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The Beacon Beckons: Banks and the Internet of Things

Posted by Pramod Krishna Kamath (View Profile | View All Posts) at 8:35 AM

Has the milk-ordering-refrigerator symbolism of the Internet of Things distracted other businesses from seeing its true significance? As an example, consider the banking industry, which hasn't paid much attention to the IoT so far. A leading analyst's prediction that about half of all sensors installed by 2020 could be relevant to financial services, should make them sit up and take notice. 

Several industries, such as manufacturing, have already seen the light. This sector is championing the Industrial Internet of Things (IIoT), which offers enormous potential to digitalize, automate and integrate processes across the manufacturing value chain, to not just maximize the life of assets, but also, someday soon, predict when a jet engine turbine will fail.  No wonder then that the IIoT is expected to receive US$60 trillion in investments by 2030.

What applies to manufacturing - or any other business for that matter - holds equally for banking and financial services. Financial institutions can tap into the IoT to automate, integrate and build intelligence into each of their processes to create immense value at every stage.

IoT for smart customer experiences

Let us illustrate this by considering a typical customer journey. A bank can use the data from sensors and connected devices to enable smart experiences in a variety of scenarios - during a branch visit, while fulfilling a product purchase, for rewarding an action, and so on. Now consider each of these use cases in turn. New Zealand's Westpac uses beacons to enable branch staff to identify customers (who have opted in for this facility) and greet and serve them personally. Automobile insurance has become smarter thanks to the IoT: sensors fitted in cars give out valuable information on driving habits and behavior patterns that many providers are using to calculate the appropriate risk premium for each customer. Then there's US Bank, which rewards customers who fulfil their commitment to achieving a certain body weight. 

IoT for efficiency

Every successive wave of technology has enabled the financial services industry to further improve its operational performance. At present, the operations at leading banks are already optimized to the extent possible, making it very hard to score further improvement. But now the IoT is giving them new opportunities to enhance productivity and efficiency. Take the ATM, which hasn't changed that much over the years. By connecting their networks to the IoT, banks can track a variety of parameters, such as total withdrawal or footfall, in each ATM and use that information to schedule cash replenishment or decide new ATM locations. Transaction authentication is another clear use case. In the case of a remote payment, knowing that the device being used is physically close to some of the other devices known to belong to the customer is good proof of it being genuine. The IoT can also ease the laborious and costly activity of collateral and loan arrangement verification by allowing banks to easily track the raw material, work-in-progress and finished goods inventory of corporate customers using sensors, to verify that they are adhering to the terms of the loan agreement.

IoT for innovation

The IoT supports innovation of financial products, services and business models. The healthy savings account - a new take on the checking account - is a good example. Account holders agree to let their bank track their fitness parameters using a wearable device, which monitors physical activity. The more active customers are rewarded with a higher interest rate. Banks can also take a more proactive approach to consumer finance - for instance, offer favorable terms when the bank sees from sensor data that a customer's domestic appliance is nearing the end of its useful life. They can also adopt smarter vehicle leasing practices. By studying sensor data from fleet vehicles, banks can figure out their condition, and apply a discount or penalty when a lease expires.

These use cases only hint at the potential of the IoT, a potential that is still unfolding. Yet, one thing is clear, which is that banks must tap into the IoT to stay relevant in the future. Banks that begin their IoT journey now stand to gain early advantage. On the other hand, laggards may well see their customers, accustomed to smart experiences in retailing and other spheres, gravitate to financial services providers who offer similar experiences. Fintech startups and challenger banks have already shown what they are capable of doing with technology. They will certainly look to replicate that success in the Internet of Things. 

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