Al Rayan closed its Edgware Road branch in the capital on 3 August. The branch’s shuttering follows a gradual closure of other retail bank branches over the past few years. The bank closed its London Whitechapel and Birmingham Small Heath branches in 2021. This came after it closed its Manchester and Leicester branches in September 2020.
An Al Rayan Bank spokesperson told Salaam Gateway that existing customers can continue to bank with Al Rayan Bank through their Digital Banking App and Telephone Banking service. Personal and business customers can also continue to deposit cash and cheques at nearby Lloyds Bank branch counters.
“Like many banks in the UK, Al Rayan Bank is finding that more and more customers are choosing to access their banking services digitally, rather than through a branch,” said the spokesperson. “As demand for branch services and customer footfall reduces, some commercial decisions have to be made.”
Al Rayan now only maintains its Knightsbridge branch which is only open to “premier” banking customers. Premier banking is for those who require home finance of £500,000 ($589,000) or more, are GCC clients or ultra-high net worth individuals.
Mohammed Amin, an Islamic finance consultant and former tax partner at PwC in the UK, said that the closure of Al Rayan’s Edgware Road branch, while keeping a Knightsbridge branch for premier customers, is not surprising.
“I have long considered branches to be a way for retail banks to waste money,” he said. “That is why the major UK conventional banks have been reducing their branch footprint for many years. When Islamic Bank of Britain (as it then was) embarked on its branch strategy, I always felt that was a bad strategy and that they would be better off being internet only.”
Zahir Nayani, partner at Bristol-based law firm Foot Anstey, added that Al Rayan’s shift to reduce its branch footprint has been driven principally by the increasing digitisation of retail banking and decrease in high street footfall.
“Arguably, bolstering their online offering is a useful long-term play given increasing competition from values-based fintech offerings such as Algbra and Nester,” he said.
New Incoming Charges
In addition to branch closures, Al Rayan is also set to introduce fees for its current accounts from January 2023, according to customers who spoke to Salaam Gateway.
One Al Rayan customer expressed dismay over the incoming fees in addition to branch closures.
“The current account fee is a ruse to encourage retail customers to walk away,” he said. “Branch closures have been framed under the pretext that digital banking is the future but they still require manual processes to do important tasks. It is just another reason for retail customers to get frustrated and switch to a conventional high street bank.”
In response, the Al Rayan spokesperson said they regularly review their products and strive to offer customers a range of services that meet their needs.
“In our recent review we found that most of our current account customers do not use Al Rayan Bank as their primary current account. When a current account is not used regularly, it can become inactive which could pose a greater security risk for customers,” said the spokesperson.
“For our customers that wish to use their current account and subsequently maintain a set balance in their current account, the charges will not apply, thus allowing us to offer our services to our target market who actually use the product,” the spokesperson added.
Commitment to UK sector
There are five Islamic banks in the UK, although each are serving different areas of the market like retail, corporate, private and real estate financing.
Established in 2004, then as Islamic Bank of Britain, Al Rayan provides Sharia-compliant savings, finance and current account services to over 90,000 personal, business and premier customers.
In 2014, Al Rayan became the UK subsidiary of Masraf Al Rayan (MAR), a Qatar-based Islamic bank. Last year, MAR merged with Al Khaliji Commercial Bank, which created one of the largest Sharia-compliant banks in the region with over QAR182 billion ($50 billion) in total assets. As part of the merger, Al Rayan Bank said it would leverage the opportunities from the MAR merger and focus on commercial property and premier banking, according to the bank’s 2021 annual report.
However, branch closures and a pivot towards high-net worth customers has led to some stakeholders suggesting that Al Rayan is slowly withdrawing from the retail market.
Ibrahim Khan, co-founder and CEO of IFG, a UK-based Islamic finance platform, believes that Al Rayan’s gradual exit from branch banking is part of a steady withdrawal of the bank from serving UK Sharia-sensitive retail customers and focusing more on commercial and corporate lending activity as well as serving more high-net worth clients from overseas.
“For Muslims in the UK this is an unfortunate development as it reduces the sources for Islamic home finance – Al Rayan was the biggest player for many years,” he said. “There is still hope with multiple well-funded new entrants to the market in recent years such as Strideup, Wayhome and others, however it’ll be a while before we get the number of Islamic mortgages issued every year back to the heyday of when Al Rayan was at its peak.”
The Al Rayan spokesperson reiterated the bank’s commitment to the retail banking market.
“Earlier this year, Al Rayan Bank announced that it would continue its transition to become a financial institution which is focused on premier banking and property, mainly residential investments, to deliver a viable, resilient, Sharia-compliant business,” said the Al Rayan spokesperson. “As part of our commitment, we continue to offer the very competitive loyalty rates for all of our retail, assets and liabilities customers.” (*)