Technology is now considered integral in our daily lives. It allows us to access a huge range of services, and to view masses of information instantly. Purchases and payments can (and are now expected to be) made from anywhere at any time. Banks are having to join this digital revolution to survive and Islamic banks are no exception.
A report by Deloitte and Noortel (supported by Dubai: the Capital of Islamic Economy), highlighted in particular that “Populous OIC countries are emerging as high growth Islamic Finance markets, but low penetration and GDP per capital is driving the need for access to digital funding services.”
Annual digital market spend is expected to reach $4.3 trillion by 2020 and of that $227 billion is expected to derive from Muslim communities. However, are Islamic banks completely ready for this opportunity? Digital is so much more than channel capabilities.
While the majority of banks offer digital channels, a truly digital bank should cover both the customer and the execution experience, providing a personal, targeted approach. At Temenos, we are seeing a dramatic shift to true digital banking realisation, and Islamic banking is no exception.
Customers today want a different relationship with their financial services providers. They want their banks to become more involved in their commercial and financial lives. Surveys show that people would expand their relationship (or pay more) in return for providers giving expert advice, finding ways for them to save money, rewarding their loyalty and proactively recommending products and services that they really need.
When financial providers combine this kind of personalised service with other information, such as context and channel preferences, they benefit from experience-driven banking. Islamic banks can use data to deliver high value customer insights, at the time and place customers need it and over their preferred channel. For Islamic banks to offer true experience banking, they need channel solutions to deliver Shari'ah-compliant products and services for any business line, across all self-service and assisted channels, for both bank staff and customers, in any language and optimised for any device. And for a truly seamless experience, all of this should be available from a single user experience platform (UXP).
The digital opportunity for corporates
The opportunity for digital banking goes way beyond offering just mobile personal banking but it’s not just retail banks and their customers that can benefit from the digital revolution. Islamic digital corporate banking offers accessibility and convenience for all, particularly for those businesses based rurally.
The right solution enables a corporate user in any location to respond instantly to real-time information at a time and place they need it. Digital corporate services means minimising the need for business managers to attend meetings with their bank managers face to face, leading to increased interactions due to greater ease and as a result higher retention and cross-sales rates. Video, screen-share and even live chat assistance offer instant access, saving time and money on travel.
Digital brings not only customer service advancements but also empowerment. Solutions such as hybrid tablet client applications, which are based on a multichannel UXPs, are giving corporates greater control which in turn means lower operational support requirements for banks. These platforms should integrate into the financial institution's existing extranet/internet infrastructure and be highly configurable. They give corporates the control to modify their standard application very easily using intuitive screens, and display any information available within the portfolio management tool in real-time from anywhere.
Starting at the core
Banks within the Middle East are now starting to realise the opportunity and invest. Examples include Arab Bank for Investment & Foreign Trade (Al Masraf), who recently confirmed their move to a new front-to-back solution to support their ‘ambitious growth plans and improve their ability to bring innovative products to market more quickly and efficiently’.
I’m personally working with the team at Al Masraf, they have recognised that they must focus on instant customer fulfilment, easy integration with the bank's other systems and full exploitation of the bank's data assets. Real-time, innovative, integrated and open banking software at the core is essential though to deliver a unique and differentiated customer experience. The full picture must be considered; if your core isn’t able to process in real-time and seamlessly connect to the channel then the benefit of digital is lost.
A quick solution to digital efficiency
However, achieving operational efficiency continues to be a major problem for some, with operating expenses on average being 50 per cent higher for Islamic banks. These legacy systems are starting to become a hindrance in the execution of digital strategy for financial institutions, the cost to fulfil a digital offering is too high.
Digital banking is becoming more sophisticated across the world and progressive renovation is increasingly seen as a way of quickly accessing this market. Progressive renovation allows banks to increase their reach in terms of services, improve customer experience and cut the cost of technology and operating costs without wholesale change.
Rather than add to the complexity of their existing systems by adopting apps individually, banks approach their requirements holistically, adding capabilities using software-as-a-service hosted in the cloud for example. This way, change can be made slowly, step by step, and services can be migrated to a new platform when the bank is ready.
However, although progressive renovation addresses the challenge of digital efficiency, this does not address the high overall operating expenses that Islamic banks continue to witness. To reduce these operating costs sufficiently, a new, single core solution is required. One that is componentised to allow for progressive renovation, yet also seamless and future-proof in order to evolve and adapt, ensuring the issue of legacy is eradicated permanently.
Enabling the move to digital
Being a truly digital bank means offering the right customer insights at the right time, via the right channel. The quality of the overall user experience requires banks to draw insights in real-time and from multiple datasets. Other elements such as modularity, deployed in stages, allow for faster time-to-value and lower risk and upgradability (perhaps independently).
Ensuring banks always stay ahead of market trends (with tools to design and deliver new Islamic banking products), should also be considered. Open API’s must be accessible; ensuring that easy access to innovation and services. All this whilst driving massive efficiencies in a Shari'ah-compliant back-office, achieved through front office differentiation with back office automation.
Moreover, the speed of fulfilment is also critical, the digital solution must therefore be front-to-back. It ultimately comes down to using a single platform, a recent shift in banks decision making highlighted within the recent Ovum Decision Matrix: Selecting a Digital Banking Platform, 2017–18.
According to the EY World Islamic Banking Competitiveness Report 2016, the boards of most of the 40 systemically important Islamic banks are set to spend between $15 million and $50 million over the next three years on digital initiatives. They are ‘well aware that inaction could cost up to 50 per cent of their retail banking profit in next few years’. But the opportunity is so much more than just in retail banking, it stretches to corporate, private and beyond, however, all rely on having a core to that can adapt as your digital strategy evolves.
A core that supports Shari’ah compliance according to your individual needs. One that connects seamlessly to any channel, enabling instant fulfilment. Digital is part of our daily lives, instant is expected, it’s not the future, it’s the now and without it in banking there may be no future.