EY Global Banking Outlook 2014-15, Transforming banks and redefining banking, had identified five “unstoppable forces” that would drive banks to change over the next few years. The forces are Regulation, Customer, Technology, Competition and Society. Two of the forces, “Customer” and “Technology” drive digital transformation. Customers require greater transparency, personalized products and seamless experience across all channels. Disruptive technologies challenge the old models and provide customers with greater choice of services.
Fast forward to 2017, banks are still adapting to these market forces. Most banks have incorporated digital transformation into their strategic plans. I have had opportunities to engage with some existing clients and new prospects on their digital transformation agenda. Typically, the most popular action plan in the digital transformation is to strengthen the digital access to banking such as Mobile Banking Apps, Social Media presence, online product search and email or SMS advertisements. While digital access is a good start, it is only the customer facing layer. At the end, it will still be a traditional Bank with some silo customer-facing digital capabilities.
A digital bank is much more than just a digital access to banking. A digital bank re-imagines the retailing, processing and manufacturing activities of a bank. The characteristics include having both physical and virtual branches, fully automated fulfillment processes and compliance check, paperless processing, mobile delivery and omni-channel delivery consistent at every touch point. A digital bank also provides new cross-industry customer propositions by leveraging on partner eco-systems. Even the layout of a customer servicing branch will have to be reconfigured to reflect digital era such as lounge style seating arrangement and personnel moving around with mobile devices to assist customers.
Competing in the digital era, Islamic banks need to catch the real digital train as well. The digital capabilities provide an added advantage considering Islamic banks are generally smaller than conventional counterparts in terms of resources and distribution networks. To highlight the case in point, let me share the success story an Islamic Bank’s digital transformation journey.
This bank started the journey five years ago, adding digital capability one piece at a time. The bank has incorporated various digital banking capabilities such as paperless transactions, mobile delivery and automated processes as well as reconfigured the branch settings. Besides typical mobile online banking services, the bank also implemented Mobile Wallets, Mobile Advertising Platform, Virtual Prepaid Card and e-Commerce Plug-in. By using smart phones, customers can make payments at registered merchants by scanning QR code on display at the merchant’s Tablet Point of Sale (POS) terminals either by debiting customers’ account balances or redeeming loyalty points.
In addition, the bank implemented Paperless Branch Sales and Services capabilities to let customers enjoy “face-to-face” shopping cart’s experience for Deposit Account Opening and Digital Financing Origination Processes that that could enable approval within minutes. Since Islamic financing origination process requires expression of offer and acceptance (aqad) of the contract, the workflow of the digital origination process incorporated the aqad execution as well. These innovations had entitled the bank to win the Best Smart Branch Project Award 2016.
From just another bank in the market, this Islamic bank transformed itself into a preferred bank by leveraging the right digital strategy. While the bank has not fully transformed into the most ideal digital bank, it has incorporated enough digital banking capabilities that appeal to the customers. The ever more demanding and less forgiving customers just want services that appeal to them. This is the recipe for the bank’s success. Since the transformation, the bank experienced 61% customer digital take-up, 6 times more new current and saving account openings and end to end financing application processing that previously took an average of 7 days reduced to 1 day. This bank is now number one in its market.
The achievement of this Islamic Bank by utilizing the right digital strategy is inspiring. It is a proof that Islamic banks could outperform conventional banks if the services are better. It is my hope to see more Islamic banks employing sophisticated Digital Banking strategies rather than just putting on “digital lipsticks”. To quote a post from a professional social media friend, “You won’t invent a light bulb by continuously improving the candles!”
(Edited version of this article was published in my ShariahTech column at The Malaysian Reserve on June 19th 2017)