Adopting a partnership mindset to grow the fintech landscape?
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IFN Correspondent Report: Islamic Fintech
This article was first published in IFN Volume 18 Issue 21 dated 26 May 2021.
Where a company is described as being part of the fintech, insurtech or regtech ecosystem it usually conjures up an image of a start-up business that leverages technology to exploit a gap or delivers a need in the market.
It is a business seeking to disrupt the existing market landscape and challenge established financial institutions. However, innovative start-ups are only one side of the financial technology ecosystem.
Established institutions such as banks and insurers are not standing idly by, they too are taking advantage of changes in technology to deliver new products to their existing customer base.
Malaysia's Maybank, one of the largest banks in the ASEAN region has in 2020 grown its online Zakat transactions and Shariah compliant funding through a digitization strategy to improve its mobile app and web platform services to SME businesses.
As digitization is an important part of many banks' growth strategies, it does lead to the question of whether a strategy of acquisition or partnership is the best method for digital growth.
Since the Islamic fintech market is still a nascent industry, we can take a moment to look at the trends in the conventional sphere as an indication of market trends.
Between January 2018 and January 2020, the number of fintechs acquired by large banks was less than 30. To put this figure in context, between January and September 2020 there had been 665 fintech M&A deals compared to 748 deals during that same period in 2019 (FT Partners).
Therefore, based on the data from the conventional market the trend is therefore not for outright acquisition but instead leaning towards working in partnership.
A partnership model can be of benefit to both Islamic fintechs and banks by leveraging each other's advantages. The technology solution and goodwill of the Islamic finance fintech platform allied with the customer data base and financial knowledge of the bank, opens the door to offering consumers especially the unbanked in society access to a wider range of financial services.
Pos Indonesia, the state owned postal service announced last month that it is also offering financial services via an app. It's an example of a brick and mortar establishment taking advantage of its existing national network of over 24,000 physical locations to provide digital financial solutions to all parts of the population.
With consumers increasingly focused on non-financial concerns such as ethical financing and environmental and social governance concerns when choosing their financial services. A partnership between Islamic fintechs who have built their brand around these issues and banks is another avenue for partnership and collaboration.
Lingxi Wang is the senior associate at Foot Anstey. He can be contacted at [email protected].
