ESTRATEGIA 10 ELABORACIÓN DE RESÚMENES 138

It is much easier to report the development of technology-supported financial products and services for banks than for non-bank financial institutions. Given the current development of banking products and services, it is difficult to imagine a full-fledged bank operating without some application of IT technology. In a Bank Indonesia survey conducted in 2006 to gather information on the latest development of IT in the banking sector, 105 banks out of the 130 banks surveyed responded. The survey provided some insights how most banks implemented IT in leveraging their business.

The implementation of electronic banking is definitely common in the Indonesian banking system. We can identify twelve different e-banking applications in the abovementioned survey. Automatic Teller Machine (ATM) is the most widely implemented application of e-banking (60%). There are only a few banks offering prepaid card products. E-bill ranks second as the most implemented feature of

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business units (corporations). Payment by cheques is not a commonly acceptable practice for individuals, and this has contributed to the popularity of e-banking. Customers of banks seek practical ways of performing their transactions through e-banking. Although common in the big cities, credit cards have not yet reached the rural areas. Cash is still the most preferred means of payment settlement. For this reason, the ATM is widely popular in the banking sector. As of July 2008, Bank Indonesia registered 81 individual acquirers of ATM services. They are all commercial banks, with the exception of seven companies comprising four payment system companies, two rural banks and a pension fund.

When a point of payment is available, the debit card is the next most preferred payment mode. In some retail establishments, payment by credit card will attract an additional fee which is imposed as a percentage of the transaction amount. Nevertheless, credit cards have become a common means of payment in the larger cities. As of July 2008, Bank Indonesia registered 21 bank-issuers of credit cards, with a total of 10,678,891 of credit cardholders.

Figure 10

Percentage of Banks Implementing E-banking

Source: Bank Indonesia Survey on IT Implementation by Banks of 2006

We also identify eight main components of IT implementation in the banking sector. They are: (1) Core Banking (comprising General Ledger, Third-party Fund, Loan and Customer Information File); (2) Treasury; (3) Remittance; (4) Trade Finance; (5) Corporate On-line Banking; (6) Internet Banking; (7) Mobile Banking; and (8) Phone Banking. Banks have different IT implementation policies for each of the components. Banks implement IT through one of these three ways: in-house,

purchased/licensed, and outsource. Figure 11 illustrates how IT is implemented in each component. The acquisition of a license to implement a system dedicated to operating a given component is quite popular. Among all the components, this type dominates the other choices of IT implementation (52%), and is especially popular for implementing Trade Finance (69%). In-house development comes in second on average (29%). For corporate on-line banking, banks are more balanced in choosing between in-house development and purchasing/licensing (42% and 46%). Security and data protection may explain for this. If not purchased/licensed, banks prefer outsourcing for mobile and phone banking services, whereas they are more balanced between in-house development and outsourcing for Internet banking.

The survey also reveals that only 50% of the banks implement continuous service procedure for e-banking services. This is quite a low percentage considering Indonesians have a high appetite for using e-banking services. Of the banks represented in this group, only about 10% implement criticality classification, 42% implement backup and recovery, and only 20% implement business continuity activation. This is an area that requires the attention of the Indonesian bank supervisors.

Figure 11

Types of IT Implementation

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In the area of IT policy, the survey also reveals some facts. 82% of the banks surveyed have IT steering committees. 92% have risk management frameworks for IT implementation, although only 75% of this group conduct IT-risk mitigation evaluation. 71% apply standard operating procedure (SOP) for system development. All the responding banks have already implemented access restriction and division of authority for system and data. However, only 92% has IT security policy and 66% implement audit trail. With regard to IT auditing, in addition to being audited by Bank Indonesia, 73% conduct IT internal audit, 47% provide for IT external audit, and 21% conduct system/application internal audit.

The implementation of IT in the non-bank financial institutions is not less sophisticated. Although the author does not have survey information on IT implementation in the non-bank financial institutions (NBFI), the application of IT in these institutions has become part of the development of the financial market. In Indonesia, some financial institutions that are engaged in the stock markets implement e-trading. E-trading of stocks follows the regulations set by the Indonesian Stock Exchange (IDX). The supervisory framework of non- bank financial institutions follows the regulations set by the Capital Market and Non-Bank Financial Institutions Supervisory Agency (BAPEPAMLK). Phone and Internet access are the most common services provided for customers. Nevertheless, NBFIs are also exposed to all the risks that the banks are facing when they use IT for their operation. Therefore, the analysis of the supervisory impact should be the same.

Figure 12 IT–related Products

Are the following IT-related products implemented in the country? 

No. Item Yes/No

1 Credit Card Yes

National (only used in the country) Yes

International Yes

2 Debit Card Yes

National (only used in the country) Yes

International Yes

3 ATM Yes

Individual bank Yes

Nationally-shared ATM Yes

Internationally-shared ATM Yes

4 Electronic Fund Transfer (EFT) Yes

5 EFT at Point of Sale Yes

National (only within the country) Yes

International Yes

6 Remittance Service Yes

Domestic companies Yes

International companies Yes

7 Phone Banking Yes

Informational Yes

Transactional intra bank Yes

Transactional inter bank Yes

8 Mobile/SMS Banking Yes

Informational Yes

Transactional intra bank Yes

Transactional inter bank Yes

9 Internet Banking Yes

Informational Yes

Transactional intra bank Yes

Transactional inter bank Yes

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3.3 The Heterogeneity of the Technology Implemented in the Financial