Mohammed Kateeb – Group Chairman & CEO of Path Solutions
Regulatory environments are fast changing. Islamic banks, like their conventional counterparts, must stay ahead of regulatory trends and adapt their products and operations accordingly. What implications does changing regulations have for Islamic banks from a technology viewpoint?
One of technology providers’ biggest challenges, in both Islamic and conventional banking, is providing a solution that can be adaptable to various jurisdictions, capable of complying with multiple evolving regulatory standards. With the number of regulations increasing year after year and gaining wide recognition, non-compliance can result in operational losses and penalties, in addition to reputational risk. This challenge is magnified in Islamic finance because Islamic finance is not as mature as conventional finance when it comes to standardisations. To add to this complexity, in many countries these standards are even set at the institution’s level based on its Shari’a board guidance and interpretation.
The key to sustain compliance is to build a flexible solution with dynamic algorithms and workflows that can be easily customised to keep up with changing regulatory requirements and all compliance-related activities, in an automated manner. This environment also forces technology providers to stay up-to-date with regulatory changes and proactively manage this issue.
Social media is playing an increasingly aggressive role in business and finance.
There are now products like Facebook Bank Account and other payment solutions. How far ahead is Path Solutions from its competitors in developing solutions to integrate social media into Islamic banking product offerings?
Path Solutions launched iMAL*SocialBanking to support the new eChannels of branchless banking through social media, and to offer the bank customers automated services via Twitter direct messages and Facebook graphical interface such as account opening, balance enquiry, international money transfer and view transaction activity.
In addition, we continue to add functionalities and perform deeper integration to all social media channels resulting in many new services, which are in our pipeline to be released in the coming few months. All services are performed in a transparent and secured way by using several security options such as the one-time password (OTP), PIN, captcha, etc. These services will expand the reach of our clients to the demanding Millennial users, increase the number of eChannels, and extend their service hours to cover twenty-four-seven, thus achieving all that while reducing transaction costs.
In the recent past, we have seen a surge in new client procurements by Path Solutions. Please share with us some of your recent success stories.
The slow growth of the economy in many of our markets for the last few years, was balanced by emerging new markets for Islamic finance such as North Africa, and the rapid development and innovation in technology that forced banks to update their systems. Over the past nine months, we have been acquired by new Islamic banks in these geographies and other major banks willing to update their core banking systems to allow digital transformation of their operations.
In light of rapid digitalisation, Islamic banks are increasingly aware that technology investment is critical to developing new avenues of competitive advantage. But the biggest challenge in meeting their goals is the constraints brought about by legacy systems. Hence, they are responding to this challenge by investing in IT systems and innovation. They are investing heavily in capabilities such as analytics and eChannels that will help them to deliver superior customer experience. To many banks, this is currently their highest priority.
Consequently, Path Solutions has concluded several important deals this past year with many Islamic banks to launch a modern, flexible Islamic core banking platform with new digital distribution channels and enhanced branch automation to enrich their customer experience.
There are some critics who say that AAOIFI should stop working on Islamic accounting standards, as conventional accounting treatment is good enough for Islamic banks and financial institutions. Do you agree? What could be the possible impact of IFRS9 on Islamic banks?
One of the key challenges of the Islamic finance industry is the lack of standardisation. As conventional accounting standards generally cannot capture the complete details of Shari’a-based transactions of Islamic banks and financial institutions. AAOIFI is providing the benchmark for the industry to follow, and its standards are being gradually adopted in multiple countries, which we believe is very positive and should continue. We completely support AAOIFI’s efforts in this area, and Path Solutions is also a member of AAOIFI.
Regarding IFRS9, although Islamic banks are asset-backed and based on the concept of mutual agreement, they cannot be completely sheltered from the economic and market turbulence. While the adaptation of IFRS9 by Islamic banks will affect their profitability, nevertheless, we believe it will provide the much-needed additional security to the bank stakeholders.
Advancements in technology and artificial intelligence may prove to be a fatal threat to banks, at least in their traditional roles. Do you see a bankless society in the future?
Artificial Intelligence (AI) is redefining the whole world as we know it. No industry will be immune to this change. When we address the financial industry more specifically, we believe advancements in AI, blockchain, cloud, robotics, etc. are introducing a wave of fintech companies that would create a whole new financial ecosystem. This is already in the making. These new companies will play different roles, they will disrupt some business models, completely replace some services, and they will augment others. But I believe banks, if they respond correctly in the next few years, will continue to play an important role in this ecosystem. It will not be the same traditional role, but still an important one.
Bitcoin and other cryptocurrencies are seen as perfect substitutes for the traditional forms of money and payments methods. What are your views on this? How can this impact your own business as a technology firm?
When I am usually asked about this subject, I usually separate this into two issues – technology vs. implementation. Technology is based on blockchain technology, a very promising technology that I believe will play a critical role in the financial industry and is a driving force for the tremendous change that we will be observing in the next few years. Bitcoin and other digital currencies that are already in the market, are specific implementation of this technology.
One of the success factors for digital currencies in the future is the reaction of the regulators to this phenomenon. Bitcoin, being one of the most successful of these currencies has enjoyed wide support from many countries, multinational companies and large communities. But it is being challenged still by many regulators, forbidden by some countries and was attacked by many important players in the financial industry. All these has resulted in the huge fluctuation in its valuation. The jury is still out on what the future will hold for bitcoin and other digital currencies.
From a Shari’a perspective, their exact nature and characteristics are still debatable due to their electronic nature and to the fact that they are not being backed by a real asset. Path Solutions’ main objective is to remain fully aligned with the Shari’a principles and standards. We look forward to have some Shari’a guidance on this issue. Technically, we have already developed the needed blockchain skills as we will be including the technology in many parts of our system to track valuable assets and contracts.
Path Solutions was awarded the Best Islamic Financial Technology Provider 2017 award at the recently concluded Global Islamic Finance Awards (GIFA) in Astana. What do you attribute this success to?
Path Solutions is a unique company that prides itself on delivering excellence thanks to its multi-lingual skilled professionals, proven technology, industry know-how and worldwide presence; which increases the client competitive advantage and accelerate growth. We also pride ourselves on building true partnerships with our clients. The cornerstone of our partnership is creating a sound strategy and business plan that our team can stand behind and execute. We work with our clients through every aspect of the project implementation to ensure their vision and strategy translate into tangible bottom-line results.
Artificial Intelligence
is redefining the
whole world as we
know it.
What are some of the challenges and opportunities in What are some of the challenges and opportunities in Islamic FinTech? Is it all big talk and no real business?
As I explained earlier, the world is changing fast. The financial industry is changing significantly and Islamic finance is no exception. Innovation continues to be a cornerstone in the development of Islamic finance. Fintech is necessary for the sector to maintain and grow its market share. Thus, fintech has the potential to play a major role here, primarily to revolutionise processes and for cost-effectiveness while maintaining Shari’a compliance. It could help in promoting industry standardisation, harmonisation of Islamic financial products and global integration.
With financial inclusion a major issue in many of the Islamic countries, fintech has the potential to play an important role. Microfinance for instance is still a largely untapped segment, and thus technology fintech companies can extend the reach of financial services. In addition, the tremendous innovation that is already happening in the conventional fintech space needs to be brought to the Islamic one.
However, few challenges could present a sizeable impediment to the sector’s growth. The principal challenge is the regulatory environment. Regulatory limitations and concerns are hindering the ability of Islamic financial institutions to forge ahead in adopting new models linked to various fintech themes such as crowdfunding and big data. These are at their early days and this may yet become either a key success or notable failure. But I’m sure we all agree that fintech is essential to the growth of the sector. I believe it may be disruptive and damaging for Islamic finance not to capitalise on this innovation.
What are the short-term, medium-term and long-term plans of Path Solutions?
The banking sector is one of the strongest sectors of the economy. It is always seeking advanced services and new technologies to continue expanding. This adds the burden on banks to provide technological services to attract new customers. Digital transformation is one of the most important initiatives on which most of banks are focusing.
At Path Solutions, we are working hard to continue to be the undisputed technology partner to the Islamic finance industry, helping our clients capture deep and unbiased customer insights, and developing new strategies for attracting, engaging, and retaining customers.
Together, we work on developing a much deeper understanding of the customer and build a value proposition that addresses their needs with a deep understanding of behaviours, attitudes and perspectives.
Throughout this transition, we remain focused on fulfilling our profound commitment to surpass the expectations of our clients, creating value-added and increased differentiation to them.
Should we see 2018 as a tough year for Islamic banking and finance or you are more optimistic about it?
Well, according to the global rating agency Standard & Poor’s, they say that Islamic banks in the GCC are expected to face a tough year ahead, and the industry will lose momentum as the slowdown in asset growth is likely to
persist. But the impact of the slowdown will vary across markets. Also according to their analysts, another factor explaining the muted industry growth is the depreciation or devaluation of currencies in some Muslim countries. Of course, the current economic conditions in the GCC region are not helping. To counter that, I believe a more aggressive move towards merger and acquisitions will emerge in this space, which would create much stronger Islamic banks.
But if you look at the African continent, many North African countries have started the adoption of Islamic banking products. Both Morocco and Algeria have recently adopted new legislation allowing Islamic banking. Their central banks have also set up central Shari’a boards to oversee the new industry. We believe that Africa will be another growth engine for Islamic finance.
I also believe that stronger growth is possible once the sector is supported by comprehensive infrastructure, a robust regulatory framework and dynamic market participants, which would result in a truly global industry.
