Digital Bank Entry and Competitive Dynamics in Indonesia’s Retail Banking Market

Abstract

This article examines how digital bank entry reshapes competitive dynamics in Indonesia’s retail banking market and under what conditions entry strengthens contestability versus preserving market power. Using a systematic literature review of peer-reviewed studies, the article consolidates evidence on how digital-only banks, incumbent digital subsidiaries, and fintech-led substitution affect rivalry, pricing conduct, and market structure. The reviewed findings indicate that digitalization tends to intensify competition in acquisition-heavy segments where onboarding is frictionless and price comparison is easier, yet market power can persist where informational switching costs, behavioral inertia, and ecosystem lock-in remain. The discussion organizes results around three lenses: how “entry” is operationalized, the mechanisms linking entry to rivalry (switching costs, network effects, and operating- model efficiency), and Indonesia-specific institutional conditions such as governance expectations and interoperability. Overall, the synthesis suggests that digital entry reorganizes competition into contested and less contested pockets rather than generating uniform price competition, highlighting the central role of interoperability and data portability in shaping outcomes.