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Transforming financial services using IoT

The divide between the physical and digital world is thinning as if these worlds are merging into one. As per Gartner, by the end of this year, there will be ~8.4 billion connected things (commonly referred to as Internet of Things or IoT) in the world, recording, and processing data continuously. To put this large number into perspective, as per McKinsey, IoT may generate US$11 trillion in economic activity by 2025 and has the potential to change the world as we know it.

As the name suggests, Internet of Things is the interconnection of computing devices embedded in things and is mostly associated with the engineering or manufacturing sector like building connected cars or safer aircrafts.
IoT has the potential to transform intangible services like financial services, though indirectly, using tangible things.

The most obvious benefit which comes immediately to mind is the availability of better and more data regarding users' assets. The other benefits are improved customer experience and operational performance, effective product / stock pricing, development of usage-based insurance, effective underwriting, etc.

IoT can be used in all the sub-sectors of financial services like insurance, customer relationship management (CRM), data management, investments, banking, and such. Auto insurers have started installing IoT devices in customers' cars, which help to choose better policies and effective premium rates. Investment bankers can invest in easily measurable things like weather, therefore pricing derivatives better.

High-frequency traders can invest their money a few seconds before the rest. Retail banks can get actionable insights from home appliances data and provide timely credit to customers. Business banking can provide less risky loans to SMEs by predicting how many appliances will need maintenance.

Recently, IBM established global office for its 'Watson IoT' business, having ~6000 associates and clients world-wide. Japanese bank, Mizuho, has started research and development (R&D) on the creation of a platform for secure payments using IoT devices such as smart home kits, connected cars, and wearables. Australia's Commonwealth Bank, experimented with an inter-bank trade transaction combining Internet of Things with blockchain. BNP Paribas' German digital arm, Consorsbank, has formed a team to develop new financial services such as investment advice using IoT. A European bank is piloting on a 'healthy savings account.' The bank will track customers' fitness levels through a wearable device and offer higher rates to those who burn more calories.

Insurers and bankers are already waking up to this massive opportunity and sensitizing their employees to modify and align their offerings with smart devices. From an IT vendor's perspective, they can start by forming a separate team focused on IoT. They can also start tying up with industrial consortiums, academia, and IoT platforms like Amazon, GE, Microsoft, and such to be prepared to surf this game-changing tide.

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