Fintech can be rightly called the financial evolution of the modern world. It has enthralled all of us by redefining the rules of the traditional financial industry. The buzzword is a combination of financial and technology referring to the technological innovations in this industry. The term was initially coined to describe the back-end dealing of financial institutions. Although it has brought about quite a revolution in conventional banking it is still making its way in the Islamic finance space.
The major ways in which fintech has affected the financial industry are as follows:
- Increase customer experience and outreach
Fintech has changed the business needs of corporate banks while also impacting customer behavior. Nowadays customers need quick solutions to their problems. They expect a one-tap solution to their problems which can only be made possible through fintech. With the use of technology any problem can be resolved at an instant.
It is also helping corporate banks by increasing customer outreach even in remotest areas. Due to the absence of branches in such areas many customers were unable to avail the banking facilities. After the introduction of smartphones and mobile internet it has become possible to reach such customers. With the advent of fintech it has now become easier to store, verify and maintain relevant information of such customers.
- Customization of products and services
Fintech has also helped corporate banks in modifying price ranges of their services according to customers. With the aid of fintech’s predictive risk modelling techniques and financial statements of banks it has now become easier to alter prices of products and services which will ultimately benefit customers hence increasing revenues for corporate banks.
Fintech and Islamic finance
Although fintech has revolutionized corporate banking, its penetration in Islamic finance is still in infancy. According to a report by the company called Accenture, out of the $ 50 billion in fintech investments globally 1% is being channeled towards North Africa and the Middle East. But this does not mean that fintech will not disrupt Islamic finance, it is expected to impact this market in both ways.
From the perspective of Islamic finance, fintech can be very useful in tailoring the services to suit customers’ needs. As far as product structures are concerned fintech is helpful in efficient completion of Islamic finance transactions. However, an expected issue which might arise is using fintech in Islamic Banking institutions which are Shari’ah compliant. This is because Shari’ah Compliance auditors prefer to exercise stringent check and balance in order to reduce Shari’ah non-compliance risk. At present it cannot be ascertained whether fintech will increase or decrease Shari’ah compliance. In order to obtain benefits from fintech, standardization of Shari’ah rules is important.
Saudi Arabian Islamic Development Bank (IDB) is making efforts, and is involved in research and development of blockchain based products. Developments are being made with respect to managing counterparty risks as well as reducing settlement time of transactions all being done in compliance with Shari’ah laws.
Emirates Islamic bank, which is part of the wider Emirates NBD group, announced recently that it is incorporating blockchain in its paper cheques. Under this facility Emirates Islamic will issue cheque books which have a unique QR (quick response) and also having a string of 20 random characters.
However, it is also expected that machine learning, data analytics and artificial intelligence will also bring vast changes to the corporate Islamic banking. With the help of data analytics it will be easier to create new models and algorithms. By using these new models banks will be able to obtain a better understanding of high-risk customers or the number of politically exposed persons with regards to know your customer policies (KYC) and financial crimes such as money laundering.
Also, data analytics can also help the management with compliance and in other strategic decisions such as credit worthiness of high-risk industries. It is not just simple automation and can help in ways which were never thought about. Synergies between different banking departments will also become easier through data analytics and artificial intelligence. It will help to increase effectiveness and compliance.
Moreover, fintech is expected to support cross-selling of financial products in Islamic banking and also achieve economies of scope through technology and integrated service delivery. Islamic banks will have to embrace fintech because it will make the financial market more competitive and help customers to compare peers, by evaluating performances. It can be a catalyst in increasing the outreach and dispersion of Islamic banking in Muslim countries.
Article Author Madeeha Kauser, She can be reached at email@example.com.