An Assessment of Financial Technology Adoption in Islamic Banking
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Background of the Study
The rapid advancement of financial technology (fintech) has transformed the banking industry, providing new avenues for enhancing efficiency, customer service, and product innovation. In Islamic banking, fintech adoption is particularly significant because it must be integrated within a framework that adheres to Shariah principles. Islamic financial institutions (IFIs) are increasingly embracing technologies such as blockchain, mobile banking, and artificial intelligence to streamline operations, reduce costs, and expand market reach (Nasir & Karim, 2024). Fintech adoption enables IFIs to develop innovative products—like digital sukuk and robo-advisory services—while improving transparency and risk management.
Digital transformation in IFIs is driven by the need to remain competitive in a rapidly evolving global market. Advanced analytics and real-time data processing facilitate better decision-making, enhance customer engagement, and support comprehensive compliance monitoring. However, the adoption of fintech in Islamic banking is not without challenges. Integrating new technologies with legacy systems, ensuring robust cybersecurity, and aligning digital solutions with Shariah compliance are significant hurdles (Farooq & Javed, 2023). This study assesses the current state of fintech adoption in Islamic banking, examining its impact on operational efficiency, product innovation, and customer satisfaction.
Statement of the Problem
Despite the transformative potential of fintech, many IFIs face challenges in its effective adoption. A key problem is the integration of modern digital technologies with existing legacy systems, which often results in interoperability issues and increased implementation costs (Nasir & Karim, 2024). Furthermore, cybersecurity risks and data privacy concerns are amplified in the digital environment, potentially undermining customer trust and regulatory compliance. In addition, differences in regulatory guidelines and Shariah interpretations regarding fintech applications create uncertainties that can delay adoption and stifle innovation (Farooq & Javed, 2023). These challenges hinder the ability of IFIs to fully harness the benefits of fintech, limiting improvements in operational efficiency and market competitiveness.
Objectives of the Study
• Evaluate the current level of fintech adoption in IFIs.
• Identify technological and regulatory challenges impeding fintech integration.
• Propose strategies for enhancing fintech adoption while ensuring Shariah compliance.
Research Questions
• What fintech solutions are currently used by IFIs?
• What challenges affect the integration of fintech with legacy systems?
• What strategies can improve fintech adoption in Islamic banking?
Research Hypotheses
• H1: Advanced fintech adoption is positively correlated with increased operational efficiency.
• H2: Robust cybersecurity measures enhance the benefits of fintech integration.
• H3: Clear regulatory guidelines accelerate fintech adoption in IFIs.
Scope and Limitations of the Study
This study focuses on IFIs in regions with active fintech environments, such as the Middle East and Southeast Asia. Limitations include variability in technological infrastructure and evolving regulatory frameworks.
Definitions of Terms
• Financial Technology (Fintech): Technological innovations aimed at improving financial services.
• Islamic Banking: Banking services provided in compliance with Shariah law.
• Legacy Systems: Older computer systems still in use.
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