The Internet of Things (IoT) is yet to take off in banking and there’s good reason why, as IoB discovered at the Internet of Banking conference in London earlier this week.
During a roundtable discussion made up of senior executives, and hosted by analysts from Beecham Research, banking sector experts spoke of the changes required across the industry for IoT to make an impact.
At the route of the problem is the inherently cautious and risk averse nature of those in banking, so our experts said. However, there are further issues such as culture, desire and even knowing who to go to when you want to launch an IoT project, which have prevented the industry from really embracing these technologies.
Defining IoT in banking
Saverio Romeo, an analyst at Beecham Research, put it to the group to define what IoT actually means for banking. There was a great deal of discussion regarding the use of smartphones and mobile banking, but it became apparent that the term still lacks any true definition in this sector.
It is, therefore, difficult to make the business case for IoT. According to a data specialist from a major global bank (who wished to remain anonymous), strong examples of where IoT has driven revenue is what will create the desire to make it happen. “If we sort that, we will move to a better set of products and services,” he said.
Martin Smith, head of brand at Concirrus noted, is that the banking sector actually lags behind insurance, which has been “moving a little faster” with IoT.
He said that this is “possibly because the assets insurance companies underwrite – ships, cars, etc. – are going through fundamental changes and becoming more connected themselves.”
What catalyst is needed?
It’s true that insurance has piggybacked on recent IoT developments in the automotive and smart home sectors among others, but what could make banking follow suit?
Smith suggested that “it’s easier for enterprise decision-makers to envision insurance use cases, but perhaps less so with banking.”
It’s a view that was affirmed by the data specialist, who noted that banks do make risk-based decision but in an historic way. For him, copying the insurance sector is question of why not?
Perhaps the most obvious opportunity for IoT will affect the traditional bank branch. For one consultant from a Northern European financial consultancy, “most people already don’t go to a banking branch. Only really older people do, we are already paying with cards and use mobile banking. So banks are now becoming more like service centers where people can come with their problems and get some help.”
Branches have always been expensive, so IoT was discussed as a potential means of extracting more value from them, rather than losing the physical branch altogether. No one was really certain how that might transpire, though.
So when you do (eventually) have an idea for an IoT project, who do you turn to?
The data specialist said: “Often you have an idea and you think, well I can’t do any of it with you people,” because there is not an ingrained culture of innovation and creativity. He continued that “innovation teams are dreadful because they can’t be innovative all the time”; we’re not able to simply say ‘right, I’m going to be innovative now.’
Smith indicated that in his experience the decisions come down to a few people at the top – the C-suite. “You need their buy in, and often they don’t know how to start the process, so you really have to show them what could be achieved and how to take those first steps towards that vision.”
It’s often suggested that this is one of the reasons fintech firms are proving to be successful, because they can be more innovative due to smaller, more agile teams. The group agreed this model is one to be desired.
However, it’s also said that fintechs or challengers can be more effective than traditional banks because they’re not constrained by legacy technology systems. The data specialist does not buy that. “We could solve legacy systems easy,” he said. “We just choose not to because they’re already working.” Others on the panel were quick to point out that not all fintechs have the advantage of modern technology systems, either.
Culture of innovation
And so it comes back to the problem discussed at the start of the conversation: risk averse culture leading to a lack of innovation.
To combat the innovation glut, most of the panel felt a similar model to that employed by Google might help. Google is well-known for allowing workers to spend a certain portion of their time at work on their own, innovative projects.
A trader from a well-known European bank told us that his bank is trying something similar via a three-month accelerator scheme. It lets employees come up with innovative ideas over three months, instead of carrying out the usual day job. It’s early days so it’s too soon to say how effective this might be, but it’s an indication of what some banks are trying.
Ultimately, however, the challenge facing IoT was summed up by the data specialist. He said that injecting innovation into people in banks is hard because “we fail slow, that’s our thing. We take years over messing up. We need to learn to experiment and learn to fail fast.”
If banks can do that and learn to take some more ‘calculated’ risks, they might just be able to find greater uses for IoT.