Platform Banking: The way to the future for Islamic Banking

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Dr Luqyan Tamanni

Islamic Finance Professional, Member of Komite Nasional Keuangan Syariah Indonesia

Islamic banking is entering the state of irrelevance, or impasse. Many countries adopting dual banking system are witnessing the growth of Islamic banking sector stagnating. Indonesia for instance is growing at single digit in 2017, much lower than its peak of 47% in 2011, or 15-20% in the last three years.

The growth of innovative finance such as peer to peer lending and crowd funding, better known for its platform as financial technology or fintech, is among the threat affecting Islamic banking.

Platform banking is the face of banking in the future. In essence, banks will not only a place for banking transactions, but also for other services provided by the bank and its partners. Such services may include financial services products like insurance, or even non-financial.

The concept of platform is introduced and used extensively today in e-commerce area, and increasingly by services companies.

Banking can offer itself as a platform for other services related to banking, such as property, restaurant, insurance, mutual funds, or other services such as retail or government services.

Platform banking has been introduced by several medium sized commercial banks in Japan, Korea, the United Kingdom, Swiss, Germany, and the United States.

This development is interesting to follow, as banking services cross borders and go beyond traditional banking services.

The main hurdle in offering non-banking services is regulatory, as banking is highly regulated and some of these products are considered risky to the reputation or security of the banks.

One of the ways to mitigate this is by creating a digital platform and investing adequately on security.

With the advancement of technology, this hurdle can be mitigated.

The other aspect that allows the application of platform concept in banking is banking attracts customers to be in one place, either physically in banking halls or virtually. This frequent visits or use of banking facilities is an important feature that are attractive to providers of other services or producers of goods that can be offered through banking platforms i.e. banking halls (its vicinity) and banking internet portal or platform.

Platform banking is essentially bringing the banking services back to its original function i.e. the place where communities trusted the priests as their bankers then.

It early days, communities deposit their money and valuables to the church or other religious establishment. Temples or churches, in the Middle Ages, were not only place of worship but also a place where people safekeep their possession when they are going for a long trip or pilgrimage. In a simplest sense, church was a platform.

In hindsight, may be it is time to reconsider banking, and particularly Islamic banking as a platform.