INTRODUCTIONIslamic banks are able to offer their customers financial services that are compliant with the principles of Islamic finance. Digital banking enables banking systems to be personalised, informative, and efficient. Users are able to quickly access information that is relevant to their account and spending habits. It can take seconds to access your account and your credit and debit balance.
Personalising services via digital banking means customers are more aware of their financial dealings and more able to control their financial habits.
Islamically, knowing exactly how much money you have in your account means you are less likely to overspend, or get into debt. Where in the past customers would have had to attend a bank or a cash machine to find out their account balance, now with digital banking the enquiry can be made at any time and anywhere from a mobile phone.
WHAT IS DIGITAL BANKING?
Digital banking is when a bank or financial institution offers its customers financial services via digital platforms. Customers are now able to access information via their mobile, desktop, accessing their bank's website, and using various apps.
One of the aims of digital banking is to offer a seamless service to people and also to ensure there is financial inclusion when it comes to managing money. Banks want to operate in a more efficient way and make banking more accessible to their clients.
For the bank, it means that they have fewer operational costs as they can rely on digital platforms to offer their services and products.
Digital banking is used widely across the globe, and it means that communities that formerly may not have been served by banking sectors now have more access to basic financial services. Digital banking relies heavily on technology and the technological advancements that have taken place over the last few decades.
BENEFITS OF DIGITAL BANKING
There are many advantages of using digital banking, they include the following:
- greater efficiency
- more seamless service
- enhanced customer experience
- increased transparency
- intuitive platforms
- ease access to information
- no need to attend banks in person
- Business to consumer services
- Crowdfunding
- Zakat payments
- Micro-financing
- Interest free loans
- Family banking
- Social banking
- Collections of payment
As digital connectivity and technology continues to grow, the demand for digital services is increasing. At the same time, the Islamic banking industry is also growing and working hard to keep up with digital innovations.
With both industries growing at pace simultaneously, Muslim consumer needs have driven the need for digital solutions within the Islamic banking sphere.
Muslims represent almost 25% of the population of the world and Islam is the fastest growing religion. This means there is already a large demand for digital Islamic services. In addition, the Muslim population has a strong youth demographic who are tech savvy, educated, and aware of how they want to manage their money.
This demographic is also keen to have increased information and transparency when it comes to banking services.
The Islamic economy has moved hand in hand with halal infrastructure. This is definitely the case when it comes to Islamic finance and the banking infrastructure to support it.
There is an increased focus on ensuring that payments and financial transactions are interest free and free from speculation and other haram activities.
Muslim consumers are digitally aware and connected. They are also educated on the principles of Sharia law which deem transactions halal or haram. Their Muslim identity is an important part of the lifestyle and the choices they make.
It is not only Muslim countries that are developing their Islamic finance infrastructure. The Islamic finance industry is thriving in the UK, the US and the rest of Europe. One example is the Port of Rotterdam which has created what is known as a halal distribution park to cater to European Muslims.
Let's examine the fundamental principles of Islamic finance:
- No interest
- No ambiguous terms or uncertainty
- Purification: a requirement that banks ensure money generated is Sharia compliant and separate from non compliant income
- Ethical and socially responsible transactions and investments
- Asset backed systems: not seeing money as a tradable commodity but linking it to real economic activity and assets.
With the ongoing recession and global financial crisis, there is also an increasing and growing demand for more ethical and socially responsible banking options and services.
Islamic finance services, together with Islamic digital banking services, are well positioned to offer ethical practices and options for consumers. Islamic finance is centred on ethics and offering an alternative system that strengthens real economy sectors.
What Islamic finance also requires is increased due diligence and transparency. In order to be Sharia compliant banking services must comply with the rules of Islam and must be vetted for compliance.
DIGITAL ISLAMIC ECONOMY
The digital Islamic economy is a fast growing industry. The rise of Islamic lifestyle magazines and online platforms means there is a demand for Islamic content and services. For example, the modest fashion industry has become a big player in the fashion sector and has seen incredible growth online.
With over 1.7 billion Muslims in the world, the digital services landscape has the potential to grow and accelerate fast. With it comes an emerging digital Islamic economy that is focused on the consumer needs of Muslims.
Commercially and digitally, Islamic finance is one of the most attractive vertical sectors. However, it's success will need to ensure compliance with Islamic finance principles and Sharia rules.
In terms of the future and the potential of Sharia compliant digital banking, the opportunities are limitless.
There is support from individuals, companies and investors for further development of digital banking services. One of the challenges for digital banking will be to ensure that any product or service that markets itself as compliant will require additional and ongoing due diligence.
Whilst application software (app) programmes will continue to be developed to facilitate compliant investment, saving and money management options.
Digital banking platform Algbra did a survey and found that out of the 1.6 billion unbanked adults in the world, 800 million are Muslims. This is an alarming figure, but it is hoped that digital banking will be more inclusive than conventional banking methods.
Whether it comes to loans, savings, personal or business accounts, or investment, digital banking will ensure more marginalised groups are able to partake.
Developing a robust digital banking service should be a high priority for Islamic banks. In turn, this will lead to enhanced Sharia compliant tools and services.