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European Islamic Digital Banks - Analysis

For too long, the Muslim community has had little choice when it comes to banking solutions that align with our values. Enter Islamic digital banks, a new type of Islamic finance product.

Advocates argue that these challengers have come in to disrupt the status quo and give Muslims a compelling alternative.  

But critics say these banks are solving a problem that doesn’t exist and may run into problems of scaling given the relatively small size of the European Muslim population.  

In this article we will break down what an Islamic digital bank is, review each of the contenders and discuss how they fare against the competition. 

  1. What is an Islamic digital bank?

First, let’s define a digital bank. As the name suggests, this is a bank that is digital only and has no physical branches. Instead their products are only available online, predominantly via an app. They are also sometimes referred to as challenger or neo banks. 

An Islamic digital bank is a digital bank that doesn’t engage in any impermissible activities that regular banks engage in. For example, dealing with interest or investing their funds in impermissible areas such as gambling. 

Bank or e-money institution? 

However it is important to note that not all digital banks (Islamic or otherwise) are actually technically "banks".  

To be a bank and be able to refer to yourself as such, you need a banking license. This allows you to take deposits and issue credit. When you are officially a bank you can offer things like: 

  1. Mortgages 
  1. Overdraft 
  1. Loans 

You can do this as you are allowed to lend out the deposits that you hold in the form of loans. Neobanks on the other hand, cannot do this themselves.  

How neobanks are regulated 

However many so-called digital banks don't have banking licenses and instead function as e-money institutions and label themselves as fintechs.  

Despite this they are still usually referred to as digital banks in the media. These e-money institutions have the ability to issue e-money and a pre-paid card.  

With a pre-paid card, you can only spend money you have pre-loaded and won’t earn interest. You may also be unable to set direct debits and there could be a fee for depositing cash and also withdrawing from ATMs.  

This will depend on the provider, so be sure to check. The good news is unlike debit and credit cards, you don’t need to pass a credit check to get one1 

Having a full banking license also gives you access to the Financial Services Compensation Scheme (FSCS) that protects up to £85k of your deposits. E-money institutions are still seen as secure as they are required to hold your money in separate accounts which they aren’t otherwise allowed to access.  

Not all Islamic digital banks are trying to become fully-fledged banks. Some are content with just being an e-money institution. It all depends on what their objectives are and what stage of their development they are in.  

Monzo, a popular UK digital bank initially started as an e-money institute and obtained the full banking license two years after their inception. Other e-money institutes have partnered with banks to offer the services that they are unable to provide. In summary, digital banks can take many forms. 

What features can you expect from digital banks? 

Digital banks are known for the array of features they offer. They typically include a combination of the below: 

  • Debit card 
  • Spending analytics 
  • Budgeting features 
  • Currency conversion at a better value 
  • Fee-free international withdrawals (up to certain limits) 
  • Virtual and speedy sign up process 
  • In-app support team 
  • Product marketplace with access to other financial products 
  • The ability to buy and sell cryptocurrency (a recent innovation) 
  1. Reviewing the contenders

Let’s take a look at the European players in the Islamic digital bank space. 

Here's a table that provides a high level summary, then we'll dive into the details:

 

Contender

Type

Live?

Niyah

EMI

No

Kestrl

EMI

Yes

MyAhmed

EMI

Yes

Rizq

EMI

Yes

Nomo

Bank

Yes

Algbra

EMI

No

Moneemint

Bank

No

getInsha

EMI

Yes

Mizen

EMI

No

UK-based 

Niyah 

Bank or e-money institute?: EMI 

Their ethos: To bank without compromise. 

Are they live?: Still in development. 

Their offerings: They are developing a digital bank account and an accompanying pre-paid card.  

Roadmap: Their roadmap includes access to investments, and a feature to calculate and directly pay your Zakat.  

Notable partners: Owned by Islamic robo-advisor Wahed Invest. Their infrastructure is being facilitated through Railsbank (a banking-as-a-service platform). 

Team: Wahed leaders and co-founders Ali Abdulkadir Ali, Yakub Elmi and Safdar Alam who have a good mixture of computational, entrepreneurial and Islamic finance experience. 

Amount raised: Their parent company Wahed has raised over $40m2. 

Regulation status: Currently the agent of an EMI. This means they are not directly authorised themselves yet, and operate under the licence of another entity. 

Locations covered: Will launch in the UK with plans to expand into North America, Asia, Europe and the Middle East. 

User experience: N/A. 

The IFG view: Being owned by Wahed which already has an established global presence could be a strong competitive advantage for Niyah. We would expect Wahed to roll up the banking and investment into one app in due course. 

Kestrl 

Bank or e-money institute?: EMI 

Their ethos: Helping customers to achieve their financial goals without compromise. 

Are they live?: Yes. 

Their offerings: Manage your finances by connecting all of your bank accounts in one place and using their budgeting tool. They have a marketplace of various halal investment products that you can access through them as well as a Zakat payment tool. 

Roadmap: A debit card and a savings account allowing you to earn a halal return on your money. Other interesting products in the pipeline include a carbon calculator allowing you to assess the footprint of your spending, a halal stock screening tool and a savings finder helping you to find the cheapest energy and broadband deals.  

Notable partners: Kestrl have said that they are looking to work with some of the UK’s Islamic banks to become a digital front end for their savings accounts3. 

Team: Areeb Siddiqui, Daeng Termizi and are working with data scientists and have a tech team in Malaysia. Their board includes former CEOs of Al Rayan and HSBC Amanah bringing a wealth of Islamic finance experience to the table. 

Amount raised: £325k4. 

Regulation status: Currently the agent of an EMI. This means they are not directly authorised themselves yet, and operate under the licence of another entity. 

Locations covered: They have launched in the UK and have plans to expand into Southeast Asia. 

User experience: Signing up and using their app is quick and easy. The user interface is pretty neat as well. 

The IFG view: Kestrl have done well to get an app out that already has users. Time will tell if budgeting and saving are a key pain point for Muslim consumers. If they can add on a robust B2B tech licencing business that could be really promising and a way to distinguish them from others in the market.  

MyAhmed 

Bank or e-money institute?: EMI 

Their ethos: Changing the way Muslims manage money. 

Are they live?: Yes. 

Their offerings: A digital bank account with a Visa pre-paid card that allows you to set up standing orders and make direct debit payments. They have a savings pot that you can save into individually or as part of a group.  

Also worth mentioning that MyAhmed has founded Khadija Teaches Money, a charity that seeks to champion financial inclusion and literacy through education. 

Roadmap: Their roadmap includes access to interest-free credit and a Euro account for residents of the European Economic Area (EEA). 

Notable partners:  N/A 

Team: Founders Jad Salha and Kareem Ghazal have decades of experience in financial services. 

Amount raised: Unknown. Estimated £500k 

Regulation status: Currently the agent of an EMI. This means they are not directly authorised themselves yet, and operate under the licence of another entity. 

Locations covered: UK and Europe. 

User experience: Sign up was quick and easy and the user interface looks sleek.  

The IFG view: We like the user interface and user experience of their app. They may need to widen their offering though to compete with some of the players who provide more features. 

 Rizq 

Bank or e-money institute?: EMI 

Their ethos: Interest-free powerful banking with your beliefs and values in mind. 

Are they live?: Yes. 

Their offerings: A digital bank account with an accompanying pre-paid card. They also enable you to send money abroad cheaply and you can earn cashback when shopping with their retail partners. 

Roadmap: Budgeting tools, spending analytics and an automated charity option. They are also working on giving customers the option to hold euros and dollars in their wallets.  

Notable partners: N/A 

Team: The Rizq team have backgrounds in financial services and challenger banks. 

Amount raised: £500k according to Crunchbase. 

Regulation status: Currently the agent of an EMI. This means they are not directly authorised themselves yet, and operate under the licence of another entity.Locations covered: UK.  

User experience: The card and user interface looks great. 

The IFG view: Another offering with good branding and user experience. However they may need a more varied range of products or partnerships to compete against the rest. They also have aspirations to offer business banking, which could be an interesting angle. 

 

Nomo 

Bank or e-money institute?: Bank. 

Their ethos: Creating an immersive, international digital banking experience for our clients. 

Are they live?: Yes (iPhone only for now). 

Their offerings: A digital bank account with an accompanying debit card. Unlike the other offerings, this current account however is not free. After the first three months, if you don’t have a minimum total monthly balance of £20k across your accounts, you’ll have to pay a monthly fee of £9.  

You also have access to international money transfers, fixed term deposit accounts and can hold both pounds and dollars. 

Roadmap: Contactless payments with Apple Pay and the Android version of the app. 

Notable partners: Nomo are the digital arm of Bank of London and the Middle East (BLME) who are themselves a subsidiary of Kuwaiti based Islamic bank Boubyan Bank. 

Team: Led by senior members from BLME and Boubyan Bank. 

Amount raised: Unknown. 

Regulation status: FCA regulated (through BLME). 

Locations covered: UK and Kuwait. 

The IFG view: Nomo appear to be positioning themselves for international clients of BLME and not the mass market like the other players. However, this will add another string to BLME’s bow. 

 

Algbra 

Bank or e-money institute?: EMI 

Their ethos: Balancing the equation. 

Are they live?: Still in development. 

Their offerings: They are developing a digital bank account and an accompanying pre-paid card. 

Roadmap: Their plan is to have an ecosystem of banking solutions. This will include savings, rewards, FX, remittances, short-term financing, and home purchase plans.  

Notable partners: Their latest investment round also attracted some high profile investors including the likes of Phillip Hammond, the former Chancellor of the Exchequer and Rick Haythornthwaite, former Chairman of Mastercard5 

Team: Founded by Zeiad Idris and Fizel Nejabat who have distinguished backgrounds in asset management and law. Their advisory board includes former chief executives from VISA Europe and OakNorth Bank. 

Amount raised: £3.9m according to Crunchbase. 

Regulation status: Currently the agent of an EMI. This means they are not directly authorised themselves yet, and operate under the licence of another entity. However, we understand they are keen to obtain a banking licence also. 

Locations covered: UK to begin with.  

User experience: N/A. 

The IFG view: Algbra have raised a lot of money and have ambitions to become the ‘Nandos of FinTech’6. If they can build a product to match, they could have a compelling proposition.  

 

Moneemint 

Bank or e-money institute?: Moneemint intend to become a bank. 

Their ethos: Creating the freshest banking experience. 

Are they live?: Still in development. 

Their offerings: They are developing a digital bank account and an accompanying pre-paid card. 

Roadmap: Create a suite of products relating to remittances, mortgages, pensions and wealth management. 

Notable partners: Their infrastructure is being facilitated through Railsbank. 

Team: Founder Hassan Waqar and CTO Rizwan Qazi who has decades of experience in financial services. 

Amount raised: $845k according to Crunchbase. 

Regulation status: FCA registered. 

Locations covered: UK and the rest of Europe. 

User experience: N/A. 

The IFG view: Plans to include a mortgage style product are ambitious but Moneemint have a job to do to stand out from the crowd. There is an indication from online interviews that they may seek to partner with existing banks which could be a good strategic move from them. They have been around for a number of years now though, so perhaps may need to pick up the speed of their product releases. 

Rest of Europe 

getInsha 

Bank or e-money institute?: EMI. 

Their ethos: Sustainable banking with principles. 

Are they live?: Yes. 

Their offerings: A digital bank account with an accompanying pre-paid card. Budgeting tools, spending analytics and loyalty rewards such as offers, discounts and cashback. 

Roadmap: Investment options in gold (which can be physically redeemed) and other sustainable projects.  

Notable partners: A digital offshoot of Istanbul-headquartered Albaraka Türk Participation Bank and Solarisbank provide them with infrastructure support. 

Team: Led by senior members from Albaraka Türk Participation Bank. 

Amount raised: $3.2m according to Crunchbase. 

Regulation status: Regulated by BaFin (the German financial regulatory authority). 

Locations covered: Germany with plans to expand to other European countries. 

The IFG view: getInsha have been live for 3 years, have over 35k customers and have the backing of a major Islamic bank from Turkey. If they can execute on their new investment products and rollout of their services to other Muslim-concentrated countries in Europe, the future could be bright for them. 

 

Mizen 

Bank or e-money institute?: EMI 

Their ethos: Provide financial services compatible with Muslim ethics. 

Are they live?: Still in development. 

Their offerings: They are developing a digital bank account and an accompanying pre-paid card. 

Roadmap: Investment opportunities and financing tools.  

Notable partners:  N/A 

Team: Led by founder Hichame Metatla who has a strong background in financial services and entrepreneurship. 

Amount raised: Unknown. 

Regulation status: Registered by the Prudential Control and Resolution Authority. 

Locations covered: France. 

User experience: N/A. 

The IFG view: France has one of the largest Muslim populations in the Western world and therefore the key to Mizen’s success will be whether they can make in-roads into that market. 

 

  1. How do they compare against traditional Islamic banks?

Traditional Islamic banks such as Al Rayan and Gatehouse have been behind the curve compared to the mainstream offerings. Commonly heard complaints include the poor user interface of their digital offerings and inconsistent customer support.  

Islamic digital banks are still in their maturity phase but so far the user interface and digital experience overall fares well. This is to be expected as they have been built specifically for an app. Their quicker sign up times, budgeting features and spending analytics position them well to appeal to a younger audience. 

The challenge for the digital banks is convincing customers who are used to the security of banks with physical branches, access to the FCSC compensation schemes and who have a long history of service. This will prove easier for the younger generation who are more open to digital products.  

  1. How do they compare against the conventional digital banks?

In reality, the real competitor for Islamic digital banks are conventional digital banks or even just conventional traditional banks. This is because most Muslims bank with conventional banks – not Islamic banks. 

So how do they fare? 

Islamic digital banks are newer to the scene than their conventional counterparts and therefore still have a lot of catching up to do; the likes of Monzo and Revolut who have been established for many years now.  

These banks typically have a lot more customers, a better customer experience and more features than the Islamic equivalent. This is to be expected given the huge sums of money they have raised and the larger customer bases they have access to. 

It’s up to the Islamic digital banks to ensure that they recruit the necessary talent to build the right infrastructure to offer a compelling and functional alternative. They must also necessarily look to widen their target market in order to build a truly sustainable business. 

Final words 

The future looks bright for the future of banking for Muslims across the world. Some patience will be required as it is still early doors.  

There are also lots of different contenders in the space and we suspect in a few years this will narrow considerably.  

The market isn’t big enough for all contenders to be financially viable so we expect some to fail whilst others may merge and join forces. inshAllah the end result will be Muslims having a wider range of quality options that align to our values. 

Every British Muslim needs a will. IFG Wills is an affordable quality option entirely online.

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