Digital banking technology adoption among Islamic banks in Indonesia

Abstract

Digital banking technology has enabled banks to provide digital banking services through internet banking and mobile banking, better known as digital banking. Driven by increased internet usage and the participation of the younger generation, digital banking has become a vital aspect of financial services for Indonesian banks, including Islamic banks. Furthermore, the impact of the COVID-19 pandemic has amplified the importance of banks' adoption of digital technology. However, the adoption of digital technology poses significant challenges, primarily due to a sizable investment, while Indonesian Islamic banks encounter a limited budget to invest in digital technology. Therefore, Islamic banks need to select a priority for services in digital banking. This study identified five objectives concerning digital banking adoption by Islamic banks in Indonesia: (i) to explore the current state of digital banking adoption among Islamic banks in Indonesia by analysing documents of Islamic banks; (ii) to explore the priority of the type of services in digital banking by Islamic banks in Indonesia from the bank perspective; (iii) to explore determinants in considering the priority of the type of services in digital banking by Islamic banks in Indonesia from the bank perspective; (iv) to examine bank-specific factors in determining the decision to adopt digital banking among banks offering Islamic banking services; (v) to examine market-specific factors in determining the decision adopting digital banking among banks offering Islamic banking services. This study adopted qualitative and quantitative methods, namely, document analysis to explore the current state of digital banking adoption, Analytic Network Process (ANP) to explore the priority of the types of services in digital banking, and Logistic Regression to examine determinants influencing digital banking adoption. The finding shows that Islamic banks in Indonesia have offered almost all the services in digital banking by using multi-channel, except for protection and investment services. The findings reveal that fund transfer and payment services emerge as the highest-priority services, while technology—specifically its security and associated risks—is identified as the most crucial criterion to be considered for digital banking services adoption by Islamic banks. Furthermore, all the bank-specific factors, along with market-specific factors, are found to significantly influence the adoption of digital banking among banks offering Islamic banking services, except for the labour cost. In particular, the COVID-19 pandemic has encouraged digital banking adoption by banks. Integration of multiple theories and inclusion of the Sharia aspect into the model have contributed to extending theories in the study of technology adoption. Considering the context and sample selection, this study is limited to digital technology adoption in the context of Islamic banking in Indonesia and does not consider the case of conventional banking. This study recommends that Islamic banks design a roadmap to implement the adoption of digital banking services based on the priority of service types offered by Islamic banks. For regulators, the findings contribute to policymakers for consideration in promoting digital banking development. Unlike other studies in digital banking, this study integrated multiple theories, applied mixed methods, and incorporated the Sharia aspect into the ANP model to prioritise digital banking services in Islamic banking from the bank’s perspective, making it unique.