BizBahrain Magazine Nov-Dec 2017

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Interview | Finocracy Bahrain “Bahrain is rapidly becoming the de facto region for FinTech in the Middle East. Recent cornerstone developments such as the Regulatory Sandbox, FinTech Unit and FinTech Hub position Bahrain as a compelling and sophisticated hub for advancement in the FinTech sector. What’s unique about Bahrain’s FinTech play is it provides an end-to-end ecosystem of value for entrepreneurs, innovators, start-ups as well as corporates - something which we haven’t seen before in this region. With key stakeholders such as CBB, EDB and powerhouse Islamic banks, spearheading their FinTech initiatives, this collaborative effort will support the next generation of businesses, drive growth and increase productivity." are also the areas most impacted by fintech businesses, broadly speaking. A very interesting area that is becoming increasingly a topic of discussion is deposit banking. Deposit banking is a dying business in its current format. And the reason is Google, Apple, Facebook and Amazon coming to the foray. This has completely reset consumer expectations. And requires a fundamental change of mindsets at Islamic banks when they are talking about serving these consumers, either in terms of acquisition or retention. Futuristic financial technologies are only a tool to help implement this new mindset. The more fundamental questions for banks are around the purpose, decisioning model and customer loyalty. On purpose of existence, for a very long time, banks have been content with providing two basic services to customers, that is, safe keeping of their funds and providing nominal returns. This is no longer enough. There is more accountability by the customers on how their idle & mobile funds, while with the bank in the current and savings account, are deployed and the impact these create for the local community. The current business model of banks does not provide for this mindset, and they do not have the framework to deliver on this expectation. With regards to decisioning, consumers now prefer relationships that are personalized, and offer seamless or Osama Al Khajah Founder & CEO, Global Innovative Solutions WLL on-demand access to an added layer of service separate from the underlying provision of the deposit product. For example, Careem, AirBnB, Starbucks, etc. are examples of service providers that fulfil a necessary lifestyle need of consumers, and in the process win their trust and share of deposit wallet. Then on loyalty, the digital ecosystem means that consumers have more options and easy access to variety of deposit products. They trust this ecosystem and are ready to switch vendors more willingly. The GCC banking survey confirms that, for the first time ever, more than 40% of customers are willing to switch banks for a digitalfirst relationship. That’s significant. Already, non-financial services players are chipping away at banking industry’s share of deposit wallet. Banks need to wake up to this reality. It requires a fresh mindset that appeals to the emotional and digital lifestyle needs of consumers and therefore a brand new engagement model. What that also means is consumers increasingly expect brands, including Islamic banks, to have not just functional benefits but also a social purpose. Banks should demonstrate the impact they are making as a result of their existence. How they are touching the lives of the customers and the economies that they reside in. Very few Islamic banks today are what we call social purpose natives, i.e. where their business models and products and services are deeply embedded in a social purpose. The good part is that many of them see the shifting sands, and are adapting. They are what we call social purpose immigrants. These are Islamic banks that have grown without a well-defined social purpose strategy but, are now seeking to develop one. The bottom line is the products will remain products but the engagement model and the consumer experience that banks provide needs to be re-thought based on your purpose of existence. And that requires clarity in terms of mindset, which has to come from the top. Are Islamic banks positioned to tackle the fintech revolution? It is practically impossible for Islamic banks to take on the tsunami of circa 25k fintech business models, revenue and cost structures that’s heading their way, on their own. You need a multi-pronged approach. At one end of the spectrum, banks need to continue to incrementally improve their existing offerings and at a faster pace. On the same note, the industry needs to come together to jointly build fresh propositions. The way forward is through collaboration. Isolated efforts will fail to deliver the speed and scale of fintech adoption required for Islamic banks to remain relevant. However, through a collaborative approach, with a few Islamic banks coming together to research, innovate and commercialize fintech initiatives, this can be done in a much more costeffective and speedy manner. What can we expect to see from Finocracy over the next year? Can you share with us some of the projects that Finocracy has been working on? Finocracy is a US based company and we are in the process of re-basing to GCC. We have chosen Bahrain to be the regional head-office. Our decision is based on tremendous support we have received from EDB in making it easier for fintech businesses to operate in Bahrain. We are also encouraged by the forward looking approach of the Islamic banks’ leadership who are taking practical steps towards collaboration. Last 20 years for the Islamic banks have been about products, infrastructure and roll out of traditional banking 26 November-December 2017
Interview | Finocracy Bahrain structures. I was fortunate to have the opportunity to lead the build-out of more than 30 Islamic financial institutions and national level programmes. The next 15 years is going to be about fintegration, i.e., integration of traditional Islamic banks with fintech business models. And the purpose of existence for Finocracy is to make it easier for Islamic banks to fintegrate and enhance the impact made to their respective communities. We are organized in two verticals. Finocracy Capital invests through Seed and Series A financing in fintech businesses, and Finocracy Ventures helps connect the dots for accelerated build-out of these businesses. The initial project pipeline we have involves innovative deposit solutions for Islamic banks, consumer finance, small business finance and trade finance leveraging innovations like artificial intelligence, machine learning, digitalization and blockchain. The plan is to work alongside Islamic banks to enable them to launch these initiatives. In five years, Finocracy intends to be a $200 million business, with 20 platform businesses as part of its portfolio, and positively touching the lives of 10 million people across GCC. For Bahrain, these fintech programmes would help unlock $1 billion of private capital for social infrastructure development, create high-end skills and hence re- write the social contract between citizens and the government. FINOCRACY PARTNERS WITH SINGAPORE’S ALPHA FINTECH Banks have been held back from fully participating in the new digital economy due to their legacy technology systems and the costly and cumbersome process to integrate FinTech solutions within their offering. Teaming up with Bahrain-based Finocracy Singapore’s Alpha Fintech is entering the high-growth GCC market. Alpha Fintech specializes in end-to-end payment solution, enabling banks to quickly access new fintech partners across the entire payments, risk and commerce spectrum. The company is backed by Wells Fargo’s accelerator program and First Quay Capital. “The GCC region is in a unique and perfect position to surpass most other regions with respect to FinTech. The banks truly understand the need to catch up and have displayed an open mind to overhaul legacy approaches and mind-sets and invest into new technologies and operating models” commented Oliver Rajic, CEO of Alpha. Almost one-third of retailers in GCC now offer online shopping experience and the trend is gaining momentum. Several high profile deals announced in recent months, including souq.com and others have set the pace for accelerated innovation in online commerce in GCC. Similar to a marketplace, the Alpha platform provides a single user interface connecting merchants with vendors spanning the full spectrum of payments, identity, fraud, risk management and commerce services, such as loyalty, delivery preferences and shipping. With expensive licensing schemes, protracted integration times and associated expenses removed, banks can now shift focus on scaling up their digital footprint. H.E. Khalid Al Rumaihi, Chief Executive of the Bahrain Economic Development Board (EDB), said: “We are delighted to see further ties between Bahrain and key FinTech markets around the world. Enabling entrepreneurs and businesses in Bahrain to have access to the expertise of leading world-class FinTech centres is a key part of developing the best possible ecosystem and stimulating future growth. We believe that there are real opportunities in the Islamic FinTech sector and are very keen for Bahrain to play a leading role in helping to develop the industry, bringing together decades of experience in Islamic finance and access to some of the most advanced centres of FinTech innovation worldwide.” November-December 2017 27
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BizBahrain Magazine Nov-Dec 2017

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