Participation banks must adopt fintech innovations to grow: EY

• The Gulf Cooperation Council (GCC) region’s share of participation banking grew to 72%
• KSA, the UAE and Malaysia are the three largest participation banking markets, in terms of assets

According to EY’s recent Banking in emerging markets report, the assets of global participation banking, also known as Islamic banking, has reached US$924 billion in 2015, with growth rates declining across all regions compared to previous years.

The GCC region’s share of participation banking increased to 72%, as the size of assets in the Association of Southeast Asian Nations (ASEAN) countries declined during 2015. KSA, the UAE and Malaysia are the three largest participation banking markets in terms of assets, representing 34.2%, 17.2%, 13.3% of the global market share respectively.

Gordon Bennie, MENA Financial Services Leader, EY, says: “Today, more than 2 billion adults still do not have a bank account. There are also more than 200 million micro, small and medium size businesses (MSMBs) with unmet financing needs. The demand for a responsible, shari'ah-compliant financial system is huge. There is also a wealth of business opportunities offered by fintech innovations for participation banks, particularly in emerging markets.”

In the GCC region, fintech innovations have the ability to enhance market access and profitability of banks, dramatically. A starting point for participation banks is to activate a bold strategy for the finance function – inclusive of advanced data analytics, robotic process automation, the cloud, artificial intelligence and Blockchain.

Ashar Nazim, Partner, Global Islamic Banking Center, EY, says, “The fact that almost one-third of the US$3 trillion global shari'ah-compliant assets are either reported as ‘informal or ‘best estimates’ demonstrates the limitation of participation banks in making sound strategic decisions. Chief Financial Officers (CFOs) need reliable information and we are seeing a strong desire to improve data management and analytics at participation banks through fintech innovations.”

Some of the key areas for fintech innovation that are relevant for participation banks include: SMB and peer-to-peer lending platforms, payment-related innovations such as person-to-person payments, digital authentication and digital wealth management.

“There has been a clear evolution for CFOs from having the primary role of analysing historical data to one whose focus will be providing forward-looking insights. In-memory computing and big data are the clear direction forward, with predictive analytics being a key driver of these changes. Given that there is more fintech innovation going on outside of the banks than inside, the opportunity is for participation banks to win through collaboration. The bank of the future could be a consolidation of fintech boutiques under a single brand,” comments Ashar.

If banks were to consolidate with fintech companies, it could propel participation banks to become mainstream across 20 promising markets by 2021, up from five markets today, representing a jump from 100 million customers to 250 million customers over the same period.

Source: EY report.

Digital-only banks for Millennials are another fintech trend. The Millennial generation has a clear preference for conducting their financial services on an end-to-end digital platform. Using fintech innovations, banks worldwide are stepping forward to offer digital-only banking services to meet the differentiated needs of this customer segment.

Digital-only banking could become a significant client segment for participation banks. There is a case for participation banks to evaluate collaborative ventures with fintech firms to launch digital-only banks in their respective countries.

“The adoption of fintech innovations is not an option, but an absolute imperative for participation banks to continue to gain market share. Consumer technology penetration (mobile phone, tablet, laptop) in the GCC region is now comparable with that of consumers in most developed countries. Based on their familiarity and use of consumer technology, their behaviour patterns are modifying, with increased expectation to interact with banks using digital channels. Participation banks cannot realistically expect to gain sustainable future growth in their market share if they lag behind their conventional counterparts in digital transformation through the use of fintech innovations,” concludes Ashar.

Interested?

Download the Banking in emerging markets: GCC FinTech Play 2017 report (PDF)

Read the TechTrade Asia blog post about DBS' mobile-only bank in India

Pocari SWEAT introduces keep-fit running app with incentives from 7-Eleven

Pocari SWEAT, a well-known isotonic beverage brand, has made its free Pocari Cross Run mobile app available for download in Singapore at the iOS App and Android Play stores respectively.

The app is designed to encourage Singaporeans to continue to live a healthy and active lifestyle, says the company. The application includes an element of gamification which is backed by the latest Beacon* technology. The Beacon technology, to be set up at all 7-Eleven stores in Singapore, will send area-specific content to the app depending on the distance a runner has completed.

The app can also make a run more interesting through generating customised running courses. 7-Eleven stores along the route will be represented as hydration points.

Additional bonus points, called participation points, can be accumulated when users tap on the Beacon devices at 7-Eleven cashier counters if they are on a run, complete a running course, or make a Pocari SWEAT purchase. The longer the running distance, the more points a user will receive. Users can also earn tokens and play games that involve visits to 7-Eleven stores as well.

"We chose 7-Eleven to roll out the BEACON technology as it is a recognised international brand which constantly emphasizes on excellent customer service delivery. We hope to leverage its extensive network of more than 500 stores and create the next level of customer interaction experience both in-store and on-street. There will be plans in the pipeline for BEACON to be extensively utilised for other promotions and campaigns by other companies after the launch of the Pocari SWEAT campaign," said Takamasa Tokumo, Executive Director of Asatsu-DK Singapore, an advertising agency that co-developed the app with digital production company AID-DCC and which also developed Beacon.

He added, "With consumers becoming more tech-savvy, this new technology will help create a revolutionary consumer experience - one that is fun and interactive, yet meaningful and adds value to the consumer, such as supporting them in achieving their healthy lifestyle goals in this case."

Pocari SWEAT's Singapore Country Manager Puspita Winawati commented, "We are extremely excited to be incorporating the latest technology in the way we interact with our customers and with the extensive network of the 7-Eleven stores here in Singapore, which serve as water points, runners will have the flexibility of enjoying the Pocari Cross Run app wherever they want. It is also our hope that through the launch of the Pocari Cross Run app, we can encourage more people to take up running as part of a healthy lifestyle."

*Beacon is the latest low-powered, cost efficient transmitter that is able to notify and connect to customised applications on mobile devices. The technology recognises devices running on the iOS7 and Android 4.3 operating system that are within close proximity. Specific messages or actions can be delivered when the devices are detected.