Digitalization, Emerging Technologies, and Financial Stability: Challenges and Opportunities for the Indonesian Banking Industry and Beyond

Abstract

One of the challenges financial institutions is how to adapt to a changing business environment, increasingly demanding and differentiated customer preferences, digitalization and technological change. Using a documentary analysis approach, the article navigates the ramifications of API based open banking, Block Chain Technology (BCT) and entrance of Fintechs, Bigtechnology companies (Bigtechs) and Telecommunications companies (Telcos on the performance of general banking sector and financial system stability. Results underscore the role of digitalization revolution and ICT in fundamentally changing the financial service development and delivery, by empowering ICT savvy non-financial institutions including financial technology companies (Fintechs), TELCOS, and Bigtechs to become players in the industry; enhancement of financial inclusion thanks; reduction in transaction costs; and inducing traditional banks to adopt new business models that leverage Big Data and data analytics approach. Digitalization has paved way for the development of agile, adaptive open banking supporting business models financial that supported collaboration with other providers of financial services, back end and front end technologies, diversified customer base, strengthened capacity and capabilities to leverage customer experience , develop and deploy financial innovations to strengthen competitiveness. Nonetheless, despite its many benefits, most banks are yet to adopt BCT due to persisting uncertainty that surrounds the technology a, its adoption, deployment and operations. BCT adoption has been undermined by an array of failures of several BCT based crypto exchanges and assets, limited understanding of BCT business case, regulatory ambiguity, and risk aversion. The adoption of BCT promises improvement in the integrity and authenticity of financial service delivery, reduction in vulnerability to cyber insecurity, decentralized authentication, increased operational efficiency, low compliance cost, shorter onboarding of new product offers and customers, accelerated development and deployment of new product offers 1 , which should diversify and broaden liability sources and investment portfolios. Failure to adopt and deploy both business processes and products on BCT poses the danger of empowering new entrants into financial service development and delivery. Traditional banks reluctance to adopt emerging technologies threatens their both their interest and non-earning income sources, ability to provide monetary policy transmission function, providing customer wealth custodianship services, serving financial payments and money supply transmission functions, and serving as lynchpin in financial system liquidity. The article highlights challenges and pathways to mitigating them in such a manner that improves bank performance without undermining financial system stability.

Redefining Financial Frontiers: Ethical Imperatives and Regulatory Dynamics in Robotic Investment Platforms

“…This is consistent with Fein's emphasis on governance and fiduciary responsibility within robo-advisory platforms [1] [7]. Therefore, it is crucial for RAs to provide portfolios that accurately represent clients' risk tolerance and financial objectives, thereby fulfilling both client expectations and regulatory requirements [4][5] [18].…”

“…The implementation of Robo-Advisors (RAs) necessitates a thorough comprehension and adherence to complex regulatory frameworks [18] [7]. A critical aspect of compliance is the establishment of robust governance frameworks that encompass not only risk management across the product development lifecycle but also the oversight of all emergent business activities [18] [3]. Such frameworks should comprise a well-defined set of rules, procedures, and monitoring systems to ensure ongoing compliance [1].…”

“…Maume's work further emphasizes the importance of implementing policies that foster responsible business practices, always prioritizing the client's best interests [5]. As a safeguard, third-party risk assessments are recommended to independently verify compliance standards [18].…”

“…The European Commission's ePrivacy Regulation (EPR) mandates specific conditions for data processing, like service provision, quality assurance, or explicit client consent [17], and requires the prompt deletion of unnecessary data. Companies are also urged to establish thorough data privacy policies and cybersecurity strategies that encompass prevention, detection, and response to specific threats [18], with cybersecurity insurance being recommended for additional protection [18]. Incident management and business continuity planning are essential, especially in dealing with cyber-attacks, as highlighted by Strzelczyk (2017) [20].…”

“…The regulatory environment for voice-enabled Robo-Advisors (RAs) is complex, covering aspects like compliance, workforce training, data security, and privacy [18][3] [20]. Each aspect brings its own challenges, calling for a structured governance framework and careful operational oversight to ensure full compliance and maintain the integrity and security of the RA service.…”