Fintech

FinTech DISRUPTIONS ON ISLAMIC BANKING
AND FINANCE
DR NURUL AINI MUHAMED

FACULTY OF ECONOMICS AND MUAMALAT, USIM
OUTLINE
Background
Definition of FinTech
The Evolution of FinTech
Islamic Banking Institutions
Islamic Non-Banking Financial Institutions
Regulations
Challenges Shariah Perspective
BACKGROUND
Financial technology is currently popular
Urban areas, where the usage of internet and mobile services are high
Highly used by the youngsters
IT savvy
Gen Z will move away from this banking style. This generation consists of young
who want to move faster, averse the disturbance due to rules and procedures
and well verse with the current technology such as mobile phones, smart
phones, note book and other applications, will dominate the usage of FinTech
services.
Penetrate Islamic banking industry and capital market
FinTech
Financial technology
A dynamic segment at the intersection of the financial services and technology
sectors where technology-focused start-ups and new market entrants innovate
the products and services currently provided by the traditional financial services
industry
The non-financial background ventures can cover market infrastructure,
payments, settlements, digital currencies and data analytics services (Broby,
Daniel & Karkkainen, Tatja 2016).
VC Venture Capital
THE EVOLUTION OF FinTech
2ND PHASE Smart banking

Search engines Crowd funding
Open source Big data
E-commerce
Information Sharing Bit coin
Smartphone
Mobile phone Apps & Apps Store
Blogs
Internet Skype
Online banking
1ST PHASE 3RD PHASE
Source: Adapted from Deutsche Bank Research (2014)
PENETRATION ON BANKING AND FINANCE
Platforms
Financial
Investment software
Money Remittances Payments

transfer &
Bitcoins
Foreign
Financing
Exchange
PENETRATION OF FinTech
Digital Platform Financial Saving and Investment Money Transfer Borrowings and
ecosystem Software and Payment financing
Marketplace Financial Equity or rewards Online foreign Borrowing using
platforms solutions crowd funding exchange peer-to-peer
software P2P platforms
Online investment Overseas
advice and investments remittances\
Online budgeting and
financial planning Non-banks to
Online stockbroking transfer money
Google payworks Katsana Mikroinvest Zapp, ApplePay,

Apple moneymeets Seedmatch Google Wallet
Facebook PayCash Yieldes* MoneyMatch
Paypal Ethicscrowd*
(Singapore)
VCs
Owners/Shareholder VC
Third party (if any)

3rd Party
Users
Users
ADVANTAGES USING FinTech
The principles of LASIC consist of; (i) Low profit margin,
where the company gains profit via mass customers (who
pay the services at lower cost), (ii) asset light (the providers
usually do not have high fixed assets), (iii) scalability (the
business model and technology have ability to be expanded
at lower cost, (iv) innovative (in terms of products and
operations) and (v) ease of compliance (this aspect refers to
less regulation requirement especially during the initial
start-up of the company).
ISLAMIC FINANCIAL INSTITUTIONS
ISLAMIC
FINANCIAL
INSTITUTIONS
BANKING NON-BANKING
FINANCIAL FINANCIAL
INSTITUTIONS INSTITUTIONS
DIFFERENT FUND
TAKAFUL INVESTMENT TABUNG HAJI,
TYPES OF MANAGEMENT
COMPANY COMPANY KWSP, ETC
BANKS COMPANY
TRADIONAL ISLAMIC BANKING INSTITUTIONS
The traditional banking institutions have certain characteristics such as physical branches in
different locations (where they can provide their services), higher human workforce, technology
usage and strict regulations.
Previous technology:
self-inquiry facilities, remote banking (all process getting information through websites),
Automated Teller Machines (ATMs) (involves all processes of money withdrawal at any times),
Cash Deposits Machines (CDMs), electronic banking, management information system for
internal users -to integrate internal information among different department of the banks (such
as ORACLES), smart cards and others (Ghaziri 1998).
Most of these facilities charged some fees to customers. These banking facilities are considered
as a basic technology that the banks usually have.
FinTech?
Why the cost
Need for Ensure there is Need for financing
return/hibah return on cost of and services
capital (after (profit on
deducting all financing and fees
Users /Customers
Banking Institution
Stakeholder ($$)
Banks Shareholders and
liabilities) on services to
cover the capital
and deposits)
WHAT BANK SHOULD DO?
These options are to
(i) remain status quo?
(ii) join venture with FinTech companies or?
(ii) open their own FinTech division or buy over FinTech companies?
MALAYSIAN CASE: ISLAMIC BANKS
Collaboration :
Investment Account Platform
Affin Islamic, Bank Muamalat, Bank Rakyat, Bank Islam, Maybank Islamic and BSN
Own Initiative:
Maybank (2015)
L337
mobile banking, payment, financing, asset management and financial inclusion
RHB (2015)
Startupbootcamp
Digital Wallet
Others? Robo advisors

ISLAMIC BANKS: Investment Account
Platform
The investors can choose the business/venture that fit with their risk and return
appetites
Banks only functions to give information and guide customers risk ect.
ISLAMIC BANKS: IAP
Source: https://iaplatform.com/findInvestment
ISLAMIC BANKS: IAP
Source: https://iaplatform.com/findInvestment
ISLAMIC CAPITAL MARKET
Areas: crowdfunding and P2P online platforms, online and mobile trading platforms, social
trading platforms, high frequency trading program and robo advisors.
Six registered P2P (2017)

FinPAL
EthisKapital
FundedByMeMalaysia
ManagePay Services
Modalku Ventures
Peoplelender
Equity crowdfunding framewok (ECF) (2015)

CROWDFUNDING
Expand the opportunity to SMEs that have potential to
expand, but do not have capacities (in term of requirement
and qualification) to gain capital from the traditional banks.
Investors (individuals and institutions) who are interested
to invest, can participate in crowdfunding, taking
consideration that know already knew on the risk of their
investment in the selected SME
REGULATIONS AND GOVERNMENT INITIATIVES
Fintech Regulatory Sandbox Framework on 10 October 2016 to safeguard the
arising risk. This framework becomes the guidelines to the participants that offer
the services under its authority. Bank Negara Malaysia has indicated that FinTech
start-ups that engage in activities under the purview of the central bank must
comply with the existing laws.
The Capital Market Services Act Bill 2015(CMSA Bill) was passed to cater for
the crowd funding activities (Hasan & Zainudin 2015). In addition, the SC has
also launched aFINity@SC, a FinTech community aimed at industry engagement
and more recently launched the P2P financing framework, which is aimed at
addressing the funding needs of small businesses.
IMPACT TO IBF
Outreach
and
inclusion
Customers
Experience Regulatory
Cyber Cyber
Security
security
Q&A

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FinTech DISRUPTIONS ON ISLAMIC BANKING

DR NURUL AINI MUHAMED

2ND PHASE Smart banking

Money Remittances Payments

Google payworks Katsana Mikroinvest Zapp, ApplePay,

Third party (if any)

Others? Robo advisors

Six registered P2P (2017)

Equity crowdfunding framewok (ECF) (2015)

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