New technologies, digital devices and the pace of innovation are impacting the banking industry’s operating models and influencing the banking ecosystem. The most prominent of these innovations include cloud computing, big data analytics, artificial intelligence and machine learning, robotic process automation, blockchain and the Internet of Things (IoT). Many of these technologies are interrelated.
By building on early success with mobile technology, banks and other financial firms are experimenting with new ways to:
- Improve the customer experience
- Provide enhanced insights from a risk and CX perspective
- Increase agility and speed to market
- Strengthen customer engagement
- Reduce operating costs
- Increase revenues
Banking and the Internet of Things (IoT)
The world of IoT is a network of Internet-connected sensors that can be embedded into physical devices that collect data and share it across the web with people, applications and other devices. The ability to measure and apply insight contextually has the potential to augment and disrupt commerce and entire industries. The question is whether the banking industry will have a prominent role in this interconnected world.
”Experts predict that by 2020, 25 billion IoT devices will be in place – or 4 to 6 devices for every person on earth.”
How does banking develop a roadmap or strategy when early forays into IoT are so varied and the value proposition is so difficult to ascertain? Experts predict that up to 25 billion Internet of Things devices will be in place within a few years. That represents between 4 to 6 devices for every person on earth. Tata Consultancy Services (TCS), in a survey of bankers, found that average IoT per-company spending in banking would grow to $153.5 million by 2018, up nearly 31% from $117.4 million in 2015.
But not all banking organizations have jumped on the IoT bandwagon. International Data Corporation (IDC) found that just 43% of bankers were familiar with the IoT. Despite this relative lack of knowledge, the same study found that 58.4% of finance-industry decision makers viewed the IoT as a “strategic” initiative, compared with 20% who believed it was “transformational.” Perhaps more significant, only 5.6% of respondents said it was unimportant.
“By enabling the collection and exchange of information from objects, the IoT has the potential to be as broadly transformational to the financial services industry as the Internet itself,” said Jim Eckenrode, executive director of the Deloitte Center for Financial Services.
Consumer IoT Players
Much of the news today revolves around the development and application of ‘first generation’ platforms and devices. Some of the largest tech players (Google, Apple, Amazon and Samsung) are developing wearables and voice-first devices for personal use. Additional hardware and software manufacturers are extending these ecosystems, taking advantage of open development platforms.
At the foundation of all of these initiatives is the cultivation, analysis and application of data that can help build seamless connections between solutions, creating engagement that simplifies a consumer’s life. Early successes include how Uber has combined locational tools, real-time pricing/demand analytics and integrated payments to provide a better short-range transportation solution.
”In the IoT ecosystem, will banking firms be an integral part of the deliverable … or only be the ‘dumb rails’ in the background?”
As more firms enter the IoT marketplace, it is important to watch the partnerships developed and the solutions provided. Especially with payment integration, will banking firms be an integral part of the deliverable … or only be the “dumb rails” in the background?
The following are some of the top IoT platforms storing and analyzing the big data insights for IoT players:
- Amazon Web Services
- IBM’s Watson
- Microsoft Azure
- Oracle Integrated Cloud
- Cisco IoT Cloud Connect
- Salesforce IoT Cloud
IoT Use Cases in Banking
While not grabbing front-page news, the banking industry is starting to find ways to leverage IoT capabilities. A survey found that 64.5% of global banking executives monitored their customers through mobile apps on smartphones, tablets and other digital devices. In addition, 31.6% of banking organizations used the IoT to monitor retail locations (e.g., bank branches), 21.1% used digital sensors to gather product performance data and 15.8% used IoT sensors in wearables to track customer product usage.
Financial companies have prioritized customer and product monitoring in response to higher levels of online fraud, difficulty with identity verification and fears of hacked computer systems and networks. Banks are also using the IoT to monitor and collect data about their customers’ financial transactions, while lenders are exploring ways to finance and track assets and value collateral based on sensor data.
More advanced IoT implementations include the ability to conduct basic banking using wearables (smart watches or fitness bands) and voice-first devices (Amazon’s Echo), the integration of invisible payments in transportation (Uber) and restaurants (Dine and Dash), and the leveraging of smart home appliances (Amazon Dash, Samsung Family Hub refrigerators). Additional tests are also beginning with the Amazon Go™ grocery and the inclusion of Amazon Echo capabilities in automobiles.
The rapid expansion of the Internet of Things (IoT) offers payments companies an opportunity to expand beyond mobile phones, cards, and point-of-sale devices, to a broad and diverse ecosystem of internet-connected devices. This is enabling the beginning of “invisible” or “connected” payments.
According to a Paga survey, executives expect consumers to start using connected devices for payments in the near term.
- Wearables: Usually including smart watches and bands, 59% of global banking and insurance executives expect wearables to become a common payment device for consumers within two years.
- Wearables beyond the phone: While most wearables are tethered to a smartphone, stakeholders are pushing the boundaries to include rings, key fobs and even clothing and VR devices.
- Smart home devices: 24% of respondents said they believe consumers will commonly make transactions using appliances or smart home controllers in the next 2 years. These categories range from voice-first devices (Amazon Echo) to the Amazon Dash and even Internet connected appliances.
- Connected cars: 20% of executives said they think people will pay for things through their cars in two years. Beyond just tolls, fuel and parking, car-based payments could eventually include drive through restaurants and other applications using the car’sinfotainment systems.
Importance of Data and Analytics
Big data analytics refers to the ability for an organization to source, aggregate and analyze large amounts of structured and unstructured data (sensors, social, text, email, video, etc.). The key is not just understanding the interrelationships of these sources, but also being able to apply the learnings for the consumer. Many of these capabilities are in the early stages of adoption.
As mentioned, data and advanced analytics is the foundation of value for Internet of Things solutions. But unlike the type of limited data sets banking is used to using in delivering financial services to consumers, the layers and sources of data in the IoT world are extensive. It is unlikely that any organization will be able to capture, analyze and apply this data alone.
Partnerships with traditional analytics vendors, (such as IBM, SAP and Microsoft), cloud service providers, (such as Amazon Web Services and Alibaba) and system integrators will most likely be needed, according to Bain. This would especially be true in instances where Internet of Things data is only one of many data sources contributing to insights and decisions.
Security and Privacy Concerns
The ability to take advantage of the opportunities of IoT requires the banking industry to overcome consumer concerns around data security and privacy. With massive amounts of data being collected, security is the top concern for both banking institutions and consumers.
A survey of global business executives across a variety of industries by James Brehm & Associates found that 64% saw security as a barrier to IoT growth. This challenge was higher than both interoperability and the need to generate a positive ROI.
While the banking industry is usually ahead of the curve when it comes to safeguarding customer data, the challenges are increased exponentially when you take into account connected devices and multiple processors of insight. Part of this challenge can be addressed through consumer education around how IoT can actually improve authentication and security.
The Digital Banking Report, The Power of Personalization in Banking found that consumers are becoming more willing to share personal information when they see big enough incentives and feel their data will be used responsibly. As the industry collects more and more insight, at some point, there’s a line where people may say it feels creepy to share too much information. The key is to be careful not to cross that line.
IoT Questions to Consider
The rapid expansion of the Internet of Things (IoT) offers an opportunity for banking to facilitate payments beyond mobile phones, cards, and point-of-sale terminals. In fact, more transactions could eventually pass through connected devices than smartphones. With Visa and MasterCard creating much of the underlying infrastructure, the industry is beginning to take shape.
When beginning the development of an IoT strategy, executives can design their strategy by considering a few questions, according to Bain:
- What segments should be prioritized? Where can revenues and profits be generated revenue?
- What would current customers value? Who will be the competition and is there a way to differentiate the offering?
- What parts of the IoT solution should be delivered directly from the bank? Where will partners be required?
- What capabilities are needed to deliver the solution? What are the priorities for development and investment?
- What are the risks of doing nothing?
While the direct impact of IoT may seem far in the future, many components are upon us already (invisible payments, smart home integration, virtual and augmented reality). Building a plan is essential as the Internet of Things gains traction and begins to impact consumers more and more over the next three to five years.