Digitalization and Profitability of Conventional Banks in Indonesia: Efficiency, Transactions, and Risks

Abstract

The rapid advancement of digital technologies has significantly transformed the banking industry worldwide, including in Indonesia. This study explores the impact of digitalization on the profitability of conventional banks, focusing on three dimensions: operational efficiency, transaction volume, and the risks and challenges associated with digital transformation. Using a qualitative descriptive-analytical approach, the study synthesizes recent literature to capture the dynamics of digital adoption in Indonesia’s banking sector. The findings indicate that digitalization enhances profitability through reduced operational costs, higher transaction frequency, and broader accessibility, thereby supporting financial inclusion. However, the study also reveals that digitalization introduces significant challenges, such as cybersecurity threats, high technological investment costs, and external pressures from macroeconomic fluctuations and fintech competition. These findings highlight that while digitalization offers substantial opportunities for conventional banks to improve profitability, its success depends on comprehensive risk management, sufficient capital readiness, and regulatory support. This study contributes to both academic discourse and practical strategies by emphasizing that digital transformation in conventional banking should be viewed as a long-term, strategic investment rather than a short-term solution.