Wednesday, 18 November 2015 | By: Markseting Team
It is widely accepted that over the past few years, Islamic finance institutions and start-ups in this domain are required to provide new services and alternative options, while differentiating their service offerings.
‘Disruption’ in financial services seems to drive customer behavior, business models, and the long-term structure of the industry. Collaboration between regulators, incumbents and new entrants will lead to better measurements of the risk profiles in the industry. Innovation seems to have the greatest impact when deploying business models that are platform-based, data-intensive, client-driven, and capital-light.
Incumbent institutions will employ parallel strategies; aggressively competing with new entrants while also leveraging legacy assets to provide those same new entrants with infrastructure and access to services.
Disruption in investment management
As automated wealth management services and online tools establish a solid track record, they continue to develop their service offerings to encompass functionalities desired by the mass affluent segment or diversify to new opportunity segments. Traditional wealth managers (both for conventional and Islamic finance) find their market share reducing as a growing number of mass affluent customers prefer lower cost automated options or access more online investment tools.
To effectively compete, wealth managers need to either develop their own automated solutions, accept lower margins, or move upstream to higher-net-worth clients seeking a highly personalized experience, while at the same time offering access to online tools for an instant update.
It also seems that automated investment management platforms ‘commoditize’ a large portion of the wealth management transactions by automating standardized activities (e.g. asset allocation) and formerly high-value services (e.g. tax loss harvesting). However, the demand for in-person interactions and other specialized transactions continues to be valued by the customers, especially for Islamic finance markets.