Standard Chartered Saadiq Berhad: Seizing the advantage

Ali Allawala tells Efma how Standard Chartered Saadiq Berhad is leveraging digitization, innovation and collaboration with fintechs for competitive advantage.

Standard Chartered Saadiq Berhad is the Islamic banking subsidiary of Standard Chartered Group. Launched in 2008, the bank serves customers across Asia, Africa and Middle East.

Digital transformation is a priority across the banking industry, and Ali Allawala, CEO of Standard Chartered Saadiq Berhad, sees the important of digital adoption is similar for Islamic banks and conventional banks. “One needs to look at it from the point of view of the overall bank, be that Islamic or conventional,” he says. “The challenges are the same for both Islamic and conventional banks as basic client needs are similar. Both are in parallel and all the banks are making their respective efforts based on how they are placed in the market. Certainly, each bank has its own competitive advantage. There are some big local banks that also do Islamic and when they invest in digital technology they are doing it for all customer segments, be they Islamic or conventional customers. Digitization is a big agenda for international banks like ourselves, we have invested over USD 3 billion in technology since 2015 and when we develop anything on the digital side we do it for all sets of clients. I think more banks are moving into the same direction as digitization is a key agenda for almost all of us.”

Allawala says the customer experience is critical to success as banks seek to differentiate themselves through innovative products and services. “The defining factor in the success of any product is the client experience,” he says. “To arrive at that client experience, all banks – Islamic and conventional – have to work on the value proposition that is associated with any product. From an Islamic bank perspective, the product needs to have a certain structure to make is Shariah-Compliant – so for example you do an Ijarah, Murabaha or Mudarabah structure. But making the product Shariah compliant doesn’t mean that the client experience will come with it. You then have to create that client experience, the way you are going to offer that product to clients, and the client value proposition that will be the associated with it. For us the client experience is the most important part. Any bank that excels in the client experience will be the winner.”

As fintechs enter the Islamic banking space, Allawala says collaboration is inevitable. “The debate continues on whether fintechs will be competitors, collaborators or stakeholders, but we see it as an opportunity,” says Allawala. “We are very clear that the we have to collaborate with fintech and be part of the evolving landscape. In a typical bank, innovation comes through creating efficiencies in established processes – such as introducing efficiencies in account opening that reduce the process from five days to one, for example. But fintechs create a new experience altogether and that’s where the tipping point comes. Fintechs have the advantage of being able to specialize in parts of the banking process, while a bank has to manage many processes ranging from branch maintenance to KYC and account servicing. Because fintechs can move very quickly compared to a typical bank, they bring in a lot of value, challenge established processes and crate a whole new experience which is popular with clients. That’s where the banks need to collaborate with fintechs. Banks have to move with them to be relevant in this landscape.”

More change is ahead as big digital players such as Grab, Alipay, Tencent, Amazon and Google enter the market, unencumbered by the regulatory obligations that apply to financial services providers and the Shariah compliance obligations of Islamic banks. But Allawala believes that change brings opportunity, and Islamic banks are poised to take advantage. “The landscape is changing, whether that’s on the payment side, the financing side or the micro-credit or nano-credit side, so there is an opportunity out there,” he says. “On the Islamic Banking side, the basic product structures are there: if you want to provide financing you have the Murabaha structure or the Ijarah structure and so on. All that is required is to collaborate with a fintech or develop something in-house and bring it out in the market and create the user experience.”

While getting Shariah approval for new products adds an extra step to the process for Islamic banks, Allawala says this needn’t slow the pace of innovation. “The extra step of Shariah compliance is there irrespective of whether we are talking fintech or non-fintech, and it doesn’t mean the process is longer” he says. “Being an Islamic bank is no disadvantage to an institution that wants to get into the fintech play. Fintechs are essentially trying to create a proposition to satisfy customer need, and they’re using the basic products, not creating new ones. They’re creating a new user experience, and that is something any bank can create. The good part is, Islamic banking industry has evolved and converged to a great extent. For example, even a new trend like crowdfunding is actually a very basic Musharakah concept. Musharakah is partnership and essentially it is a fundamental way of doing Islamic banking where people share the profit and losses.”

In the Shariah-compliant marketplace, Allawala says the Standard Chartered Saadiq brand has several competitive advantages. “We are the only Islamic international bank which is present in Asia, Africa and the Middle East, and that gives us the footprint to reach across markets,” he says. “We also have the full range of products to serve our retail clients, commercial banking clients and corporate banking clients. In addition, we have the product expertise through our global Islamic banking office which is based in Dubai. It provides products specialist support to all the regions where we do Islamic banking, providing a specialized product development hub. On the Shariah side, we have the global Shariah board which comprises three world-renowned scholars. In addition to that, we also have a Shariah board in Pakistan and a third Shariah board in Malaysia – that’s because of regulatory requirements to have country-specific Shariah boards, but it also shows the kind of Shariah expertise we have as an institution.

“We are also very strong in the capital market space and rank amongst the top of the Bloomberg Sukuk league table. Demand for sukuks is rising because of the growing infrastructure need and the institutions looking at the sukuk as an alternative source of capital and tapping into that liquidity. That is another key differentiator for us.”

In terms of collaborating with fintechs, Allawala says Standard Chartered Bank seeks to make whatever it innovates available to all its clients. “We are one of the founding partners of the SuperCharger program, which was launched in Hong Kong in 2015 with the aim of helping international fintech start-ups and scale-ups grow their footprints in Asia,” he says. “Following the success of SuperCharger in Hong Kong, the program reached Malaysia in July 2017 and we have worked with them to provide support in terms of mentorship and strategic counsel from industry experts and venture capitalists.”

Allawala and his team keep a close eye on industry developments to assess new opportunities. Cryptocurrencies, for example, have been declared Shariah compliant by some scholars, but with many central banks reluctant to support the technology, Standard Chartered Saadiq is not about to jump in. “There are still not enough regulations or governance around cryptocurrency,” Allawala observes. “The central banks of many countries have declared that they are not supporting it, and many payment companies are saying users cannot buy cryptocurrencies using the repayment platform. We are looking at how this space evolves and once we are comfortable that there is appropriate and adequate governance and regulations around it, only then will we look into it. The Shariah aspect kicks in after we are satisfied with the regulatory governance. Shariah says that first you have to abide by the law of the country, so if the regulatory governance is not there, Shariah governance will not step in.”

Blockchain and distributed ledger technology, on the other hand, are offering much more fertile ground for innovation. “Blockchain and distributed ledger is very interesting and Standard Chartered is also actively engaged in it,” says Allawala. “One of our recent initiatives is that we are jointly launching a trade finance platform in September using blockchain technology, with Hong Kong’s banking regulator and other banks. It is set to be one of the largest examples of a government-led, multi-bank effort to transform the trade finance sector. This is how we’re bringing greater convenience and security to our clients, allowing them to manage their digital identity securely. Business and financial institutions are also able to manage customer data in a reliable and easy manner. We are very much engaged in distributed ledger technology, both as part of the ecosystem and, wherever applicable, we are deploying it as part of the value proposition to our clients. “