Dubai: The fintech disruption is changing the way banks are spending money on technology to transform the way they do business.
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 computing and leverage on new generation digital technologies.
Research show that there is not much of a difference between the preferences of Muslims and non-Muslims with regards to 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 and the digitisation efforts need to catch up.
The Middle East’s banking sector has been relatively slow in adopting deep and transformative digitisation compared to its global peers, according to 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 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 population. With the arrival of cost effective technologies, it is easier for banks to serve greater numbers at lower costs.
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.
Panellists said as a number of banks in the region allocate resources to adapt their business models to the fintech revolution, which could see incumbent banks losing market share to technology innovators, at least in some segments of business in the not-so-distant future.
When it comes to fintech adoption, panellists agreed that banks’ approach to fintech innovators need not be one of confrontational nature. “There is 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 to simplify transactions involving complex structures.
“Islamic finance is based on tangible commodity transactions involving a number of contracts. With blockchain technology, the trading processes leading to financial transactions can be simplified,” said Al Najran.