The Law of Digital Only Banks: Legal Challenges in Licensing, Supervision, and Consumer Protection

Abstract

The digital transformation of the banking sector has accelerated the emergence of digital-only banks, which operate entirely online without physical branches. This study examines the legal challenges surrounding digital-only banks, focusing on licensing, supervision, and consumer protection, with a comparison between global frameworks and Indonesian regulations. Using a normative juridical method and comparative legal analysis, the study identifies major gaps in Indonesia’s legal framework. Current licensing rules under POJK No. 12/2021 still mirror traditional banking models and may limit innovation. Supervision remains fragmented across regulatory bodies, with limited use of technology-based oversight. Consumer protection is guided by general statutes (Consumer Law, ITE Law, and PDP Law) that lack specific mechanisms for digital banking. The findings suggest the need for comprehensive reform through (1) adaptive and risk-based licensing, (2) digital supervisory technology (SupTech), and (3) stronger consumer protection policies focused on data rights and algorithmic fairness. This research contributes to the development of a technology-neutral legal model for digital banking, aligning innovation with legal certainty and financial stability.