While the banking industry has so far been a laggard in utilizing the Internet of Things, changes are afoot driven by the need for productivity improvement, innovation and growth.
The Internet of Things (IoT) continues to be a hot topic, not only in the technology industry but also in traditional core industries. It would drive a revolutionary change in the way our world runs today if the digital world “connects” to the physical world. A recent Trend Report on IoT jointly released by DHL and Cisco estimates that 50 billion devices will be connected to the Internet by 2020. In just five years, computers (PCs, tablets, smart phones) will represent just 17% of all Internet connections, while the other 83% will result from IoT, including smart-home devices and wearables.
It is therefore easy to visualize the prospective benefits of IoT, considering we are already seeing strides being made in industries such as retail, manufacturing, automotive and insurance. Improved productivity, security and predictability are just some of these potential benefits which will cumulatively enhance digital customer experience.
But how much will the banking industry stand to reap from IoT? The answer is not that simple because of two factors: use cases of IoT in banking being in a noticeably nascent phase; and the fact that the banking industry is a service sector without any physical products, beyond money, paper or e-copies. However I believe that in the coming year there will be three different ways that the banking industry will unlock the gold mine that is IoT:
- Productivity Improvement. According to eMarketer, smartphone users worldwide will surpass 2 billion by 2016 and this number will keep increasing. Almost all retail and corporate banking operations and functions can now take place if a customer has a smartphone available. For example, using IoT, ATM boxes can be installed based on the amount of customer traffic in a specific location. ATM monitoring and controlling can also happen remotely. These measures will give rise to productivity improvement through overall savings of cost and time.
- Innovation. As IoT connects multiple devices, including sensors, networks, and other physical objects, it will lead to an explosion of data. Analytics will play a pivotal role in collating, analyzing and generating extremely customized offers and discounts at mass scale and in real time. As an example, consider a high net worth customer traveling abroad and receiving a notification in his/her mobile phone when passing a billboard of an expensive product of his/her taste, along with the discounts and steps to purchase that product. Additionally, as IoT combines with biometrics and other security measures, security and privacy will become much more digital, robust and failsafe.
- Growth. IoT brings forth the possibilities of different business models to gain new revenue streams by collaborating with other industries. Banks could, for example, issue loans or credit cards based not only on currently accepted assets such as income and homeownership, but also on ownership of various reusable or expensive IP-enabled products like cars, TVs, watches and paintings. Another example stems from the capital markets, particularly commodities. The fair market price of any commodity (e.g. wheat or corn) across the globe will be tracked by banks using IoT through connections with dealers and wholesalers from other industries. That information will be shared with retailers or manufacturing companies for their processed products (e.g. cornflakes), so that they receive the best quality commodities at the best price. This will lead to a reduction of information asymmetry within the market, resulting in an increase of market efficiencies in the commodities market.
In conclusion, use cases for IoT in the banking industry are still at a conceptual level. User touch points, and the potential shift in user experience or adoption rates, will depend on multiple factors such as ease of implementation, security issues, regulation and commercial viability. However, it can be said with certainty that IoT will influence the overall banking industry in such a way that innovations of various scales will be born, the boundaries of the current industry will be blurred, and the user will gain digital experience at a much broader level compared to what is currently happening.
The article was originally published on BAI Banking Strategies on January 13, 2016 and is re-posted here by permission.