The Internet of Things is working its way into numerous vertical industries: Energy companies use sensors to monitor smart electricity grids; retailers use radio frequency identification (RFID) tags to track inventory; manufacturers closely watch connected sensors to predict when equipment will fail; the examples go on.
What about the financial services industry?
IoT has been on the mind of the financial services industry for a while now. “But the IoT may be as broadly transformational to the financial services industry as the Internet itself, and leaders should make an effort to recognize the opportunities and challenges it presents for the financial sector as well as for industries with which [ financial services institutions] work closely,” wrote Jim Eckenrode, executive director of the Deloitte Center for Financial Services, in an October 2015 report.
Banks can use sensors and analytics to gather more information about customers and offer more personalized services. Insurers and commercial banks can also use sensors attached to assets to track shipments.
There are numerous ways IoT sensors can help banks, which tend to deal with intangible assets, especially in the world of online finance.
Sameer Kishor, the president of banking, financial services, securities and insurance at NTT DATA Services, writing in Insurance CIO Outlook, notes that “IoT senses and gathers data in the ‘physical’ world and converts the data into actionable, digital output.”
Yet, because most of the assets of modern banking already are digital — customer account information, complex and structured finance models and exposures, and stock and derivative holdings — banks should focus on the so-called Internet of Moving Things.
“Banks will have a more vivid picture of the consumer, understanding how they move and where they spend money,” he says. “This will allow banks to make more accurate lending decisions and deliver more real-time, personalized offers.”
Bank branches can be equipped with sensors to detect, via biometrics, when customers are approaching and entering, he says, which could lead to more targeted offers.
Citibank last year tested the use of Bluetooth-enabled beacon technology to give their customers the ability to access branch ATMs 24 hours a day via their smartphones and receive location-based personalized offers.
“This technology can also gather other insights, such as user waiting time in banks, therefore banks can improve their customer service on-site hiring more staff to liaise with customers,” writes Nanda Kumar, founder and CEO of SunTec Business Solutions, which provides revenue management and business assurance solutions to financial services firms, in Finextra.
Commercial banks can use real-time biometrics and positional sensors to continually assess the well-being of a farmer’s crops and livestock, track inventory and monitor the location of goods on a container ship that they are financing, according to Kishor.
“Physical, performance, and behavioral data generated from biometric and positional sensors for individuals, as well as shipping and manufacturing control sensors for businesses, could provide new opportunities for credit underwriting, especially for customers lacking a credit history,” Eckenrode wrote in The Wall Street Journal. “A challenge would involve developing an understanding of which data points best predict an individual’s creditworthiness.”
IoT sensors enable new revenue opportunities for banks by allowing them to create partnerships with other sectors already deeply involved in IoT, according to Kumar.
“For example, banks can start introducing mortgage offers via real estate websites, or segment their customer base to generate targeted adverts for home or car loans,” he says. “Partnerships with smart home players can enable automated payments from a TV or fridge. Banks can also enhance their existing relationships with card industry, to develop customer-centric offers, delivered through user-friendly devices and using data based off previous purchases and transactions.”
Banks are at risk of losing their connection to customers, especially as more consumers adopt smartphones and wearables from tech companies like Apple and Samsung that offer their own payment services.
Banks are facing pressure to use customer-generated data to redesign their relationships with them, according to Kumar. “Banks should use all the data available to them generated by both traditional channels and IoT data,” he says. “The insights from IoT can enhance a bank’s existing understanding of their customers’ needs and habits in real-time. With these understood, the bank can start tailoring their services toward each customer.”
To fully take advantage of this data though, banks will need IT that can ingest and analyze unstructured data from a variety of sources, and they’ll need powerful computing technology with machine learning capabilities to detect patterns and trends within that data.
“The power of IoT can be harnessed for success if banks evaluate how it fits into its current technology infrastructure. Hindered by legacy IT, traditional banks are often slower to embrace IoT compared with Challenger Banks,” Kumar says. “New banks are forcing traditional banks to change quicker because the technology they are adopting is driving customer services levels. To solve this challenge, established banks need to make sure their technology can bring together and handle the new types of IoT-generated data streams, information can be accessed by the customer and bank faster.”