Digital Transformation in Islamic Banking

The purpose of this study is to examine digital transformation in Islamic banks. Data were obtained through a survey questionnaire from three Commercial Sharia Banks in Aceh: BSI, BCA Syariah, and Bank Aceh. A descriptive analysis was carried out to examine. First, the reasons for these Islamic banks using digitization are related to the technology used as well as the status and position in the use of digitization; second, reviewing regulations, challenges, prudential risks, and the stability implications of digitizing Islamic banking. This study found that in most Islamic Banks, in this case, Bank Syariah Indonesia (BSI), BCA Syariah, and Bank Aceh, the digitalization process is still ongoing but has gained greater traction since the COVID-19 pandemic. The main reasons for the main impetus in carrying out digital transformation include strengthening competitiveness, increasing operational efficiency, and increasing customer satisfaction. Technologies adopted include mobile and digital wallets, biometric authentication, and artificial programming interfaces. Nevertheless, the push for digital transformation has been hampered by the limitations of digital infrastructure in Islamic banking's lack of human resources and architecture. This research discovers the benefits and risks of the implications of digitalization for the stability of the Islamic banking industry in Indonesia and provides valuable recommendations for the progress of Islamic banking in particular in Aceh and Indonesia in general.