Digitalization, Emerging Technologies, and Financial Stability: Challenges and Opportunities for the Indonesian Banking Sector and Beyond. Muyanja Ssenyonga Jameaba

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, Big technology companies (Big Tech1) 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 Big Tech 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, 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. The reluctance of conventional banks to adopt emerging technologies poses threat to both their interest and non-interest 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.