IBS Journal November 2017


29


Islamic banks looking to drive innovation through synergistic partnership


Multi-people bundle: Driving a larger bundle for a group – typically a family, to provide efficacy of multiple offerings. Considered an extremely effective product innovation in the Islamic context, this helps in broadening the offering, particularly in the retail context.


WHAT Banks partnering with


variety of service providers to innovate product offering


WHY


Exploit synergistic value Expand stakeholder base Enhance customer experience


Innovative Partnerships WHO


IT services providers Telecom companies Utility services


If one looks at the bundling elements carefully, it would be no surprise to note that many of these have also been adopted by conventional banks. However, the key differentiator here is the fact that both the bundle, and also the innovation in the structure of the offering, need to be cleared by the Shari’ah board, which regulates the new product offering and validates its compliance to the Islamic banking principles. One needs to note that the method in arriving at the fee structure is derived from the profit pool calculations, and is not as straight forward as in the conventional context. The other important aspect here is the fact that one could potentially align with the value principles promoted by the Islamic context (eg. Product offering for all family members) to drive innovation in bundling of the products and its market positioning.


age group, focus groups, etc is critical. Driving innovation in the product positioning and partnerships is a function of having this defined well.


Product bundling


As is evident from the experiences of Islamic banks across multiple countries, the key to driving innovation in products in the next phase of growth is in the efficacy of the bundling strategy. There are essentially 5 types of bundles that banks are looking to drive:


Mixed bundling: where the existing individual products get to be offered as a bundle. This is quite typical of any banking offering, where Islamic credit cards, for example, get bundled together with an asset product.


Loyalty bundling: this gets more interesting, as Islamic banking products get bundled with Shari’ah compliant loyalty programs. There is a fair degree of financial estimation and innovation in fee structure that may be critical here. Additionally, many of the earn/ burn partnerships may have to carefully reviewed, to align with Shari’ah principles.


Balance based bundling: driving effective cross-sell, with a singular fee model across products. This is particularly useful in the Islamic banking context, where there are fees designed for most products, and building an integrated balanced based bundling approach can be quite convenient to the customer and also effectively drive cross-selling.


Demographic bundling: aligned with the segmentation discussion we had earlier, driving a bundling program around demographics such as gender, age, profession, andlocation. This can particularly be useful where an existing conventional bank is looking to drive its Islamic window, and prior understanding of the existing customer base can help drive demographic penetrations.


Just as product bundling is seen as a core innovation area, a natural corollary to this is the set of partnerships that Islamic Banks tend to build that help in driving synergistic value as a branch positioning, and also enhance the overall customer experience. Considering that there are restrictions that are


“ The single most


important driver for most innovation across banks – both conventional and Islamic alike, cutting across geographies, can be attributed to the adoption of technology


typically applicable in the kind of earn/burn relationships that can partnered with in the Islamic banking context, driving the right partnership and in the process enhancing the stakeholder value has a significant connotation to it. The most common partnerships are typically with utility service providers, travel partners and telecom service providers.


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