Everything you wanted to know about the Internet of Things and banking

By David Beach | 29 September 2017

What is the Internet of Things (IoT)?

First coined by Kevin Ashton of Procter & Gamble in a 1999 article describing how RFID tags might make industrial production more efficient, IoT has come to mean a great deal more than it was originally intended. Having said that, the core principles remain the same.

The definition of IoT is understood as a network of interconnected physical devices embedded with electronics or sensors that send and receive data. These devices ‘talk’ - alas, not by email - but through the exchange of data. This relatively simple idea has seen itself multiplied and applied in myriad applications, platforms and devices. Indeed, the ‘Smart’ prefix, as in Smart TV, is usually the identifier for one of the five billion ‘things’ already connected to the internet. That number is set to increase to 25 billion devices by 2020, such is the scope and potential of IoT technology.

Smart consumer appliances have become widespread, from TVs that can access their favourite streaming channels via the internet, to coffee machines that can be accessed via your smartphone to have a nice cappuccino ready and waiting by the time you get back from work. The now household name of Alexa, although still work in progress, seamlessly puts your entire ‘smart home’ at your every beck and call. But ‘command-by-data’ has quickly turned to a more sophisticated ‘data-for-analysis’, as wearable fitness monitors and smart parking, that allows for the collection and analysis of data to improve systems.   

Business leaders have taken note of the technology, with many utility giants setting up smart meters for gas and electricity with the double bonus of providing a convenient and informative service for the consumer and better, real-time data for the provider. So too has the insurance industry, with telematics technology being widely implemented across vehicles to provide a clearer and more accurate picture of driving habits as well as evidence in the event of a claim.

But where do we see IoT in banking?

IoT will largely be pulled into the financial industry on the back of the demand for omnichannel banking. This form of digital banking has seen the rise of multi and interconnected financial services, where all financial channels are aligned into one seamless experience.

Mobile banking is nothing new, but challenger banks like Monzo and Atom have added a convenient ‘advisory tool’ to the consumer’s financial arsenal. Meeting the demand in the market for constant financial access at all times, these banks have capitalised on providing real-time feedback on consumer payments, and allowing for more accurate and convenient budgeting.

Customer centricity seems to be the buzzword for challenger banks. By bringing the technology and financial product closer to the customer not only provides the customer with a more intimate and engaging banking experience but also allows for huge potential to convert customers into data terminals. With PSD2 around the corner and the subsequent access to Application Programming Interfaces (API) to third parties, the financial industry is poised to collect and analyse massive amounts of previously siloed data.  

The future of IoT and banking

What fresh innovative IoT banking trends will we see with access to this data? Bank managers of 2018 and beyond may very well be able to segment their customer base with more personalised, even individualised, offers and products. For instance, an insurance company may send out a tailored message to offer one-off personal injury cover after a customer’s current account bought a skydiving experience.

The analysis of income and expenditure data, should the financial statement become standardised, might see credit assessments pre-approved by AI in advance of an easy one-click credit card order. Similarly, mortgage lenders may be able to marry IoT’s geolocation service to offer prospective buyers mortgage rates on houses when they’re out and about visiting neighbourhoods.

Equally, footfall traffic and spending when funneled through real-time analytics will give banks a clearer picture of the economy as a whole, which may inform risk modelling as well as streamlining certain bureaucratic processes and offering customers a more insightful digital banking experience.

Naturally, this will all be underpinned with strong customer permission and stricter data protection legislation, the first of which will be compliance with GDPR in May 2018.

In short, the future is bright where IoT is concerned even if we haven’t quite invented jetpacks yet. Banks can cut down on costly and inefficient antiquated practices by collaborating, through open APIs, to innovative tech companies that can provide customers with their own digital financial advisor and a more relevant and personal banking experience.


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