Banking Disruption and a Mirror for the Future of Zakat Management Organisations
The development of the financial system began with the mechanisation of commodity and precious metal asset custody in the ancient civilisations of Babylon and Egypt. The term banking later developed in medieval Italy, referring to the transaction table (banca) used by money changers. Entering the modern era, banking institutions transformed into formal entities with strong legal structures, supported by physical infrastructure in the form of operational offices and regulated storage systems.
In Indonesia, modern banking institutions were introduced during the colonial era through the establishment of De Javasche Bank. After independence, the national banking system was restructured through the establishment of Bank Negara Indonesia (BNI) in 1946 and the nationalisation of De Javasche Bank into Bank Indonesia. Within the national regulatory and institutional landscape, the banking industry structure is generally divided into the Central Bank (Bank Indonesia), Commercial Banks (conventional and sharia), and Rural Banks (BPR).
Over time, banking functions have shifted in parallel with macroeconomic dynamics. Banks no longer merely function as custodial institutions, but have evolved into credit providers to support industrialisation and the retail sector. In terms of industry structure, the number of commercial banks in Indonesia has continued to undergo consolidation. From a peak of around 240 banks in the 1990s, the national banking industry has experienced a significant decline, culminating in a continuous contraction over the last decade.
In the period from 2016 to 2026, the banking industry both in Indonesia and globally has recorded a significant contraction trend, both in terms of the number of institutions and physical office networks. The main drivers of this consolidation are the acceleration of digital service delivery (digital banking), which reduces dependence on physical infrastructure, as well as capital strengthening policies that trigger corporate actions in the form of mergers and acquisitions.
In Indonesia, the contraction has occurred among Commercial Banks, Rural Banks (BPR), as well as branch office and ATM networks. In 2016, the number of commercial banks was recorded at 116 institutions, but by mid-2026 the number had contracted by 9.5% to 105 banks due to regulations on minimum core capital strengthening by the Financial Services Authority (OJK).
A more significant decline occurred in the BPR sector, which fell from 1,633 units in 2016 to 1,345 units by mid-2025 (a contraction exceeding 17%, or a reduction of 288 banks), mostly caused by closures or liquidations due to governance constraints and competitiveness issues. Additionally, due to efficiency measures and the migration of transactions to mobile applications, the number of bank branch offices in Indonesia decreased by 6,819 units over the last five years.
Globally, it is estimated that there are around 25,000 fully licensed banks in the world, with a downward trend in institutions and physical networks led by developed markets. In the United States, the number of commercial banks registered with the FDIC has decreased by an average of 3% to 5% per year over the last decade due to a wave of mergers that has strengthened the dominance of large-scale institutions.
In the European Union, strict consolidation has left around 4,643 active credit institutions. The impact of digital migration in Europe has even resulted in the cumulative closure of more than 100,000 physical branch offices since their peak operational period.
In 1994, a thesis predicted that the function of banking would remain crucial, while its physical entities (banks) could be disrupted by the dynamics of the times. That prediction has now been realised through the acceleration of digitalisation. The reduction of the physical role of banking institutions (dematerialisation) has occurred significantly. Paper-based forms have been replaced by digital data processing, and operational efficiency has driven the shift of services to mobile application platforms.
The presence of financial technology (fintech) and the integration of embedded finance systems allows financial services to be present flexibly within various digital ecosystems. In addition, the development of blockchain-based decentralised systems has begun to offer transaction alternatives without a single intermediary. As a result, the physical presence of banking institutions has diminished, yet the penetration of their functions in economic activity has actually increased.