March 19, 2018
The internet of things is really the internet of everything. IoT at its inception primarily existed in two parallel silos composed of consumers and enterprise. Both of which improve our day-to-day efficiencies at home and in the workplace. Combining the power of data collection and customer interaction, the IoT worlds are finally merging. The financial services and banking sectors represent the most imminent examples of this IoT merger. Ultimately, the combination of technology, intelligence and connectivity will drive more value to customers and their financial health.
In this piece we will take a deeper dive into IoT in the financial services sector. We’ll look at why the industry is ripe for disruption, how consumer habits are changing and how financial service providers can leverage IoT to improve investment outcomes and consumer experiences.
Why Financial Services?
Roughly half of the world’s population now possesses access to the internet. That’s over 3 billion people. According to the UN communications agency, access increased sevenfold from 2000 to 2015 thanks to the smartphone. Consumers use their smartphones to access information, socialize and shop.
According to Forbes, 43% of smartphone users with a bank account access a banking app regularly. Millennials makeup a large portion of this group. While older generations still contribute most of the revenue in financial services, millennials will soon replace them as the largest customer base as they age and earn more. Aging tech-savvy millennials coupled with the increasing global internet connectivity creates the necessity for innovation in financial technology or Fintech.
Forces of Fintech
Before we take a closer look at IoT specifically in financial services, it’s important to discuss the forces of Fintech. PwC produced a research paper entitled, Financial Services Technologies: 2020 and Beyond: ebracing disruption. The paper politely warns financial service providers that they need to seriously consider adopting Fintech innovations or prepare to get disrupted. The three major sectors of financial services ripe for Fintech include retail banking, capital markets and asset management.
PwC depicts the typical large bank or financial services provider as relying heavily on their IT resources and legacy systems to continually improve delivery and connectivity to customers while simultaneously lowering costs. This takes immense resource dedication and innovation is slow to market. Meanwhile, Fintech startups focusing 100% on customer experience using cloud computing can seemingly side-swipe highly established companies overnight. According to their surveys, 70% of financial services leaders find the speed of technological change highly concerning. What’s different today is not only the speed of technological innovation, but also the speed of technological adoption. With the cloud and IoT, new updates and products can be accessed with a click of a touchscreen. Overall, consumers will benefit from rapid innovation and intense competition as startups and cloud computing companies give venerable financial institutions a run for their money (literally).
IoT Elevating Banking for Consumers
An Infosys whitepaper highlights retail banking as the number one application for IoT in Fintech. As one of the low hanging fruits for Fintech disruption, banks need to reach their customers and interact with them on their IoT devices in a way that caters to modern consumer expectations.
Banking customers use their smart devices to access banking services and information in real-time. Better access and convenience through IoT will only increase interaction between banks and customers. Banks can collect data on their customers to help suggest services or product that will help them according to their needs. Ideally with access to personalized data and AI, banks can anticipate the needs of their customers and act proactively. This in turn will allow for customers to make smarter financial choices and improve their livelihoods.
According to Infosys, banks should prioritize offering easy-access services to debit and credit card holders. While we live in a society dominated by plastic, cash is still far from obsolete. Using data from location services on smartphones, banks can determine the optimal locations to place ATM kiosks. It’s an innovative, value-add, revenue driving service banks can provide by using IoT driven market intelligence.
When it comes to IoT, banks should focus on deriving data and delivering services through six major devices: Smartphones, tablets, ATMs, laptops, smart speakers and point of sale devices (POS).
IoT Banking Applications for Enterprise
The banking value-adds extend far beyond the B2C channels. IoT can provide data to banks that can help them anticipate the needs of their enterprise customers too. According to Infosys, the most data collected through IoT will occur at turn points in the value chain. From suppliers to distributors to retailers to end customers. Most of this data can be collected through point of sale devices and smartphones or computers.
Infosys also points out that sensors placed in borrower warehouses can send alerts when inventory moves as the result of a sale. Then, the loan can be paid back incrementally in real-time. This practice helps enhance transparency between lenders and borrowers and reduces labor and overhead for the bank.
At Attunix, we help implement IoT solutions in the agriculture sector. We partnered with Smart Rows to deliver fertilizer according to precise environmental data measured by sensors placed in planters. Today, this system is increasing the farmers’ awareness of exactly what nutrients are being applied to their crops, as well as their effect on yields. This kind of environmental data also applies to the banking sector. Lenders can analyze the expected output of farms through IoT intelligence and adjust financial terms based on the analysis. Precision farming can also parlay into precision finance. Real time, data-driven decision making not only leads to better business practices, it also leads to better financing. This ultimately creates transparency and efficiencies that benefit the entire economy.
In the health and life insurance industries, providers can leverage data from health wearables like Apple watches and Fitbits. This can make the underwriting process more customizable and more collaborative. Tailoring policies based on specific individualized data will help optimize insurance policies making them more beneficial for the entire insurance pool.
Customer Intelligence Major Driver of Profitability
According to PwC, customer intelligence will be the most important indicator for profitability in the financial services sector. In the past, customer intelligence came from surveys and focus groups. However, data reveals that how people respond to surveys don’t fully reflect how they actually behave. They may skew their answers or exaggerate even in anonymous surveys. With the ubiquity of real-time customer data thanks to IoT, the guesswork is taken out of understanding customer behaviors.
If financial service providers want to give customers what they want while adding to the bottom line, they must leverage IoT data. This is especially true when understanding millennials, the fastest growing demographic in the financial services sector. Banks can peer beneath the surface and learn how to service these customers. PwC notes millennials build wealth through small businesses, investments and real estate. They also rely on social networks for making investment and buying decisions. Customers within this demographic are also keenly aware of the power of personal data. They willingly provide personal information in hope of receiving the best individualized deal. Asset managers will need to be creative and resourceful when presenting solutions to millennial investors.
Consumers Changing Habits with IoT
The smartphone is the most revolutionary IoT device thus far in the 21st century. Primarily due to its global reach and mass expansion of internet access to the world. The smartphone has changed the way people socialize, seek information and spend. According to the Pew Charitable Trusts, 46% of adult Americans make payments using their smartphones.
aApplications like Vemo, with over 7 million active monthly users, make running to the ATM nearly obsolete for splitting the bill among friends. The app allows users to transfer money to their peers, regardless of their bank, instantly without transaction fees (except for credit card transactions charged at 3%).
IoT consumer habits extend beyond the smartphone. Now, more consumers rely on virtual assistants like smart speakers to help with tasks like setting reminders and finding answers to simple questions. Virtual assistants are increasingly integrating with other applications like banking apps that also allow users to check their balances and pay statement balances.
Meet your new AI Advisor
IoT is just the beginning of the new financial services world. IoT coupled with artificial intelligence (AI) will increase productivity and customization of financial advising. Data collected from IoT interactions can power AI to match customers with financial planning solutions and products. In a previous article, we discuss why quality matters most in financial AI.
One of the major pitfalls of companies integrating AI into their services is the lack of focus on the actual quality of AI. Many businesses focus too much on the sell rather than the actual user experience. Many companies view implementing AI as a box to check to impress customers rather than actually focusing on how it can better their business. In order to make the product work in a way most imagine artificial intelligence, companies must invest in technology leveraging deep learning to handle more complex and novel inquiries. AI coupled with IoT will be the real game changer in the financial services industry.
Trending IoT Products
As financial services providers develop their IoT strategies, they must keep a pulse on the trending products and how their customer base interacts with them. Part of developing true omni-channels is reaching customers in ways most convenient for them. Many financial services providers should look to smart speakers like Amazon Echo or Google Home to create even easier ways for users to manage their finances.
In a previous article, we discuss the trending IoT devices in 2018. Many of them are smart appliances. While these devices don’t tie directly to financial services, banks can obtain a better understanding of how their customers spend and what consumables they purchase to tailor relevant rewards programs for them.
Safety and Security
Innovation and speed to market often outpace security measures. From the Equifax security breach to the WannaCry ransomware attack, our personal and business information remains in a perpetual state of risk. Financial institutions bear the great responsibility of protecting their customers’ asset and personal information. With increasing connectivity comes increasing vulnerability. Cyberattacks are only becoming more frequent, destructive and sophisticated. When developing any IoT offerings, companies must also simultaneously put protective measures in place to prevent identity theft or asset theft.
Always Innovate for Customers
IoT presents endless opportunities for financial services companies to know their customers, service them better and contribute to their bottom line. It takes rethinking the service architecture, creativity and market intelligence. While it’s important to constantly keep a pulse on your competition, don’t innovate for the soul purpose of beating them. Innovate on behalf of the reason your organization exists in the first place, your customers.