GLOBAL: Much has been
discussed about the indispensable role digitization assumes in the future
of banking and this need is even more acute for the fledgling Islamic
banking industry. Yet, progress in digital banking technology, or rather
adoption of such infrastructure, has lagged behind within the Shariah
financial community.
“I am unaware of any particular Islamic market that is consciously pushing
for digitization,” confirmed Raja Teh Maimunah, CEO of Hong Leong Islamic
Bank (HLISB) – a major driving force for digital innovation in Malaysia.
This seems to also be the case for Malaysia, one of the world’s leading
Islamic finance and banking markets, which Raja Teh explained to IFN, is
seeing digitization initiatives being driven by the larger banking groups which
inevitably benefit their Islamic subsidiaries. However, unlike its peers,
Hong Leong Bank (the parent of HLISB)’s digital innovation pursuit is being
spearheaded by its smaller Islamic subsidiary which successfully launched
the country’s first digital bank branch and other pioneering mobile payment
services.
Speaking to several industry players, IFN has learned that a major
impediment to the implementation of an effective digital platform is cost,
and this element exerts more pressure on smaller Islamic banks which do not
have sufficient resources to support research and development to enhance
their digital presence; whereas those with relatively stronger digital
capabilities are failing to maximize customer engagement and efficiency.
Certain banks have chosen to focus on expanding their customer base to
reach critical mass (and subsequently generate enough resources) before
advancing their digital infrastructure. And while such a strategy may prove
successful, depending on the operating market environment, this approach
may not be effective in more tech-savvy jurisdictions. “In places where
there is disruption in banking caused by telcos and OTT (over-the-top
content) services, they would have to embrace digital sooner than later. I
personally feel that digitization in itself is a great catalyst in customer
acquisition especially in markets where mobile penetration is higher than
banking penetration such as Indonesia,” offered Raja Teh.
Cost aside however, the issue of slow digital technology take-up is perhaps
far more complex. For one, there is the issue of operational inertia.
“Banks are generally less agile in systems evolution and migration due to
legacy issues,” said Raja Teh. And another major challenge lies with
leadership. As with developing the wider Islamic finance and banking
industry in general, pushing the digitization of Shariah banking has to be
a top-down approach. “For digitization to happen, those in the driving seat
must believe in it and must drive the change,” emphasized Raja Teh.
EY in a recent report stressed that for Shariah banking players to move
forward into the mainstream and reach a level at par with its conventional
peers, Islamic banks must rise to the challenge of increasing digitization
of the industry. Digitization is often paired with the notion of the
‘future’ but with the pervasiveness of the rapidly evolving IT industry,
digital banking is no longer a case of the future but the present – and
Islamic banks need to adapt, or lose out. And while the issue may be multi-dimensional
and easier said than done, decision-makers have to put their foot down and
see it through.
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