The rise of financial technology has catalysed transformative shifts within the banking sector, with the payment system at one of the forefronts of these changes. These innovations, ranging from ATM/debit card transactions to QR payments, have reshaped traditional transaction methodologies.
This study investigates the nexus between these payment system innovations and banks' profitability in the Indonesian context, with Return on Assets (ROA) and Return on Equity (ROE) serving as the dependent variables reflecting profitability. Notably, the recent QR payment innovation exerts a significant impact on profitability, largely due to the integrative nature of the QR code standard. Conversely, e-money's influence on profitability is muted, attributed to both competitive dynamics and regulatory challenges. Established financial innovations like ATM/debit cards, credit cards, and internet banking continue to positively augment profitability, while phone banking exhibits a diminishing impact.
Further analyses by bank size unveil pronounced profitability differences between large and small banks. Moreover, distinctions in bank ownership reveal varied profitability paths for state-owned, private, and regional development banks. The advent of the COVID-19 pandemic introduced additional intricacies, especially affecting profitability derived from ATM/debit and e-money transactions.
This study underscores that not all payment innovations are equally beneficial for bank profitability. Shared infrastructure and standardised systems emerge as lucrative strategies. Policymakers are encouraged to recognise the potential of such collaborative approaches and to reassess e-money regulations. For banking institutions, a strategic embrace of innovations, cognizant of bank size, ownership dynamics, and the potential need to reevaluate certain systems, like phone banking, becomes crucial.
Keywords: Payment system innovations, Bank profitability, Financial technology (FinTech), Digital economy, Bank size, Bank ownership, COVID-19 pandemic
07 February 2024