Indonesia's financial watchdog is set to outline by the middle of this year how digital banks should operate in the country, one of its top officials told The Straits Times.
"We won't regulate details, nor will it be rules-based," said Mr Anung Herlianto, executive director of banking research and regulation at the country's Financial Services Authority (OJK).
"It will instead be a set of guiding principles for banks to operate digitally, and banks have to mitigate their own risk, any risk, that may arise."
Digital banking is expected to provide a boost to South-east Asia's largest economy as it will cater to the unbanked who comprise up to one-third of the population of 270 million.
But smartphone penetration in the country has reached 70 per cent to 80 per cent.
Two technology companies, Jakarta-based Gojek and Singapore-based Sea, have acquired stakes in existing banks that could go digital.
Traditional banks such as Jakarta-based Bank Central Asia and Bank Mega have also acquired smaller banks, which could operate as their digital arms.
No firm decision has been made on granting digital banking licences to investors, although OJK remains open to this, said Mr Anung.
"We will go over available options - allowing tech companies to acquire existing banks and turn them into digital banks or issuing digital bank licences to investors," he said. "We have yet to make a decision."
"If we do go ahead with issuing a digital bank licence, investors would be required to inject a minimum amount of capital, like investors in conventional banks," he added.
Mr Anung said other stipulations such as having to maintain certain levels of liquidity, like it is with conventional banks, would also be introduced.
He noted, however, that acquiring an existing bank is seen as a convenient option.
"We are talking to the banking industry and other stakeholders to gather their views," he added.
"We want to accommodate what the industry needs."
Indonesia has 108 commercial banks and over 1,500 rural banks, and an effort is under way to reduce the number of such institutions.
Smaller banks have been told to merge or allow themselves to be acquired by larger institutions with adequate capital.
As of Jan 1, no bank can operate with total equity of below 1 trillion rupiah (S$95 million) unless they are in the process of merging or being acquired. From next year, all banks must have a minimum capital of 3 trillion rupiah.
"The ecosystem is changing very fast. We are reviewing a lot of stipulations that are no longer conducive to supporting the current industry. This includes a cap on ownership in a bank," Mr Anung said.
Currently, Indonesia encourages a maximum 40 per cent ownership stake in a bank by financial institutions, 30 per cent by non-financial institutions and 20 per cent by individuals. This is to ensure shared control over banks.
"This rule has been in place for a while. In practice, if a problem arises with a bank, none of its shareholders have a sense of responsibility as they tend to leave it to each other to take care of the problem. This is the weakness," said Mr Anung. "This is among those issues under review."