This is my article that was published in Global Islamic Finance Report (GIFR) 2017.
It is reported that USD 60 Billion has been invested into fintech and the investment is estimated to exceed USD 150 Billion over the next three to five years. Originated from more matured markets such as the United States and the United Kingdom, fintech is making its impact in almost all parts of the world. The biggest investment is in North America but rising very rapidly in the Asia Pacific positioning it to second biggest region. While traditionally Africa experienced low financial services penetration, fintech has been phenomenally successful particularly in key African market such as Kenya, Nigeria and South Africa.
Using a combination of technology, consumer-centric service and flexible business practices, fintech offers genuine alternatives to traditional banking and payment systems offered by financial services firms. Unburdened by regulators, legacy IT systems, branch networks and the need to protect existing businesses, these new companies are able to reduce the cost of doing business, extend their customer base and take market-share from their more established rivals. Much of the demands for the new and more flexible financial products are also driven by the digital natives or the millennials. These lead to fintech innovations which have redefined the way we store, save, finance, invest, move, spend and protect money.
Operating in the Digital Age, Islamic Finance cannot escape fintech revolution. Islamic finance providers need to embrace fintech for survival reason. Customer experience is the name of the game. Customers in the digital age demand digital financial services and fintech has been filling up the gaps. Although fintech has already penetrated Islamic finance fnance space, it is still in its infancy and has relatively small number of participants.
An unprecendented amount of investment has been pouring in for fintech development as fintech innovations making impacts in various parts of the world. State of the art technologies, innovative business models and demands for digital financial services are primary contributors towards fintech successes in reshaping financial services. Evolved over the last 6 decades complimenting traditional financial services, fintech revolution saw the emergence of fintech companies offering more personalized, cost effective, and superior customer experience alternative financial services that target almost all aspects of financial services.
To survive in the digital age, Islamic finance must embrace fintech. Generally, fintech innovations can fit into Islamic finance. Those that involve in financing and investment activities require adjustment for Shariah compliance. Fintech penetration in Islamic finance is still in its infancy stage. Most of the players are in the crowdfunding business. Islamic robo-advisor was recently introduced. Malaysia introduced the first Islamic banks backed financial intermediary fintech platform and issued the first Islamic P2P Crowdfunding license. Other Islamic finance fintech related initiatives are Islamic fintech Alliance and Global Islamic Fintech Hub in Bahrain.
The future looks promising. Growing awareness among the stakeholders, encouragement from monetary authorities and facilitative regulatory environments in key Islamic financial market, other supportive elements from the broader fintech ecosystem, customer demands and largely untapped potential market are the major indicators for the positive outlook.