IoT and the banking revolution
It’s no secret that the financial services industry has tended to lag behind when it comes to adopting digital technology. Far from being leaders of innovation, banks are often stifled by lumbering IT systems and an inherent sense of caution when it comes to challenging the status-quo. With growing investment in the internet of things (IoT), however, all that is set to change.
The figures are certainly impressive. Research released by Gartner suggests the number of connected “things” will increase by 30% to 6.4 billion in 2016 – at a rate of 5.5 million per day. If there was any doubt that the IoT is booming, that certainly looks set to change.
Indeed, financial institutions, and in particular retail banks, are investing increasing amounts into infrastructure that will support this new network of connected devices. IDC Financial Insights predicts that retail banks will spend over $16 billion on digital information technology initiatives, while PWC has found that financial services is one of the top 10 industries that has been investing in sensors for potential IoT innovations.
But what exactly does this mean for the financial services sector? How can the industry seize the opportunity that IoT presents?
Frictionless commerce
The hyper-connectivity of everyday objects is creating colossal amounts of data about customers and their behaviours. The IoT facilitates real-time interactions between these seemingly disparate devices, where the resulting data can be used to generate a truly intelligent and adaptable technological ecosystem. In this way, it acts as an intermediary platform that can help banks leverage the power of data to drive fundamental improvements in customer experiences.
Nowhere is this more apparent than when applied to payments. In recent months, payment leaders Visa and MasterCard have announced plans to support payments functionality across a whole array of smart devices and appliances, so that any appliance with an internet connection could become e-commerce enabled. A blown lightbulb, for instance, would immediately trigger a replacement to be ordered. The resulting data explosion from these connected devices could hold infinite opportunity that could transform the financial services sector.
With this new commerce and payments model looming, the supporting technology must be sophisticated enough to deal with payments from all manner of devices and locations smoothly and instantly, in low value and high volumes.
Likewise, security will be a top concern for financial institutions, who will need to re-assess cardholder authentication in this frictionless digital payments landscape. Data from connected devices, for instance, could be used to build an accurate profile of a cardholder over time (how often do they shop with this vendor, how much do they spend) which would make it easier to spot when “abnormal” payments are made. We could therefore see step-up authentication, or active authentication by the cardholder, being required only when there is a breach of these normal limits.
As more and more connected devices are developed with payment functionality, this model could become the “new normal”.
A world of opportunity
Yet the benefits of IoT reach far beyond the payments process, and could impact all areas of finance. One example of this is its potential to transform the consumer/bank relationship. Banks are constantly fighting the perception that there is little differentiation between their offerings, and are beginning to recognise the value of using data analytics to offer customised, rather than blanket, reward programmes to customers.
For instance, IoT enables banks to draw on geolocation data to identify offers and deals from nearby retailers in real-time that can be shared with the cardholder via in-store beacon technology. For higher-value items such as cars or furniture, the IoT will allow banks to tell customers how much financing they’ve been approved for, or deliver tailored loan proposals in real-time as soon as they walk through the door.
Likewise, the IoT can help financial service providers to deliver a more personalised service to their customers by anticipating their needs and offering well-timed advice to help them make the wisest financial decisions. “Overspent too far in advance of the next pay day? Here’s how you can help smooth cash flow until the end of the month.” Cardholders will have access to ever-smarter dashboards, offering insight into account management, based on detailed knowledge of how and when they tend to invest, spend or save.
Another opportunity lies in the insurance sector, where we are seeing car insurers beginning to offer usage-based insurance to more closely align driving style with risk-based pricing tiers. This is being boosted by in-car telematics, which allow real-time transmission of data back to the insurer. The same principle is also being applied to health insurance, where wearable devices track the wellbeing of claimants to offer personalised insurance plans, monitor the progression of disease and spot when further intervention is needed.
The beauty of the IoT is that, being grounded in data, it can learn and adapt to each customer’s individual behaviours over time so that it’s always relevant, always accurate, and always personal. In terms of a customer service tool, this is potentially revolutionary.
Looking to the future
The IoT is opening a door into the future of banking and financial services – a future driven by the quality, personalisation and convenience of the customer experience.
Change is imminent and unstoppable, but it’s clear that the financial players that get ahead of the technology curve today will no doubt be the leaders of tomorrow.
By Mike Laven, CEO, Currencycloud