as referred to in a fit and proper test). The banks also need ensure the security of customer data, contribute to the development of the digital financial ecosystem, and enable financial inclusion.

A virtual bank may be launched via the direct establishment of a new digital banking entity or via the conversion of a commercial bank to a digital bank, the announcement clarified.

Virtual banks must have minimum paid-up capital of IDR 10 trillion ($694 million). But under special regulations, the capital deposit needed at the time the application is filed is IDR 3 trillion.

Heru Kristiyana, Executive Head of Banking Supervision at the OJK, stated:

“The pandemic has pushed digital transformation in the banking sector into a necessity. Such conditions require banks to place digital transformation as a priority and as one of the strategies in efforts to increase bank competitiveness.”

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