Ethical Banking through FinTech and Digital Transformation
Arsalaan (Oz) Ahmed, CEO of Al-Rajhi Bank Malaysia (ARBM) says, “my goal is to serve the under-served". ARBM is a subsidiary of its parent, Al-Rajhi Bank (ARB), which is headquartered in Saudi Arabia, and was established in 2006, marking Al-Rajhi’s expansion into international banking beyond Saudi borders.
One of the core tenets of Islamic finance is the preservation of wealth for people, which needs an economy that works for the majority. There are certain pillars that are required for such an economy, for example, one of the pillars is ensuring people are incentivised to spend money and to keep it circulating. Another pillar would be, what the capital is allowed to be used in; Islamic financing does not allow capital to be invested in industries, products or services that are not beneficial to the society, e.g. gambling, arms, alcohol. From a Shariah point of view, Shariah Compliant Banking is a form of ‘ethical banking’.
“At the moment, Islamic financing still needs to stand up and lead from a moral perspective, and not just keep up with conventional banks,” Oz added. He gave the example of promoting the decision to announce a non-compounding of profit and interest rates on loan moratorium during the Movement Control Order in Malaysia when he was the CEO of HSBC Amanah, which started a movement of other Islamic and conventional banks to follow suit.
In the early days, before ARB’s inception, its founders-to-be were brothers who began by serving Muslim pilgrims travelling to Mecca and in need of support services, one of which was currency exchange. ARB was eventually established in 1957 and has since grown into one of the world’s largest Islamic Banks by market cap and the largest in the Middle East and Saudi Arabia, with total assets of SAR 624 billion (US$ 166 billion), a market cap of SAR 354.5 billion (US$ 94.5 billion) and an employee base of 9,360+ associates as of December 2021. The Al Rajhi group is deeply rooted in Islamic banking principles and is instrumental in bridging the gap between modern financial demands and intrinsic values, whilst spearheading various industry standards and development.
Speaking of the journey that led him to becoming the CEO of ARBM, Oz says: “I grew up in East London when it was not as nice as it is now, and the first thing I wanted to do was to get out. I noticed that friends of mine were going to newer and better schools located in other places, and I would often question why they were able to move, and we were not. I later found out the reason was that my parents didn't have access to Faith-Based Home Financing, or in this case, Shariah-Compliant Financing so they could move us to better areas with better schools. As I got older, I increasingly saw this trend that people were being needlessly held back and unable to realise their full potential.”
Oz’s first professional foray into financial services was as Strategy Analyst for Accenture, which he began in 2004. Here, feeling as though he had at last moved beyond the fray of East London’s stifling environment, and still with the ideal of ethical banking practices in mind, he began to formulate his purpose, saying: “I paused to think about what it was that I really wanted to do, and one of those things was to not allow for another child to worry about the problems that I worried about, which meant helping to make access to financing more inclusive. Obviously, social impact is very important to me. More thematically, I felt that financial services were not really providing what they could or should do to society.” He then left Accenture so he could dedicate his career to inclusive banking, particularly Islamic banking.
By his mid-thirties and disillusioned with the direction of banking, Islamic banking and his ability to influence change, Oz openly looked to leave the industry. When he was 36 years old, Oz received a phone call to apply for the CEO role at HSBC Amanah (the Islamic banking subsidiary of HSBC, based in Malaysia), in which his subsequent application was successful. He says, “the gentleman who hired me, who was then HSBC’s Group General Manager, told me, ‘If you want to change the industry, why don't you do it from the inside; from a position of strength?’”
Oz spoke directly about changing the narrative of Islamic banking through working with other industry-players and the Central Bank. They introduced a concept called ‘Value-Based Intermediation’, where they would focus on organisation ‒ and not just on the bottom line, but on the triple-bottom lines of economic prosperity (or profit), people, and planet. This was the society and environment angle, and it eventually started HSBC Amanah on its journey into becoming the first sustainable bank from a mainstream bank.
“I was able to make a positive impact in changing banking. However, the one thing that I noticed,” says Oz, “was that in the face of the speed of the changing landscape, the ambition to really serve people from a real economy perspective – retail and SME – and to meet the changing of the requirements of individuals and society more broadly, banks were not able to adapt quickly enough. I believe that with the right technology structure, the right brand and purpose, and the right people, financial institutions will be able to service customers better generally, and start to have those people who were once served and are now increasingly becoming underserved, to be servable now.”
It was then that ARB contacted Oz and asked him to step into a position “that would really allow us to bring about these changes".
What's interesting about ARB is that they have a strategy that they call ‘unbank the bank’, which is now very much their tagline. They also refer to themselves as ‘a bank of the future’.
It was here, at ARBM, that Oz began to work on the kinds of changes that he felt would be more impactful. “When we started speaking about what ARBM was planning to do, it really was about changing the DNA and nature of banking, in order to offer better services for people. Our focus is on digital and being best in class in digital. Another thing that sets ARB apart from its competitors is its authenticity as an Islamic Bank, which is particularly important to Muslim customers and increasingly important to ethically minded customers. Combining the ethical with the digital is a powerful combination in the evolution of banking”
“Looking forward over the next five or 10 years, our strategy will align with unbanking the bank, which is more than just a slogan - it’s a mindset. Coming to ARBM, this means that we have the ability to provide an environment for people to try to do things differently and work in a supportive and agile fashion. ARB, being one of the largest banks by market capitalisation, certainly provides strong financial support to ARBM. On top of this, it’s the mindset support that sets ARB apart. I have worked in other banks and I realised that the traditional mindset of banks is not going to help them achieve the much needed and sustainable change.”
Technological Transformations as Drivers of Change
ARB has now moved into digital payment services with its provider, neoleap, with features including a digital wallet, electronic payment methods, an e-market, online stores and rewards points. It has also recently acquired a technology company called Ejada Systems, which is expected to accelerate its digital and economic growth.
“Malaysia is, in many regards, one of the foremost countries in Islamic banking around the world,” says Oz. “So it's important for an Islamic bank to operate well in a jurisdiction like Malaysia. The ARB group is tasking me to turn around the business in Malaysia. As a part of this initiative, we are launching our new brand ‒ our ‘Digital Bank’ ‒ through our partnership with Oliver Wyman, who have the expertise and skills to build for us, and it will be launched this year.
“ARBM will accelerate its focus on both mass and mass-affluent-customers, as well as SME, particularly small enterprises, and we want to be ‘best in breed’ from a technology point of view. So we’re going to enable a robust cloud-native tech-stack through different providers, made up of the best partner ecosystem, to service our customers through embedded finance so that we can achieve these goals.
“This is the ‘Open-Banking’ and ‘Open-Finance’ part of ARBM’s technology, which seeks to deliver a best-in-class digital tech infrastructure. If we are able to do it correctly, our new tech-stack could potentially be something that we use to look at other jurisdictions in the future.”
In putting together their tech-stack, made up of various providers and managed via microservices called a ‘Cloud-Native-Feed’, a strong security layer will be integral to ARBM’s growth opportunities. On the issue of providing security for customers and the bank, ARBM has partnered with Feedzai, which is FRAML (Fraud And Anti Money Laundering) technology provider ‒ something that’s necessary for their business to grow.
Oz says: “We've been working with new partners and our team to make our organisation safe, because although there are many things that are cool about FinTech from a customer-experience and product-offering perspective on the backend, we need to work to make sure that people and their businesses are protected. Feedzai will help in fulfilling that role.
“Of course, there are lots of other partners that we're working with to help drive our transformation. For example, there’s AWS, which not only has a very safe, robust cloud environment, but also understands how to navigate regulatory considerations when it comes to cloud-computing. With their focus on providing education and skills for companies to operate in a new environment, this will help our workforce be better skilled for technology.
“Then there’s Thought Machine, which is a core-banking platform provider and a fantastic cloud native core banking provider, and what's excellent about Thought Machine, is that their technology gets you as close to owning your own IP as possible - and that's the ideal state. Particularly though, because of the way their technology works, it can also help a lot of Islamic banks that have to deal with certain nuances related to Shariah contracts and details in achieving their objectives.
“The agility that comes from their system and the empowerment they can provide to an organisation through their technology is absolutely fantastic, and will help us drive our digital growth, and in time, hyper-personalisation for our customers.
“When we talk about our digital bank, we’ve had incredible support from the partners we’re working with. One of our partners is also Bank Negara Malaysia, which is an incredibly progressive regulator.
“It was very clear to me that we needed to do a greenfield setup and that’s what we did. We’ve got a banking licence but it doesn’t stop us from having a completely digital bank, and we wanted it to be cloud native. Initially fully native from our app, we hope to deliver a basic set of products and services, which we hope to ramp up over time.
“An interesting side of the digital bank is around potentially supporting other institutions with financial services because we have a best-in-class tech-stack which we can offer as banking-as-a-service. This model enables us to help other institutions that are yet to have the suitable products or necessary support. For instance, this model is particularly beneficial to institutions that are not so familiar with Islamic financing and lack the know-how to manage it. In Malaysia, which has a large Muslim population, they would want to offer a Shariah-compliant solution and that’s where our new technology can come into play and support them in achieving that.”
ARBM’s modern new workspace at Menara Hap Seng 3
When Oz first joined ARBM, the office workspace was traditional. “Workspace is very important, especially when it comes to launching transformational change. You need an environment where people can change their mindset and learn how to do things differently; a place where they can augment their knowledge and leverage it to create change,” he says. “Once there is a mindset change, you need people to collaborate. The best collaboration is done through rich communication. We wanted a space where, post-COVID, people would want to come to work and not remain remote, because sparks of innovation and new ideas are often made in unplanned interactions.”
Menara Hap Seng 3 is based in Kuala Lumpur, Malaysia, and will be used to house ARBM’s teams ‒ including their digital bank team ‒ to further grow their Digital Bank initiative, with their aim to be digitally fully-native.
Oz says: “Confucius said that our purpose is to bring the order of the heavens down to the earth, or from an Islamic perspective, we are God's agents on the earth. So surely our purpose should be trying to make the earth as close to heaven as possible. What does that mean? It means making continuous progress to improve life for the largest number of people possible. I think that in order to make that progress and change, we need to spark ideas and innovation, and people bouncing off each other creates that kinetic energy. Menara Hap Seng 3 is about bringing people together on common ground, where innovations can occur, and those who have helped to design this space are playing an incredibly important role in making such innovations happen.”