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Islamic banks worldwide need to take action on their digital transformation pathways. There is no time to play catch up. Image Credit: Shutterstock

The consumer banking industry has undergone a tremendous change, creating a major shift in how customers access financial services. A the heart of this has been the emergence of a generation of customers for whom smartphones and technology are an extension of their lifestyle through which they access every service they need.

From traditional banks building digital platforms to the rise of neo-banks, the financial sector continues to change. For newer and younger customers who are getting their first bank account, digital services will remain their default entry-point to accessing financial services.

While mainstream banking continues to forge ahead, Islamic banking lags in terms of digital adoption and market penetration. Despite being built primarily for the 2 billion global Muslim population, the $1.9 trillion Islamic banking sector has only a 6 per cent share of the global banking market.

It is becoming increasingly clear that digital transformation is a critical factor in unlocking further growth. The industry has seen demand, driven by the increasing interest for ethical financial practices. To sustain this growth and attract a wider audience, Islamic banks must adapt to the digital era and build contemporary digital experiences that appeal to new generations.

Build contemporary digital experiences

The sheer size of the global Muslim population presents the Islamic banking sector with prospective customers on every continent. This opportunity is further strengthened by the fact that Muslims are also one of the youngest population groups in the world. In Europe for example, the average age of the Muslim population is 30, 13 years less than the overall population average.

In the UK and Wales, recent data showed that the average age is 27 years.

How can banks attract and retain these young customers? One of the most critical aspects is building contemporary digital experiences that appeal to this audience. User interface (UI) and user experience (UX) are critical in ensuring that digital experiences resonate with customers.

Islamic banks must therefore align their UI and UX across platforms, with other digital apps that younger generations prefer. Customers’ lifestyles and preferences must be analyzed to tailor products and services accordingly. This includes the development of personalized offerings and experiences based on data-driven insights.

A strong brand identity that resonates with younger generations is also vital.

For banks which have branches, they must ensure that the same high-quality digital experience is transferred to their offline services, thereby ensuring quality and consistency in the customer journey.

Expand the reach

While Islamic banking follows Sharia principles, which are most relevant to its traditional customer base, its product and services are relevant to anyone who needs to use a bank. This is very relevant where we see customers wanting their preferred brands to align with their personal beliefs and principles.

Through data analytics, Islamic banks can gain insights into customers’ needs and preferences. This information can be used to develop personalized offerings and experiences such as financial goals planning, which can enhance customer engagement, loyalty and revenue.

By addressing pain points relevant to everyone, Islamic banks can establish themselves as competitive financial institutions. Ethical banking practices that reflect the values of many customers, regardless of their religious affiliation, can appeal to a larger customer base.

Environmentally-friendly investment options are becoming increasingly popular among consumers.

Build partnerships

Finally, Islamic banks should embrace partnerships to extend their services and distribution reach. Technical partnerships through API integrations can enable the provision of a wider range of digital products and services to customers.

By making use of APIs or making use of readily available technology stacks, traditional banks can fast-track their digital journey, while streamlining their data to create meaningful user experiences.

Commercial partnerships can also be leveraged to enrich the value proposition and provide an exceptional customer experience. This approach will allow banks to not only reach a larger audience, but also create access to a range of complementary services and offers for existing customers.

Technology partnerships could help legacy banks build digital services and experiences on existing tech stacks instead of creating from zero. This eliminates the need for huge investments, fast-tracks digital journeys, and creates an all-new experience for customers in the shortest timeframe and with manageable costs.

Islamic banks must adapt to the digital era to unlock new growth opportunities. Digital transformation can also improve operational efficiencies, reduce costs, and enhance customer experience.

As the industry continues to evolve, Islamic banks must embrace a digital-first approach to remain competitive.