Cognizant of the urgent need to adapt digitally, Islamic banks are forging new collaborations with fintech players to usher in a new customer-centric era of tech-savvy consumers. At the forefront is venture builder Finocracy which has rolled out a number of platforms including Waqfe. IFN Fintech catches up with Managing Director Ashar Nazim to discuss the changing Islamic banking dynamics in the face of technological disruption.
‘Revolutionary’ is a word commonly used in the fintech scene – Waqfe, a firm backed by Finocracy too has used this word to describe its new fintech platform. How is this platform different from the rest?
Waqfe is a next-generation fintech platform for deposit mobilization. It uses a data-driven approach and merges mobility and artificial intelligence (AI) with the specific aim of increasing deposits for banks with often young digitally comfortable customers. Banks understand the need to go digital, but increasingly digital transformation seems to be about technology projects when these should be the means to becoming customer-centric.
Waqfe’s platform exists to change that. It seamlessly integrates into the life of future customers, transforming banking from an interruptive experience to a pleasurable one. Kuwait Finance House Bahrain (KFH Bahrain), an Islamic banking pioneer, is a great example. Using Waqfe’s next generation platform KFH Bahrain went digital in just four months! KFH Bahrain customers can now be onboarded anywhere across the GCC in mere minutes, using a laptop, mobile phone or tablet, without ever needing to visit a branch.
For CXOs in banks, Waqfe promises certainty. For CIOs, this means the certainty that we will integrate into their complex heterogeneous systems because of our service-oriented architecture, systems integration and open banking API (application programming interface)’s expertise. For head of products-retail and corporate-this means certainty of launching new products that will delight, increase and retain customers, while raising profitability per customer and net deposits.
Are fintech companies friends or foes to banks?
Look, banks are not going anywhere. But digital is a challenge as telecommunication companies, retail players and others erode their share of wallet. I feel strongly that fintech companies as partners is the way forward for banks. Fintech companies get a lot of things right. They’re innovative and they have dramatically raised customer expectations by their superior customer experience, but very few have been able to scale up and they have been guilty like the rest of the world of over estimating how quickly customers would switch to new financial ecosystems. Additionally, infrastructure investments have proven to be surprising moats for banks. Both can work together with each other’s strengths. The danger a bank, which gets its fintech partnerships right and uses those to become customer-centric, poses to other banks cannot be underestimated. This is what it will take to win in the digital age.
We hear about disruption in financial services all the time. But the discourse seems to stay mostly high level. What is your take on this?
Okay that’s a fair question. It can get weary separating the hype from what is insightful and actionable. There are over half a dozen significant trends developing with relation to financial services that fintech companies can exploit. Or flip them and these are trends the banks can disrupt themselves with. Let me talk about a few of them. The whole banking value chain is de-verticalizing as disruptive technologies cause it to reach a melting point. Two simultaneous shifts are happening: profit pools are shifting, squeezing and eliminating intermediaries and distributors. In parallel, cost bases are commoditizing. This means the runway to plan your digital strategy has ended. It is time to act. Customer centricity must be the ultimate goal of any digital strategy. The informed customer choice journey and changing customer demographics mean user experience will be the single biggest differentiator for banks.
Waqfe’s unique community banking angle is fascinating. Could you tell us more about it?
Well the calculus is simple yet robust. Happy and emotionally engaged customers can be up to eight times as profitable. When you match that with the fact that millennials and the Generation Z are highly skeptical by nature, it is clear how banks fundamentally operate has to change. They need to engage their customers in a genuine manner and they need to have a purpose beyond profit to get past the inherent skepticism of the millenials and generation.
Waqfe allows banks access to its robust channel and partner ecosystem that create a supply chain of impact projects and initiatives, especially in the areas of health, education and livelihood. Waqfe’s platform allows customers regular and clear visibility into the impact the bank’s money has made into causes they care about. This simple reimagining of the relationship between banks and customers has powerful implications for lowering customer churn, increasing profitability and raising customer satisfaction.
Let’s bring Islamic banking and finance into this discourse on disruption.
Islamic banks are not immune to disruption. I also believe they are behind conventional banks in adapting to the digital world. This is understandable. They were regularly growing at 15% a year not too long ago. While growth forecasts are a lot tamer now they are still higher than those of conventional banks. This growth may have led to a reduction of bias to action on the part of Islamic banks.
Research has clearly shown that digital leaders reap disproportionately higher rewards from digitizing than companies that follow. This applies to Islamic banking. Banks need to realize this and come up with an agile and comprehensive digital action plan now.
Banks will also need to communicate a lot more with regulators. Shariah compliant fintech solutions need to be tested and output of such solutions while increasing, is still low compared to conventional fintech solutions hitting the marketplace. Regulators need to also help out with Islamic fintech sandbox support as well as investments and incentives to help banks and fintech companies work closer together. Shariah boards will also need to figure out and get industry consensus on issues like how to enable Halal peer-to-peer financing and crowdfunding. But the rewards will be high for whichever market which manages to do all this. At stake is global leadership in Islamic finance.
With the roll out of Waqfe’s new product, what else is in the pipeline for the company?
We have a very heavy roadmap for Waqfe which is aligned with the rising demand from our partner banks and the customer based on some real business and community issues. Our focus for the next six to 12 months will be to bring in advance data analytics and AI engine to combine the power of financial and non-financial data for better customer management. On the product side our focus will be to bring in blockchain technology for trade finance function as a first use case before we roll out within other banking areas along with corporate on-boarding functions.