Becoming Today's Digital Bank

What is the biggest challenge traditional banks face in their move to become a digital bank?

From our experience and observation, one of the key challenges is the initiative to change and detach dependencies from their legacy systems. Transitioning from old-school banking to the next step (digital banking) takes three crucial initiatives: moving out of your comfort zone, developing an innovative and digital mindset, and adapting to the market change through customer demand and trends. 

If an institution is able to harness the power of these initiatives, they can be rest assured that they are already more than halfway to becoming a digital institution. Another challenge observed is the present regulatory authority’s willingness (or lack thereof) to allow innovative initiatives proposed by the banks. Most innovative ideas tend to go through a rigorous process of evaluation before getting the greenlight and most of the times a “good idea” is rejected due to strict constraints or just plain outdatedness in information. To overcome these challenges, financial institutions must work together and create a knowledge-based ecosystem to not only provide superior services but be up-to-date with industry innovative practice benchmarks.

What Islamic financial institution(s) globally have made the greatest strides to embrace the future? Why?

If I had to single out a few institutions whose initiatives and strides have piqued my interest, it would be Kuwait Finance House Bahrain (KFH Bahrain) with their Jazeel digital arm, Maybank’s Maybank2u digital arm, and Al Baraka Bank’s digital arm Insha. 

Let’s review why these three in particular: KFH Bahrain within a three-month span developed, launched and cultivated a completely digital and almost complete digital bank that provides a majority of branch services via just your mobile; Maybank2U with its design-innovative and customer-centric focused mobile application to provide you with the easiest banking experience at your fingertips; and Insha with its cutting-edge strategy to provide a service in joint venture with Banking-as-a-Service provider SolarisBank to land into Europe as the first Islamic digital bank within Europe. 

All things considered, the largest stride to me from where they were and what they have become would be KFH Bahrain’s Jazeel, moving from a completely traditional banking platform to a platform that rubs shoulders with the other giants. As mentioned earlier, KFH Bahrain before even launching Jazeel  was aware of the three crucial initiatives and hence why it is in my opinion one of the front runners for the digital banking space in the GCC region.

Are newer organizations (as opposed to traditional banks) better positioned for the future?

Absolutely. Traditional banks have always stuck to their tried-and-tested guns since the dawn of technology within the banking era. The newer organizations are better poised because of access to newer technology and the opportunities to learn from past experiences of the competition. If you take an analogy, millennials tend to be far more tech-savvy than the previous generation because technology was introduced to them at a very early stage of their growth and development, hence the comfort with adapting and incorporating technology within their lifestyles. The same can be said of traditional and newer institutions. Access to technology and the right leadership within the organization are a huge factor when you think about being positioned for the future. As technology and innovation grow at a rapid rate, more and more use cases are being developed on how to optimize current processes and continue to remain relevant within the competitive space of the industry, regulators are encouraging “challenger organizations” to challenge traditional ones with laxer regulations to keep the wheels of creativity and efficiency turning faster and faster.

There are new legal changes in the EU market – new directives and legislation dealing with the fintech industry. Do you treat it as a threat or an opportunity?

It depends on how you take it. It could be a threat if you are not willing to adapt and overcome or an opportunity. New legislatives and directives will have to come in place seeing as so many new and non-finance players are entering the fintech space. Regulators need to make sure that everyone has a fair advantage and chance and have to make the necessary amendments to “keep the peace”. 

Yes, there are a number of instances where organizations have been investing a lot of their hard work and efforts into the research and development of technologies and processes which cannot be used because of the talks of the appearance of a new law/rule. This does not mean that all that effort is gone to waste; speaking from experience, we had a similar encounter where we were utilizing blockchain methodologies and practices within our banking systems which we were told we could not roll out because of the ambiguity within large scale project rollouts. We however took this as an opportunity to use what we had created to offer a product that would not only comply with the regulations but also provides both banking and non-banking institutions with technology that was not only cutting-edge but also a fresh new initiative. Our mantra at our office is to never give up and not be intimidated by threats. Treat them as opportunities to explore other avenues since technology is rarely specific to a particular use. 

What is the biggest change we are going to see in banking in the next five years?

This is a very open-ended question, however the biggest change we are going to see within the next five years most probably lies within the infrastructure and customer facing/interactions side. As banks are now getting poised to providing more efficient services, the infrastructure is also morphing to an efficient one. Blockchain integrations, artificial intelligence, and predictive analytics would play a very strong part in this. All of these to provide efficiency in customer satisfaction, banking products and compliance among others.

Banks are now shifting their focus to more customer-friendly and easy interaction services poised around “lifestyle banking”. With this being said, banks are now starting to take customer satisfaction more seriously and as data has started to show trends with links that increase customer satisfaction leads to a higher number of deposits and transactions. But this is the obvious, my best premonition for this would be that the biggest change we will see is interbank connectivity with banks no longer being competitive with one another but sharing some parts of their technical ecosystem and networks to provide their customers with an enhanced worldwide banking experience through services such as shared eKYC, compliance databases, security and risk services, and customer data. Globalized banking is the key term I believe to start looking out for.

What would be your advice to somebody setting up a digital banking start-up or an Islamic financial institution looking to boost their digital banking capabilities in 2019?

I would say what I say to my teams and partners that I work with: research, agenda, project plan, business plan, and roadmap. If you can successfully figure these out, you are on the fast track to setting up your institution smoothly. Have the facts, know what you want to do, how you will do it, and how you plan to stay relevant. If any startup knows the answers to these and is prepared well enough with the confidence in their answers, they are good to go. Research for me has always been the key as my mentor has always told me when I was starting off in the fintech and startup space to “always research because your facts will provide you with the solutions, expected risks, and means to stay on top of your game”. Anything is possible if you are prepared well enough and are willing to get your hands dirty.

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