EVALUATION OF DIGITAL BANKING EFFICIENCY IN INDONESIAN BANKING SECTOR USING DATA ENVELOPMENT ANALYSIS (DEA)

• Main Author: Amanda, Priscilla
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/75718
• Institution: Institut Teknologi Bandung

In the last few years, the digital banking industry in Indonesia has experienced significant growth due to customers changing demands. Indonesian banks have been rapidly adopting digital technologies in order to enhance their efficiency, mainly because of the fast adoption of digital technologies, the growing usage of mobile devices, and the COVID-19 pandemic, which forced several activities to be done online. The digitalization of the banking industry is also supported by the authority’s regulations, including Peraturan Bank Indonesia Nomor 20/6/PBI/2018 regarding electronic money and Peraturan Otoritas Jasa Keuangan Nomor 12/POJK.03/2021 regarding digital banks. There are several types of digital banks in Indonesia, consisting of digital bank as a business unit of an incumbent bank and neo-bank as a full digital bank. Digital transformation in the banking industry may reduce several operating expenses since the characteristics of a digital bank are that it only has a few office branches, reduces the number of employees, and is expected to increase efficiency. This research aims to measure the efficiency of Indonesian commercial banks using the Data Envelopment Analysis (DEA) method with a Variable Return-to-Scale (VRS) model, using the production approach and input-orientation, because the purpose of this research is to minimize the input. The variables used in this research are labor expenses (x1), earning assets (x2), and fixed assets and equipment (x3) as the input variables, and loans (y1), Third-Party Funds (y2), and non-interest income (y3) as the output variables. The research evaluates the efficiency of 39 Indonesian commercial banks, including 7 digital banks as business units, 5 neo-banks, and the rest as the bank population. The observation period of this research is from 2012 to 2022, with the earliest digital transformation in the Indonesian banking industry occurring in 2016. The results show that the overall banks’ efficiency is fluctuating over time. During the observation period, the efficiency of digital banks as a business unit and neo-banks, both are more efficient than non-digital banks. Meanwhile, only several digital banks and neo-banks are operated more efficiently after digitalization. Furthermore, the results of Mann-Whitney U test indicated that there is a significant difference of the banks’ efficiency before and after digital transformation in the Indonesian banking industry because all the test results rejected the null hypothesis, even if the banks’ efficiency prior to digitalization was better. The result of this research might be used as an insight for each stakeholder, such as Indonesian commercial banks, and the authorities, including Bank Indonesia and OJK. Each bank may utilize this information to better plan its short-, medium-, and long-term strategies in order to reduce operating costs and increase efficiency. For the financial services authorities as the regulator and supervisor, it can be used to establish regulations and guidelines for Indonesian digital banks. This research also can be extended to categorize the commercial banks based on their core capital categories and considered the distraction of macroeconomy factors, such as the COVID-19 pandemic to the downfall of the banks’ efficiency in 2020, which has not been applied in this research.