Fintech 2021: Overview and Applications

1. FINTECH: overview and applications

2. Dr. ABDULLAH MOH’D AHMED AYEDH Associate Professor at Faculty of Economic and Muamalat, Universiti Sains Islam Malaysia (USIM) Dr. KINAN SALIM Assistant Professor at the School of Graduate and Professional Studies, INCEIF

3. New technology to improve the delivery & use of financial services Technology companies offering alternative solutions to the conventional banking system

4. What happened? Why Fintech?

5. Technology inclusion

6. How does Fintech disrupt banks? Source: Landscaping UK Fintech Commissioned by UK Trade & Investment

7. Fintech in Financial Services

8. Banks vs Fintech

9. Future of Banking: Disruptive FinTech 25% of financial services are at risk of being lost to standalone FinTech companies within five years Disrupters attack some of the most profitable elements of the financial services value chain Source: PwC Financial Services Technology 2020 and Beyond

10. Source: https://www.cnbc.com/2020/09/16/market-value-of-big-fintech-companies-rises-to-1-trillion-more-than-the-largest-banks.html

11. Klarna “buy now pay later” At $31 billion, the company’s value is comparable to major financial houses such as Barclays, Credit Suisse and Swiss Re and is larger than Germany’s biggest lender Deutsche Bank Source: https://www.reuters.com/article/us-klarna-fundraising-idUSKCN2AT22U Fintech vs Banks

12. Fintech vs Banks

13. Big tech credit Large IT companies whose primary activity is digital services, rather than financial services even though their primary offering is digital services.

14. Future of Banking: Disruptive Fintech Source: https://www.cbinsights.com/research/report/amazon-across-financial-services-fintech/

15. Big Techs and Challenger Banks Strengths

16. Source: https://voxeu.org/article/fintech-and-big-tech-credit-markets-around-world Big tech is Overtaking Fintech

17. 2020 $16.7 B

18. Update of the world landscape of FinTech

19. Source: Pulse of FintechH1'20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 31 December 2020. $105.3 Total global investment activity (VC, PE and M&A) in FinTech 2017-2020* 2,861 deals

20. Global FinTech investments in 2020 $105.3B with 2,861 deals Source: Pulse of FintechH1'20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of February 2021.

21. In 2020, fintech investment in the Americas reached $79.25B with 1,364 deals

22. 7 5

23. Payments/Transactions 55% Lending 15% Digital Banking 17% Regtech 8% Wealth/Investment 5% Fintech Investment Segments 2020 Payments/Transactions Lending Digital Banking Regtech Wealth/Investment Source: Pulse of FintechH1'20, Global Analysis of Investment in Fintech, KPMG International (data provided by PitchBook), *as of 30th June 2020.

24. $95B

25. FinTech Adoption

26. Consumer FinTech adoption across 27 markets Average Global FinTech adoption 64% Source: Global FinTech Adoption Index 2019, EY.

27. Source: Global FinTech Adoption Index 2019, EY.

28. SME FinTech adoption across 5 markets 61% China 23% USA 18% UK 16% South Africa 11% Mexico 25% of SMEs have adopted FinTech globally Source: Global FinTech Adoption Index 2019, EY.

29. Islamic FinTech

30. Is IF different from CF?

31. WHY ISLAMIC FINANCE/FINTECH? Broad Objectives of Shari’ah Promote and develop what is good Prevent and prohibit what is harmful

32. WHY ISLAMIC FINANCE/FINTECH? Prevent the act of creating money through lending Promote justice and equitable distribution of wealth Promote high moral standard and ethical values Ensure wealth does not circulate among the few rich Create a society of investors rather than debtors

33. WHY ISLAMIC FINANCE/FINTECH? No “unequal transactions” or “unethical” investments Real Economic transactions Risk & Profit Sharing No engaging in businesses involved in forbidden activities No gambling No Gharar No Riba

34. Fintech Product • Innovation • Financial Inclusion • Solving problems in light of the Islamic worldview Contract Elements (Micro) • Riba • Gharar • Maysir Content & Process Elements (Micro) • Prohibited Item (for Muslims) • Financial Model Islamic Fintech Product • Shariah compliant product Consequential Elements (Macro) • Promote justice in society • Preserve wealth distribution • Humanity ISLAMIC FINTECH PRODUCT DEVELOPMENT

35. Muslims have been under-served by both traditional banks and modern Fintech Muslim population 50% 20% Average Age below 30 Muslim youth are digital natives Source: “The Future of the Global Muslim Population” Pew Research, January 2011

36. Alternative Financing Blockchain & Cryptocurrencies Takatech (Islamic Insutech) Personal Finance Management Islamic Enablers P2P Financing Robo Advisers Trading & Investment Payment, Remittance & FX Crowdfunding Digital Banking Data & Analytics

37. Source: IFN FINANCIAL INNOVATION REPORT, 2020

38. IFN Fintech Survey-Report, 2020

40. 12211 5779 3583 2849 144 14 83 47 0 2000 4000 6000 8000 10000 12000 14000 Total North America Europe, the Middle East and Africa Asia Pacific Fintech Start-up Islamic Fintech start-up Number of Global Conventional Fintech Startups vs Islamic Fintech Startups Financeonline 2020, & IFN Fintech Survey-Report, 2020

41. IFN Fintech Survey-Report, 2020

46. (Digital Banking) Source: IFN FINANCIAL INNOVATION REPORT, 2020

55. Fast Growing Source: Global Islamic Fintech Report 2021

56. Source: Global Islamic Fintech Report 2021

57. Country Index of Islamic Fintech Source: Global Islamic Fintech Report 2021 64 key Islamic Fintech markets OIC vs. non OIC countries 90% Top 10 30% Next Top 10

58. Digitalisation in Islamic banks

59. Driving Innovation in Banking Services: Product Innovation Through Fintech (Fintech Verticals)

60. Fintech tree A taxonomy of the fintech environment Source: https://www.bis.org/fsi/publ/insights23.pdf Fintech activities Enabling technologies Policy enablers Cyber security Innovation facilitators Data protection Digital ID Open banking

61. How Banks Responding to the Fintech

62. First-Year Engineering/Management Graduate Salaries Source: Bloomberg

63. Building Agile Fintech Platforms & an Ecosystem Challenger-driven a broader range of services to satisfy the clients’ needs Incumbent-driven Multiple cooperation vehicles, optimise internal processes, customer journey launch joint products, create an ecosystem of financial services around the bank. Source: https://medium.com/@untone/rebundling-the-new-mantra-for-financial-services-6e066fbe2d4e

64. Fintech

65. Fintech Risk •IPOs •Mergers & Accquisitions •No substantial operational history for investors to evaluate •Evolving regulation issues •Over-regulation and regulatory uncertainty •Reputational risk •Behavioural risk •Anti Money Laundering specifications •Attraction and retention of talent •Wellbeing & Performance of staff •Staff Competency •Fraud •Clients, Products & Business Practice •Governance Processes •Service Provision •Data provision & privacy •Complexity of IT and reliance on IT •Cyber •Volatility Risk •Interest Rate Risk •Asset value •Cash flow & Liquidity •Valuation •Competition to generate investment from venture capital firm •Credit Risk Strategic Regulatory Conduct People Operational Financial

66. Cybersecurity Risk

67. Cyber Risk Index Cyber Risk Infrastructure Risk Operational Risk Human Capital Risk Data Risk Top Cyber-Threats: - Social engineering - Clikjacking - Ransomware - Botnets - SQL & code codeinjection Top Infrastructure Risks: - Negligent insiders - Malicious insiders - IoT devices & apps - Mobile devices - DNS server environment Top Human Capital Risks: - Lack of educating employees about cyber-security - Lack of investing on recruiting and retaining security IT personnel Top operational risks: - Lack of interoperability - Lack of scalability - Lack of agility within the IT security architecture Top data types at risk: - R&D information - Customer accounts - Trade secrets - Confidential company data

68. Online Hacking Risk Application Security Risk New Encryption Technology Digital Identity Risks Cloud-based Security Risks Data Integrity Risks …..

69. Yearly Increment % of Cyber-hacking to FIs Credit card compromised Credential leaks experienced Malicious apps Transfer fraud Home equity loan fraud 0 50 100 150 200 250 Credit card compromised Credential leaks experienced Malicious apps Transfer fraud Home equity loan fraud 212% 129% 102% 47% 31%

70. Knowledge Sharing Session Q & A

71. Reference • https://www.islamicfinancenews.com/supplements/ifn-financial-innovation-report-2020 • https://legal.thomsonreuters.com/en/insights/articles/understanding-the-risks-of-fintech • https://www.startus-insights.com/innovators-guide/5-top-risk-management-startups-impacting-financial-services/ • https://www.paymentsjournal.com/cybersecurity-7-hidden-risks-of-fintech-industry/ • https://home.kpmg/xx/en/home/insights/2018/12/fintech-credit.html • https://insights.samsung.com/2015/06/10/securing-the-internet-of-things-risks-to-benefits/ • https://in.pinterest.com/pin/301952349998958477/ • https://www.pcmag.com/news/iot-security-is-still-a-gigantic-mess • https://purplesec.us/resources/cyber-security-statistics/ • https://disruptive.asia/nec-neoface-facial-recognition-ai/ • https://twitter.com/FGraillot/status/1318804225179213826 • https://www.heidrick.com/What-We-Do/Executive-Search/Industry/Financial-Services/Financial-Technology • https://www.e-zigurat.com/innovation-school/blog/evolution-of-fintech/ • https://sifted.eu/articles/islamic-fintechs-europe-survive/ • https://www.statista.com/statistics/893954/number-fintech-startups-by-region/ • https://financesonline.com/fintech-statistics/ • https://www.aon.com/unitedkingdom/insights/how-psd2-will-revolutionise-fintech.jsp

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Fintech 2021: Overview and Applications