Islamic fintech market projected to reach US$128bn by 2025
Confidence in the industry itself appears to be high: 56% of surveyed Islamic fintechs expect to raise an equity funding round of at least $5m. However, there still remain three core challenges facing the industry:
- Lack of capital
- Consumer education
- Talent acquisition
While these are, perhaps, not dissimilar to the strains encountered by fintechs everywhere, these countries’ relatively low scores on the (the UAE is the highest at #34) could enhance the difficulty of attracting talent.
Saudi Arabia is taking the lead
One of the best performing Islamic fintech markets currently is Saudi Arabia, a lead which the GIF Report expects it to maintain in the medium-term. Currently worth an estimated $17.8bn, it could reach $47.5bn in just four years.
However, rather than emphasising strong individual performers, the report finds the net improvement of the sector particularly encouraging:
“Most encouraging are the developments in OIC (Organisation of Islamic Cooperation) countries where large target markets exist,” said Abdul Haseeb Basit, Co-Founder and Principal at Elipses.
“The number of fintechs identified is more than double the amount first identified three years ago, demonstrating the rapid expansion in this sector which is set to continue growing at an accelerating pace.”
In fact, according to metrics like growth and conduciveness, the UAE and Malaysia are actually accorded more status as industry leaders, whereas Saudi Arabia, Iran, Bahrain and Indonesia are still ‘maturing’.
Cooperating for scale
BNI Syariah, Bank Syariah Mandiri and BRI Syariah announced that they would launch Bank Syariah Indonesia, a three-way merger which was fulfilled on 1 February 2021.
Hery Gunardi, Head of Project Management Office for the Integration and Value Improvement of BUMN (state-owned) Sharia Banks, hailed the move as “a milestone in the revival of the Islamic economy and finance in Indonesia.”
Equally, Abdullah Firman Wibowo, President Director of Bank BNI Syariah, believed that the new development would “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.”
BIS and MAS publish blueprint for cross-border payment idea
The Bank for International Settlements and the Monetary Authority of Singapore (MAS) has published a proposed blueprint for the multilateral linking of domestic real-time payment systems across borders.
The blueprint, titled Project Nexus, outlines how countries can fully integrate their retail payment systems onto a single cross-border network, allowing customers to make cross-border transfers instantly and securely via their mobile phones or internet devices.
The Nexus blueprint was developed through consultation with multiple central banks and financial institutions across the globe. It builds on the bilateral linkage between Singapore's PayNow and Thailand's PromptPay, launched in April 2021, and benefits from the experience of the National Payments Corporation of India's (NPCI) development and operation of the Unified Payments Interface (UPI) system.
The Nexus blueprint comprises two main elements:
- Nexus Gateways, to be developed and implemented by the operators of participating countries' national payment systems, will serve to coordinate compliance, foreign exchange conversion, message translation and the sequencing of payments among all participants. These gateways will be predicated on a common set of technical standards, functionalities and operational guidelines set out within the proposal.
- An overarching Nexus Scheme that sets out the governance framework and rulebook for participating retail payment systems, banks and payment service providers to coordinate and effect cross-border payments through the network.
“To achieve significant cost-reduction in cross-border payment transfers, enhancements must be made on two fronts: direct connectivity between domestic faster payment systems, and frictionless foreign exchange on shared common wholesale settlement infrastructures. The BIS Innovation Hub Singapore Centre is working on both. The Nexus project maps out a much-needed set of standards to achieve seamless cross-border payment systems connectivity.” said Sopnendu Mohanty, Chief FinTech Officer, MAS.
How do cross-border payments work?
Cross-border payments are currency transactions between people or businesses that are in different countries. The sender will choose a front-end provider, such as a bank or a money transfer operator (e.g. Transferwise), to initiate the payment. The receiver then receives the payment via the medium specified by the sender. Traditionally, cross-border payments flow via the correspondent banking network (CBN) which most front-end providers use to settle the payment. But, in recent years, new back-end networks emerged to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.
The increased international mobility of goods, services, capital, and people have contributed to the growing economic importance of cross-border payments. The value of cross-border payments is estimated to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years.