The Islamic financial industry needs to start seeing fintech as a solution and embrace it, rather than seeing it as a problematic threat. That was the clear message delivered by representatives of technology and financial firms at a wide-ranging panel discussion on fintech at the Global Islamic Finance Forum 5.0
The moderator Dr Imran K. Lum, Associate Director of Islamic Capital Market of the National Australia Bank set the premise for the discussion by citing the fact that fintech startups have recently quadrupled, growing from just over US$3bil in 2013 to over US$12bil in 2014, with crowdfunding set to surpass venture capital this year.
Understanding that this is the new reality for the Islamic financial industry is what Mohammad Ridzuan Abdul Aziz, CEO, RHT Compliance Solutions was determined to impress upon the audience.
“Embrace fintech as the new normal,” said Mohammad Ridzuan. “Make fintech the new normal for Islamic banks. The first thing is we need to trust the fintech community, just as when Islam started, a small group of brotherhood trusted our Prophet. The history is there for Islamic banks to follow.”
James Lim, Head of Products for Southeast Asia at Visa agreed with this sentiment. “Whether we like it or not, fintech will exist. Fintech companies can help the banks who are still living with legacy systems. Talk to fintech companies, tell them the challenges you face, the integration is very simple.
Speed to market will be critical and fintech companies can integrate into your system and get speed to market.”
Ralph Omar, CEO of Omarco Network System traced the inertia to embracing fintech to a deeper problem. “Our mistake in Islamic banking is that we give ourselves two barriers – Shariah and regulatory barriers – while conventional banks only has one barrier. Conventional bank is being kicked to death by fintech because it already has the regulatory barrier. If we in Islamic banking want to step ahead, we have to think of what the customer wants, then we have to think how to fit into the Shariah box and the regulatory box.”
In Malaysia, there has been an initiative by six Islamic financial institutions which embraces fintech known as the Investment Account Platform (IAP). As Izam Mohamed Yusof, CEO of IAP Integrated Sdn Bhd explains it, IAP enables ventures to apply for funding from one source with access to multiple banks whilst creating new potential for banks to get fee-based income.
“The beauty of IAP is that we work with six banks with the same regulator, all different way of doing things, and coming up with one platform,” said Izam.
“All six banks are able to use one platform, there are economies of scale in costs, you can make it work, and only later integrate it your system. The disruption can come from the outside, but we can be innovative from the inside to make it happen, and add value to the customer.”