The banking sector is an area that cannot escape the wave of digitalization, one of which is Islamic banking. With the ongoing pandemic, it seems that the existing digitization process is required to move faster than before. To discuss further digital transformation in Islamic banking, FEB UGM bring that topic to the I-Week 2021 (26/07).
The figures who were invited to share their insights were Rifki Ismal, Ph.D., Assistant Secretary-General at the Islamic Financial Services Board (IFSB). On that occasion, Dr. Rifki Ismail explained about “Digital Transformation in Islamic Banking”. The event was hosted by Shima Dewi Mutiara Trisna, M.Sc. as a moderator.
Based on a survey conducted by the Islamic Financial Services Board (IFSB), as many as 77% of Islamic Bankings indicated that the digital transformation process of their banking system was progressing and only 3% were just planning to start digitizing.
Islamic bankings tend to carry out digital transformation due to disruption from new entrants and competition from other Islamic banking. The existence of competition and disturbances causes Islamic banking to make changes and adapt to existing conditions. This is also supported by the indicator of the increase in customer value and satisfaction, which is an important reason for Islamic banking to transform towards digital.
The existence of digital innovations carried out by Islamic banking is accompanied by digital risks for banking. According to the survey, the cyber security risk is the main risk faced by Islamic banking in digitalization. Then followed by technology risk and outsourcing risk.
Besides that, there are also challenges faced by Islamic banking. 72% of Islamic bankings agree that the challenges faced in digitalization are legacy infrastructure and technologies. Then as many as 57% of Islamic bankings agree that there is a lack of human resources to carry out digital transformation.
Then in terms of the implications of financial stability in digitalization, as many as 78% of responding Islamic bankings indicate that positive competition will increase due to new entrants. Then as many as 65% of Islamic bankings think that there are challenges in policy to facilitate innovations and maintain financial stability at the same time.
Dr. Rifki Ismail concluded that the adaptation of technological innovation is an ecosystem that is changing very rapidly and Islamic bankings are not immune to these changes. Digitalization carried out by Islamic banking has also had an impact on financial stability for the Islamic Finance Services Industry. Regulators also need to be aware of potential new risks that pose a threat to digital Islamic banking, such as data privacy, cyber security, consumer protection, and others.
Reportage: Zahra Dian
Webinar Video: https://youtu.be/Xvr1L61_SgQ
