Amid intensifying market competition and demand for digital services, colocation data centers offer a fast and efficient solution for banks to drive their business transformation and remain viable
Indonesian banks and financial institutions are facing intense competition from digital players as well as demand for online services and know they will need to accelerate their business transformation to remain relevant in the market. They can do so quickly and efficiently if they turn to colocation data center services.
In recent years, traditional financial institutions in Indonesia have come under pressure to reduce cost and streamline their operations.
Local consumers are highly price-sensitive and will not hesitate to switch banks in search of lower transaction fee and interest rates. New digital entrants such as Gojek also have proven to be formidable competitors, bolstered by the rising popularity of digital money and payment platforms that are now used for virtually any service, including insurance, loan, and goods. Gojek’s GoPay, for example, currently has the biggest market share and can be used by even consumers that do not have a bank account.
This is a key factor as Indonesia has the largest unbanked consumer base in Southeast Asia, according to the eConomy SEA 2019 report , where 92 million in the country do not have bank account, credit, savings, or insurance services. The underbanked, at 47 million, have just a bank account and no other financial services.
And more Indonesians are heading online in search of digital services. Fueled in large by the COVID-19 pandemic, 37% of Indonesians who accessed online services last year did so for the first time, revealed the eConomy SEA 2020 report . In addition, 93% of these new online consumers planned to continue using at least one digital service after the coronavirus was contained.
The numbers present enormous untapped potential for local financial institutions, but they will need to be ready to deliver the services that consumers and enterprises, including small and midsize businesses (SMBs), want as well as on the platforms they expect to access these services.
For instance, a Bain survey  revealed that 76% of Indonesian SMBs already accept digital payments or are prepared to do so in the next three years. If traditional financial institutions are ill-prepared to support this enterprise customer segment, SMBs will move to digital players in search of better and modern tools.
Financial institutions and banks are realizing that they can no longer compete effectively with traditional products such as credit cards, which do not offer the flexibility that digital money does. They also are unable to rapidly increase their user base or generate new revenue from their current customer base with their existing inventory of products and services.
It further highlights the need for them to support digital and mobile platforms, and many are taking heed. Like their peers in the region and worldwide, Indonesian organizations are planning or have already begun their digital transformation journey, which includes moving to the cloud.
Challenges FSI firms in ASEAN face
This requires a robust underlying infrastructure and there must be careful consideration to determine whether banks should build their own data center or outsource their ICT infrastructure to a third-party, colocation data center operator.
If they decide to build their own site, they should be aware of the challenges that are unique to Indonesia. The country still is building out its critical networks including roads, telecommunications as well as economic infrastructure. Rolling out sufficient coverage can take time as land here is vast comprising 17,000 islands, including Java, Sulawesi, and Sumatra.
Furthermore, deploying a data center is not simply about outfitting an existing office building with the necessary IT equipment. Such buildings typically are not built for data centers, which require robust electricity supply and network connectivity, cooling, as well as physical capacity for expansion.
Building a data center takes significant cost and time, which financial institutions can ill-afford given the highly competitive market landscape.
Business benefits of outsourcing data center management
Local businesses often do not fully understand what it takes to run data centers, with some believing that building one themselves will be more affordable than entrusting a colocation data center provider to manage their IT operations.
They fail to realize that building their own site is a significant expense, with various factors to consider including the robustness of the power supply, backup generators, cooling engines, land, and buildings as well as skillsets.
Organizations will have to invest a large amount of money even though they are unlikely to run the data center at full capacity most of the time. This means they end up utilizing only a small percentage of their entire investment.
In addition, as equipment and data center facilities age, companies may have to deal with performance issues and spend hefty sums on repair and replacement. Such challenges can get more complicated as trained employees resign, leaving the company with new administrators who do not have the expertise or skillsets to manage critical systems.
The lack of proper knowledge also can result in businesses overlooking infrastructure and technical guidelines on how data centers should be built. Failing to establish proper power and cooling measures, for instance, can result in serious accidents or loss of power, which can cost millions in revenue due to the system downtime.
Furthermore, financial institutions in Indonesia are required to comply with certain regulations governing their ICT deployment. For example, they are required to run Tier 3 data centers, which must be able to deliver 99.982% availability. These facilities also need to be properly secured against physical breaches, so only authorized personnel are allowed entry.
Choosing the colocation data center route mitigates such risks, since these third-party operators will run facilities that already are in compliance with local legislations. It also enables businesses to buy capacity as and when needed.
Selecting the right colocation data center platform that meets your business needs
Third-party facilities also are built and equipped with the most advanced technology since colocation data center operators invest heavily to ensure the infrastructure is robust enough to support multiple enterprise customers as well as cloud vendors.
More importantly, colocation data center operators often run multiple sites to provide proper redundancy and coverage, including Princeton Data Group, which is the only-pan-country, carrier-neutral operator with five data center locations in Indonesia including two in Jakarta, and one each in Pekanbaru, Bandung and Surabaya.
In determining their data center requirements, financial institutions should assess the capacity they need such as computing, storage, network, and electricity. Higher density servers, for instance, will require more power.
Topmost, a cost-benefit analysis must be carried out to decide if it makes more sense for banks to build their own data center or outsource to a colocation data center operator.
Princeton Digital Group (PDG) is a leading investor, developer and operator of Internet infrastructure. Headquartered in Singapore with presence and operations in China, Singapore, India, and Indonesia, its portfolio of data centers powers the expansion of hyperscalers and enterprises in the fastest-growing digital economies across Asia.