Three-way merger to create largest Islamic bank in Indonesia
Hery Gunardi, Head of Project Management Office for the Integration and Value Improvement of BUMN (state-owned) Sharia Banks, declared that the new entity’s vision was to become both a regional and global top 10 Islamic bank within the next five years.
"The presence of Indonesian Sharia Bank will be a milestone in the revival of the Islamic economy and finance in Indonesia,” commented Gunardi, who is also President Director of Bank Syariah Mandiri.
He added that creating such a large organisation would require strong leadership to forge a cohesive identity and mission, and affirmed his belief the assembled Board “can make it happen.”
Islamic banking is on the rise
Shariah-compliant finance appears to be globally. Defined by the prohibition of certain practices such as usury (the collection and payment of interest to lenders and investors), Investopedia notes the establishment of more than 300 Islamic banks and 250 mutual funds worldwide.
The sector’s capital grew from approximately $200bn to $3trn between 2000 and 2016, primarily attributable to the flourishing economies of Muslim states.
The parallel development of , particularly its technological modernisation of infrastructure and innovative handling of socio-economic challenges like COVID-19, can also be favourably compared to the rise of modern Islamic banks.
Indonesia: Becoming a world economic centre
Concerning the direct benefits that Bank Syariah Indonesia will bring its country, Abdullah Firman Wibowo, President Director of Bank BNI Syariah, stated his belief that the three separate banks’ collective vision would enable them to better remedy national struggles:
"With this new structure, we believe the merged bank will be more agile and able to respond to challenges and all the needs of the community, customers and business actors in Indonesia and the world.
“The management of the bank resulting from the merger, which will be carried out by experienced professionals in their fields, will help realise one of the objectives of this merger, namely to make Bank Syariah Indonesia an anchor in the halal industry ecosystem and support the vision to position Indonesia as one of the world's Islamic economic centres.”
Zafin: Banking is now in the era of the tech ecosystem
The development of tech ecosystems is placing the future of post-COVID banking in jeopardy. At a time when Big Tech can replicate the functions of traditional financial institutions, what can banks do to retain a grip on the market?
John Smith, EVP Ecosystem at Zafin, has a few ideas. A SaaS cloud-native product and pricing platform for financial institutions, Zafin is preparing the next generation of banks to cope with this precise challenge.
Smith is responsible for the strategic and tactical management of the company’s ecosystem, including the creation of new business models to support growth and differentiation. We asked him four questions:
Q. Have the events of the pandemic caused an irreversible shift in the digitalisation of banks? If so, is COVID the sole cause or are there other factors?
It’s a great question and one that I am asked a lot. Without a doubt, the COVID-19 pandemic has driven a significant shift in the acceleration of digital. In fact, I’ve seen some estimates show there to have been as much as four to six years of digital adoption growth since the initial lockdown started.
While the pandemic may be the primary reason for this growth, two other drivers include fintech disruption and the high costs of operating a traditional retail bank. Both of these factors have caught the attention of banking executives as they set their minds on accelerating digital transformation with a focus on high return, low risk.
Q. Some commentators believe banks must learn from Big Tech in order to survive. Do you agree? Please expand.
I agree completely; we’re living in the era of the ‘ecosystem’. All the seismic shifts we’re seeing in technology, be it aggregation, embedded finance, DeFi or hyper-personalisation are all enabled by the foundation of an ecosystem.
When financial institutions work with a strategic partner like Zafin, which has made the strategic investments in a best-in-class ecosystem, they’re able to capitalise on opportunities more quickly and safely, and will be better positioned for growth now and at the other side of the pandemic.
Q. What are currently the obstacles to adopting Open Banking? Is it more likely to 'take off' in some regions rather than others?
I would argue that Open Banking has been in the US for some time and will only continue to grow there. By definition, Open Banking is about the secure sharing of financial information that customers are aware of and have authorised. Under that definition, we’re seeing aspects of this well underway even though its full potential remains to be seen.
Third-Party Providers are a natural outcome of Open Banking, whereby they can create propositions beyond what a bank normally does to enable banking functions such as payments, borrowing, saving and so on. Once again, some of these are already present through industry-led initiatives, whereas regions such as the EU have taken the pathway of regulation such as PSD2.
The industry-led initiatives we’ve seen in the US have also had the added advantage of guard-rails that regulatory bodies like FFIEC and CFPB provide. There are also other technology-led initiatives such as API definitions that are set out through the FS-ISAC.
I would argue the future of Open Banking in North America will be through the natural evolution of the guidelines and API definitions that have been published, as well as the natural progression of industry initiatives.
Q. Are there any other bank tech trends you'd like to discuss?
Coreless banking. Zafin has been pioneering some of the work around externalising functions out of the legacy core to drive a more ‘fintech nimble’ bank, while not having to deliver a ‘heart and lungs’ core bank replacement.
Real life examples of this include moving some of the core functions of a banking system, such as product and pricing to a platform like Zafin. Origination, onboarding, KYC, risk, and compliance are all other examples of externalising banking functions for added agility.