Image used for representation.
Warnings about the impact of tech on existing patterns of employment was one of the highlights of the discussions at the 5th Doha Islamic Finance Conference. The issue of bank layoffs due to digital transformation of banks around the world was discussed at one of the sessions of the Conference, which concluded here yesterday.
In his presentation, Dr. Umar Oseni, acting chief executive officer at the International Islamic Liquidity Management Corporation, said the increasing importance of digital banking has led to the closure of many bank branches across the world.
Citing figures from the Federal Deposit Insurance Corporation (FDIC), Oseni said 6,008 out of 95,018 bank branches in the United States have closed between 2008 and 2016. Also, it is projected that considering the current trends in banking technology, particularly digital banking and the proliferation of digital banks, it is estimated that up to 20 percent of bank branches are expected to close between 2014 and 2020, he added.
Oseni went on citing a study by Gartner, and added that by 2030, about 80 percent of heritage financial services firms will go out of business, become commoditised or exist only formally but not competing effectively. He said these firms will struggle for relevance as global digital platforms, fintech companies and other nontraditional players gain greater market share, using technology to change the economics and business models of the industry.
Describing technology as a double-edged sword, Oseni said the common scenario of bank employees being let go from their jobs was inevitable. Specially so, when digital banking is the way forward.
Talking to The Peninsula on the sidelines of the event, Oseni also said, “When you have digital Islamic banks, some people will be out of job, which is inevitable. But remember that these digital Islamic banks will implement some products that are innovative. Some people will actually be the ones to structure those products. So while some will lose their jobs, we have to look at the other side. There will be another job creation. I think with that we might be moving closer to the real value proposition of Islamic economy”.
To date, there are only two existing digital Islamic banks in the world. “Meem” was opened by the Gulf International Bank in Bahrain in 2015, while Insha GmbH was opened by the Turkey-based Al Baraka Banking Group in Germany in 2018.
However, Oseni said he sees more digital Islamic banks opening in the region and beyond in the next few years. He added, “Even in Malaysia, I know some who are already working to establish their Islamic digital banks. So we’re going to have more digital Islamic banks in the next couple of years. I think many banks are working towards it. If Islamic banks fail to actually embrace this great move, they lose the market share”.
Also speaking during the event, Kemal Payza, project leader at Insha GmbH, said Islamic banks need to understand the expectations of Muslim millennials because they constitute a large part of their target audience.
He added, “Muslims with a population of 1.8bn constitute 24 percent of the world population. The median age of all Muslims in the world is 24, while that of remaining population is 32. The fact that the young population is more prone to technological developments means that the needs of this new generation also need to be digital. Also, millennials are known for having the highest level of digital inclination. Studies show that they want to get support by texting via digital platforms. We can say that a digital banking experience that does not meet the expectations of millennials is very likely to fail”.
As part of its final statement, the conference concluded that digital Islamic banks can be established if their procedures and legislations are developed according to the Shariah rules, as they achieve the purposes of Islamic Shariah with regards to finances. The conference also recommended to invite researchers and specialists to further the studies and researches on digital Islamic economy, its institutions, tools, and products; and seek to establish a digital knowledge platform specialising in Islamic digital finance.
