Islamic banking is entering the state of irrelevance, or impasse. Many countries adopting dual banking system are witnessing the growth of Islamic banking sector stagnating. Indonesia for instance is growing at single digit in 2017, much lower than its peak of 47% in 2011, or 15-20% in the last three years.
The growth of innovative finance such as peer to peer lending and crowd funding, better known for its platform as financial technology or fintech, is among the threat affecting Islamic banking.
Platform banking is the face of banking in the future. In essence, bank will not only serve or facilitate banking transactions, but also cater for other services provided by the bank and its partners. Such services may include financial services like insurance, investment, or even non-financial.
The concept of platform is introduced and used extensively today in e-commerce area, and increasingly by services companies.
Banking can offer itself as a platform for other services related to banking, such as property, dining, leisure, insurance, mutual funds, or other services such as retail or government services.
Platform banking has been introduced by several medium sized commercial banks in Japan, Korea, the United Kingdom, Swiss, Germany, and the United States.
This development is interesting to follow, as banking services are crossing borders and going beyond traditional banking services ie. savings and borrowings.
The main hurdle in offering non-banking services is regulatory, as banking is highly regulated and some of these products are considered risky to the reputation or security of the banks.
One way to mitigate this is by creating a digital platform and investing adequately on security.
With the advancement of technology, this hurdle can be mitigated.
The other aspect that allows the application of platform concept in banking is banking attracts customers to be in one place, either physically in banking halls or virtually. This frequent visits or use of banking facilities is an important feature that are attractive to providers of other services or producers of goods that can be offered through banking platforms i.e. banking halls (its vicinity) and banking internet portal or platform.
Platform banking is essentially bringing banking services back to its origin i.e. institution where communities put their trust. It early days, communities deposit their money and valuables to the church or other religious establishment.
In the middle ages, temples or churches were not only places of worship but also a place where people safe-keep their possession when they are going for a long trip or pilgrimage. In a simplest sense, church was a platform.
Whilst banking world is dealing with a lot of trust issues these days, perhaps, it is time to reconsider banking as a platform that will emanate trust.***
Originally published on LinkedIn, June 13, 2019: view original.
