Today, Islamic finance is officially recognized within the global financial framework as an independent and entirely viable financial system. Thus, the market and demand for Islamic financial products and services exist; it is also significant and poised for further growth and expansion. However, in a time of remarkable technological change, ROSIE KMEID is of the opinion that the industry ought to accelerate its efforts to meet the multitude of challenges it is facing, if it is to benefit fully from the next period of growth.
Even though Shariah compliance is key for Islamic finance, competitive technological advancements have been identified as priority areas for ensuring convenience, speed, time saving, cheaper methods of performing banking transactions and increasing market share.
Looking back on 2014 which was a disruptive yet interesting year in technological advancements, there have been various information technology (IT) trends that have impacted the global financial services industry, and there are more to look out for in 2015, for they present huge opportunities for financial institutions to improve business performance, innovate, modernise and gain a competitive advantage.
Four key proponents that helped define 2014
2014 was a game-changing year for cloud computing and new innovations in cloud technology, software as a service, and a big year for mobility, social media and big data. During this year, we have witnessed the rise of multiple cloud-based services, like private clouds, public clouds and hybrid clouds, increasingly becoming the default IT platforms prevalent among financial institutions.
While a few years ago, mobile banking seemed futuristic, it has emerged in 2014 as a key basis of competition and a must-have tool of financial inclusion. The enormous progress and penetration of mobile banking seem very exciting and revolutionary, while it continues to gather momentum in fast-developing markets.
In addition, 2014 was important for social media in the financial services industry. This non-traditional method of interaction is increasingly becoming an important marketing tool, and one of the fastest-growing channels, and therefore holds an opportunity for financial institutions to streamline their operations and improve business opportunities across key markets worldwide. This field, once mature enough, has the potential to transform the whole finance industry.
Big data was also all the buzz for financial institutions last year. The pivotal role played by big data analytics in facilitating better decision-making, bringing to light trends and providing greater insights that can be used to shape an institution’s strategic direction had a special focus in 2014. The steady march towards big data continues, hence the need for a new class of technologies to help financial institutions cope with the velocity, variety and volume of big data, and to extract business value.
Such disruptive technologies are carving a new path of innovation in banking operations and strategy. It has thus become very critical for financial institutions to have appropriate technologies in place that increase their revenues and expand their footprint.
Islamic finance in a new gilded age
The demand for Shariah compliant banking products and services is expected to grow rapidly, especially in large unbanked markets, as a consequence of the growth of Islamic populations in some countries.
A report released by Ernst & Young projected that by 2015 the MENA Islamic finance industry will be worth US$990 billion as the uptake of Islamic finance surges, more than double the 2010 figure of US$416 billion.
Islamic financial institutions tend to view technology in the same light as their conventional counterparts. As the industry continues to grow and evolve, technology is becoming a value lever to traverse this fast-paced growth trajectory. By utilizing cutting-edge technologies, Islamic financial institutions will be able to achieve both innovation and speed in new product development. Plus, they will be able to meet the most stringent regulatory compliance requirements, scale up their operations, grow market share and above all enhance their profitability.
Ground-breaking technologies to help develop banking products, processes and services is the new mantra. According to CII-PwC’s latest report entitled ‘Connecting the dots: Wiring business, technology and operations’, technology is considered as a critical pillar to meet the strategic objectives of an institution, and measures like data aggregation, customer relationship management and financial inclusion initiatives are essential to take banking to the next level of growth.
For IT experts, the strategic technology trends that will shape 2015 are nothing new to the financial services industry, but represent further enhancements to the tendencies in vogue.
Cloud computing will remain at the fore. Cloud adoption continues an upward trend as a mainstream IT deployment model. The cloud will firmly evolve as an enabler of business agility, scalability and transformation. The ability to plug-and-play with cloud-based applications, the low upfront costs, the rapid return on investment and the enhanced experience it provides are some reasons why it is growing in popularity.
Mobile banking, identified as the preferred transaction medium globally, is having significant impact on financial institutions’ performance and profitability. As user experience is of critical importance, mobile banking will witness a breathtaking growth in 2015. In a crowded field of digital disruptors, mobile banking will shift into high gear with increased use of mobile specific features and by redefining the way applications will be delivered in the future.
In the not-too-distant past, information security awareness seemed irrelevant and odd. Nowadays, security largely dominates the concern of financial institutions around the globe, since data security is an operational and, at the same time, regulatory imperative. In 2015, effective information security practices will be the core focus in the industry’s evolution towards the digital future. The world is moving rapidly towards ubiquitous connectivity and the protection of private data, its confidentiality and its transmission will all be necessary.
2015 will be the year of strict compliance obligations. The new banking landscape taking shape now is more likely to bring positive effects by strengthening the resilience of financial institutions. Basel III requirements figure at the top of their list of to-dos. This is a trend which IT experts anticipate will not abate and which will dominate the financial sector for the foreseeable future.
The popularity of Islamic finance is attributable to multiple factors, but one thing is certain: The growth would not be possible without the deployment of modern technologies that underpin the industry. While it may have been quite conceivable two decades ago to ignore the role of IT in Islamic finance, going forward it will not only negatively affect its future development but will also lead to the convergence of the industry with the dominant, conventional financial system.
Rosie Kmeid is the vice president of Global Corporate Communications & Marketing at Path Solutions. She can be contacted at [email protected] .