Dubai: Digitization of Islamic banks is a must for the growth of the Islamic finance industry. Although, the industry is quite young, the fintech disruption is already changing the way Islamic banks are spending money on technology to transform the way they do business to attract Internet-savy customers. However, most of these banks are still a long way from becoming truly digital as currently, many of them offer only the basic services online.
Experts speaking at a plenary session at the Global Islamic Economy Summit 2016 said like their conventional peers, Islamic banks too have no choice but to embrace the next generation of technologies and leverage on new generation digital technologies as brand loyalties dwindle especially among younger consumers.
Research shows that there is not much of a difference between the preferences of Muslims and non-Muslims regarding digital financial services and direct banking channels. According to the World Islamic Banking Competitiveness Report 2016 by EY, Islamic banks still have a lower customer penetration in mobile banking compared to conventional banks. Their digitization efforts need to catch up fast.
The Middle East’s banking sector has been lagging behind in adopting deep and transformative digitization compared to its global peers, according to a recent survey of corporate banking customers worldwide by the Boston Consulting Group (BCG).
According to a recent World Bank statistics, more than 2 billion people around the world are unbanked and about half of them are in the Muslim world. “It is embarrassing that such large numbers of Muslims do not have any access to banking services. Fintech may the answer to more inclusive banking. The new generation of technologies break down economic and social barriers,” said Abdul Haseeb Basit, chief financial officer of Innovate Finance, UK.
High cost and low yields have kept away banks from serving some segments of the unbanked population. With the arrival of cost-effective mobile and other technologies, it is easier for Islamic banks to serve greater number of customers at lower costs.
For example, in Indonesia, only 30% of the population has a bank account. However, there is a 100% mobile penetration in the country. Similar is the case with populations in different parts of the Middle East and Pakistan etc. The Islamic finance industry should offer mobile banking services to ever-larger populations in the Islamic world.
Participants at the panel discussion shared the view that the digital solutions will improve the quality of services offered by both Islamic and conventional banks. “Fintech can help customers do financial planning with the help of technology tools enabling them to forecast and plan ahead. Technology is a great enabler. Fintech can enable small businesses in making and receiving payments,” said Abdullah Al Najran, Deputy CEO of Boubyan Bank Kuwait.
Globally, a growing number of banks are expanding their digital offerings well beyond a basic web presence. A recent BCG study showed that over the next five years, corporate banks that remain digital laggards could see profits drop by as much as 15-30 per cent relative to their digitally fast-moving competitors.
Panelists said as a number of banks in the region allocate significant resources to adapt their business models to the fintech revolution, we could see incumbent banks losing market share to early adopters, at least in some segments of business in the near future.
When it comes to fintech adoption, panelists agreed that banks’ approach to fintech innovators need not be one of the confrontational nature. “There is a huge scope for collaboration. All that is needed is a change in the conventional mind-set,” said David Martine de Lecea, Specialist Consultant — Fintech, Roland Berger.
Islamic banking and Islamic finance are expected to hugely benefit from fintech and block chain technologies that will help simplify transactions involving complex structures.
“Islamic finance is based on tangible commodity transactions involving a number of contracts. With block chain technology, the trading processes leading to financial transactions can be simplified,” said Al Najran.
Originally published on www.gulfnews.com