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“I believe we should address the technology element by developing our ecosystem based on open international standards according to the latest trends in technology and cybersecurity.”

Developing Cross-Border Digital Integration of Financial Services

Ever since the pandemic, all sectoral businesses, such as financial institutions, technology companies have started to redevelop and emphasize on upscaling the technology sector i.e. Fintech. With the integration of Fintech, the era has changed customer perspectives and expectations as we embed the Fintech elements. Technology has definitely disrupted the traditional ways in supporting our customers to fundamentally delivering a much better experiences in the future. It is truly an honour to have had another opportunity to interview Path Solutions’ Group Chairman & CEO, Mohammed Kateeb; the utmost visionary leader in the global innovation and cross-border digitalization. Much to be said, let’s hear more about the digital integration of Fintech in the financial services ecosystem.

How can Islamic finance be an integral part of a comprehensive borderless global financial ecosystem incorporating banks, Fintech, analysts, technologists and regulators?

This is an important question and should be addressed on multiple levels as it involves the contribution of all stakeholders in the ecosystem, such as regulators and government institutions, Fintech startups, traditional financial institutions, technology developers, investors and VCs, analysts, academia, and the financial customers. The answer would be lengthy, so I will give a couple of examples on each level.

The new global ecosystem that is being created is a collection of subsystems on the local and regional levels which need not to only communicate but to also integrate fully to provide the seamless and frictionless experience that is being targeted.

If we look from a global level inward to the stakeholder level, I believe we should address the technology element by developing our ecosystem based on open international standards according to the latest trends in technology and cybersecurity. Openness ensures ease of integration. But of course, technology and innovation wouldn’t be able to achieve anything without redrafting our regulations to allow this cross-border digital integration of financial services. OIC members must make it a priority to enhance the legal systems to ensure Islamic financial services are allowed to be served across borders.

On the country level, nations need a full development of the ecosystem to support the Fintech startups, as not acting fast enough would hinder the growth of the industry. It is important to focus on innovation and job creation by establishing innovation hubs which will bring tremendous benefits to the local economies. Digital technologies will help lower the costs of trade, reduce barriers to market entry, and thus expanding market access and boosting productivity. Of course, this requires upgrading human skills by investing in digital and soft skills education and training.

And finally on the organization level, we need to recreate the culture in our financial institutions. It all starts by ensuring we have the right leadership with the right vision, then aligning the different elements of the internal ecosystem and ensure proper connection to the external world according to this vision. A new culture that supports internal collaboration, by acquiring the relevant talents, adding to this the ability for experimentation, keeping the ecosystem motivated, establishing external partnerships, and recognizing and rewarding achievements that support this new vision.

In the Islamic ecosystems we have many weak links that need to be addressed such as inflexible and sometimes outdated regulatory systems, high cost for doing business and create startups, few technology developers, and absence of the academia involvement.

The Fintech industry will have a significant effect on the future global financial system, and we can’t miss the opportunity that is presented to us to be an effective player in this new world.

In the face of a technology revolution reshaping customer expectations and a competitive landscape, what can Path Solutions offer to modern Islamic banks?

Path Solutions realized very early on during this digital revolution the importance of financial institutions’ ability to engineer great customer experiences through the different digital channels. Therefore, we have invested heavily over the years to create our digital banking platform that we call Path Digital, which has evolved from our digital channels’ applications into a full rich digital platform that supports Omnichannel customer experience.

Path Digital suite helps financial institutions accelerate their digital transformation by transforming multiple-siloed banking channels into a rich, simplified, personalized, timely, consistent, seamless, and frictionless customer journeys. It allows banks to immerse into their customers’ life journeys, gain better customer insights, and improve customer interaction and engagement, while optimizing the value of each customer relationship across all touchpoints.

Path Digital suite provides banks with a world-class platform that focuses on creating personalized and seamless customer experience, anytime, anywhere, across all digital touchpoints. The platform is a highly secure, open scalable, flexible, robust, customizable, future-proof and easy-to-deploy solution providing a convenient, personalized, single, and seamless digital experience with services for retail, corporate, SME, and investment banking.

The Islamic world is home now to dozens of Islamic digital banks. What can you provide to these banks in specific?

Digital banks or what we call Neobanks today range from banks that offer one or few financial services, to more sophisticated full banks that offer complete and rich set of services. Our experience in banking solutions for almost 30 years now, allows us to offer digital banks the services they target.

Path Digital is an integrated self-service digital banking platform fully integrated with all iMAL core services to offer a full digital banking solution. It also has the flexibility to integrate with other core banking and third-party systems through the integration layer, which facilitates the communication with various type systems.

It provides comprehensive off-the-shelf functionalities and features to satisfy the digital banking needs of today’s customer-centric banks and financial institutions across all their supported digital channels. The platform is designed to support any delivery channel like Internet and Mobile Banking, Conversational Banking (Chatbot, Chat Banking, and Voice Banking), kiosk, smart TVs, and wearables through third party integrations and digital partnerships.

As security is of extreme importance to digital banks, advanced and common security practices are supported on all digital channels including data encryption, multi-factor authentication, password management, limit management, user account management, user activity logging, database security, session management, and other basic protective features.

The introduction of blockchain technology in the Islamic financial services industry has its own challenges and opportunities. What can you say in this regard?

Blockchain technology also known as distributed ledger technology (DLT) has the potential to transform business processes by redefining value chain interactions, reducing operational complexity, and lowering transaction costs. It brings the economic dynamics of supply and demand to the digital domain. It is architected as a distributed database that independently maintains an ever-growing ledger of transactions recorded in units called blocks, securing them from manipulation and revision. These blocks are linked on a peer-to-peer network where blocks are connected using cryptographic hash code, thus eliminating a single point of failure which makes blockchain more reliable to operate and maintain. This promotes trust and transparency, enforces accountability between parties involved in Islamic financial transactions.

There is an interesting match between the characteristics of this technology and adhering to Islamic finance rules. Blockchain provides trackable transactions and transparency. This allows the validation of all components of a transaction to ensure they are Sharia-compliant because of its traceability and visibility to all the users of the blockchain. This can boost the trust in Islamic financial dealings, transfers and transactions.

The immutability characteristic of blockchain transactions makes it almost impossible to make any changes to such transactions. This promotes trust in transactions and allows the tracking of valuable assets which is an important element of asset-based Islamic finance.

One of the key applications of the blockchain technology, which would be extremely useful for the heavy documented, closely monitored Islamic finance by different stakeholders such as Sharia boards, government regulators and beneficiaries, is the smart contracts. Islamic finance has different types of contracts that help in managing profit-sharing agreements, agency arrangements and partnerships. What are smart contracts? Smart contracts are a series of digital agreements, including terms and conditions promised by contract participants. They would ensure the execution of all the T&Cs in a transparent process. Smart contracts will help reduce uncertainty and speculation and reduce a transaction cost by almost 90%. Of course, one of the key challenges is that smart contracts have neither been accepted legally nor have been regulated by OIC governments.

The use of blockchain-based cryptocurrencies would do wonders for Islamic social finance by assisting in the elimination of Riba or interest rate, allows for secure inexpensive cross-border payments, and increase financial inclusion.

Some other use cases in Islamic finance that can take advantage of blockchain is the distribution of Zakat and Sadaqa transparently, and managing Waqf, and issuing Sukuk.

Blockchain solutions help Islamic financial institutions to reduce transaction and processing cost and there will be a significant reduction in time and paperwork which will be valuable and profitable for banks in the long run.

As for the challenges, regulations continue to be the most important obstacle in adopting this technology, in addition to the lack of availability of talent, not enough research, and the inability to identify and execute on the right use cases.

There is lots of noise about blockchain, but we are also seeing some interesting projects in the Islamic world. It is certain that utilizing blockchain in Islamic finance will bring tremendous benefits to the sector if we are able to overcome the challenges.

How can you measure the impact of regulatory technology on money laundering prevention effectiveness? Do you offer such solutions?

I believe technology in the last 20 years had a tremendous impact on anti-money laundering (AML) and especially technologies such as artificial intelligence (AI), machine learning, and big data, because they have made processing financial crimes data faster and cheaper and have allowed companies to adopt smarter approaches. Financial institutions can now replace the traditional approach to their rule-based analysis with a more technologically focused, flexible and comprehensive program that is able to detect exceptional cases much more efficiently.

Slower manual processes such as transaction monitoring are now being done using AI, machine learning and big data technologies, which have the ability to scan massive amounts of data much faster than humans could ever do. They also have given the ability to "map" transaction chains, enabling connections to be established and patterns in data detected. This allows the organization to trace the original sources of illegal activity with less difficulty. AI has the ability to quickly identify patterns of transactions, behaviours and deviations, allowing compliance professionals to better spend their time analyzing findings, investigating root causes and collaborating on their findings with other financial institutions or authorities.

These technologies can transform AML on several fronts, such as examination, client risk assessment, liquidation of transactions, collective monitoring vs. individual monitoring and applying machine learning to continue to enhance the intelligence of these processes.

Path Solutions does offer an AML solution that many of our clients already utilize. In addition, we have built some of these technologies in our core banking platform to ensure that the monitoring and analysis are done throughout the process from the edge of our digital channels deep into the core of the financial institution.

What are the future opportunities of open banking, and what does Path Solutions provide in this area? Can you ensure a trusted framework for collaboration with third parties?

Open banking is the ability to avail the data of different financial institutions to each other and the ability to conduct transactions across the ecosystem. In some geographies, these initiatives are enforced by regulators such as EU, UK, Hong Kong and others, while in other geographies where no regulations are introduced such as US, Japan, South Korea, etc., they are market-driven initiatives. Open banking helps to comply with regulations such as PSD2, UK Open Banking and enables market set standards.

Open banking exposes the core financial services of a financial institution such as customer account or payment services through application programming interfaces called for short “open APIs” with two-way-password-protected authentication called TPP based on customer consent and helping banks to reach new market segments.

Path Solutions offers comprehensive open APIs facilities that allow institutions to expose their financial services to a third party and provide access to any bank data and services residing in their internal platform, in a controlled, secure, and compliant way. The solution provides a secure opportunity that enables banks to deliver unique customer experiences by allowing the access to their customers’ banking data via authenticated Fintech applications, followed by a consent from the customer and the bank.

Our solution includes Open API Administration Portal which allows the administration of the parameterization and the security of any relevant open API project; things such the creation of different business profiles, Fintech applications management, consent model parameterization and API management and monitoring. We offer Open API Web Portal which will be exposed by the bank to the public and reflects open API functionalities and features that the Fintech can benefit from; secure API categories that combine between open API banking standards and iMAL functionalities where any service from platform of web services can be exposed as open API. And last but not least, the security and authentication services that follow open API standards based on strong customer authentication principles.

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