If asked to think of a traditional industry, many people would answer “banking”. Yet, in countries such as the UAE, this is one of the most rapidly evolving and innovative sectors.
Increasingly, new generations have two key demands of the banking sector: sustainability and digitalisation. Islamic banks have, for years, been ensuring the first and now they’re working on the second. In a surprising turn of events, the rise of new digitally-first financial institutions has sped up this process. Over the past few years, new and traditional financial services providers have found ways to work together to drive the industry forward.
“There is very healthy competition now, with fintechs and neobanks,” said Fernando Plaza, Group Chief Digital Officer for Abu Dhabi Islamic Bank (ADIB), in an exclusive interview.
“They are elevating the customer experience. They are making us deliver better services and better capabilities. There are a lot of new technologies coming which will potentially disrupt our industry, such as artificial intelligence and blockchain, so we are all actively working to understand how we can enable these technologies to support the bank and what are their implications for our business and our customers.”
Venturing into the future
Globally, Islamic banking assets have surged from $1.8 trillion to $2.8 trillion over the past four years and are set to reach $4 trillion by 2026, with the fintech sector playing a pivotal role in this growth. The global Islamic fintech market is estimated to reach $79 billion in transactions in 2021, with an expected average annual growth of 18%, reaching $179 billion by 2026.
Building on the sector’s growth, ADIB has recently launched a strategic initiative called ADIB Ventures, aimed at accelerating innovation and collaboration within the global financial technology (fintech) sector. Aligned with the bank’s broader 2035 Vision, ADIB Ventures seeks to create a robust ecosystem by partnering with emerging fintech players and integrating advanced technologies, including generative AI, to enhance the banking experience for over 1.3 million customers.
“I think a few years ago, the talk was more around how fintechs are going to be competing with banks,” Plaza said. “But, nowadays, we actually see a lot of cooperation. This is why we have launched ADIB Ventures.”
The bank’s fintech partnership programme, in Plaza’s view, will allow the bank to “collaborate with other fintechs to either incorporate their technologies to our customers, the product and services, but also the other way around”. After all, experience is invaluable. The trust that customers have in their traditional banks, more so with Islamic banks, and the interpersonal relationships are not something that fintechs can obtain with as much ease. Thus, the key lies in the intersection of both sectors.
“Fintech can bring a lot of agility and new ideas to the market,” he explained. “We as a bank, have a lot of expertise in other areas. We are trusted by our customers. They value our security and the huge portfolio of products that we offer. So there is a win-win situation for us to collaborate.”
The rise of AI
There is no conversation about banking technologies that does not include artificial intelligence (AI). According to the McKinsey Global Institute, genAI has the potential to add between $200 billion and $340 billion in value to the banking sector, by increasing productivity and improving the servicing for customers. The great promise the technology holds has led many banks—Islamic or not—to embrace AI. ADIB recently announced its 2035 strategy, in which AI-driven applications have a fundamental role to play.
“Artificial intelligence will be a cornerstone of our strategy,” Plaza said. “We believe it’s going to be transforming our business, and it’s going to be incorporated in many more technology.”
Currently, the bank is working on testing the best use cases of these technologies, Plaza said. For instance, ADIB now enables genAI capabilities for its software engineers in its data factory, which allows them to write code and implement features faster for use cases such as the mobile banking app. This allowed the bank to see a 27% increase in productivity.
In another use case, ADIB has worked with fintech partners to enhance the security of its systems and fight fraud and money laundering attempts through the use of AI tools. Moreover, when it comes to cybersecurity, partnerships with regulators are also fundamental to ensure customer protection.
“Security and customer privacy are of utmost importance to us,” Plaza said. “We follow very strong standards in terms of the security frameworks that we apply. There is also a lot of collaboration between the central banks and the banks around customer protection, customer data and even anti-fraud measures.”
ESG and Islamic finance
The demand for ethical banking products is constantly on the rise. Moreover, Islamic finance has also seen a great increase in recent years. A report by the Central Bank of the UAE (CBUAE) has found that the Islamic finance sector grew by 11% in 2022, bringing the value of global Islamic financial assets to Dh16.5 trillion ($4.5 trillion).
“ADIB is an Islamic bank. We are very proud of our Islamic heritage,” noted Plaza. “There are a lot of common points between our Sharia approach to how we do banking and our ESG strategy.”
In addition to its adherence to Sharia banking principles, ADIB has made a commitment to contribute to the UAE Banking Federation’s Dh1 trillion of sustainable finance mobilised by UAE banks by 2030.
What lies ahead?
With the rise of new technologies, the future is unpredictable. Yet, whichever form it takes, there will be demand for Islamic fintech solutions.
For ADIB, Plaza states the bank is focused on two things. “One thing is keeping an eye on what we see is important in the market, artificial intelligence, blockchain and the security capabilities,” he explained. “The other is to cooperate with customers. We talk to them, we listen to them and with them, we actually create new opportunities.”
In terms of the fintech sector, Plaza predicts further growth, particularly in the Middle East region, driven by both innovative projects and regulators.
“I think there will continue to be an important collaboration between fintechs and banks,” he said. “On the one side, you have very good growth because of the talent that is coming to the region and the companies are being setup. On the other side, you have supportive policies from the government. This is creating a very nice ecosystem for collaboration.”
