Banks and other financial institutions are open to technological change – but are they ready for the Internet of Things?
Banks were amongst the first organisations to embrace the Internet and later smartphone applications, offering customers access to their services in entirely new ways. Both are now the norm for many of us so much so, in fact, that in June the British Banking Association said we will use mobile devices to check our current accounts 895 million times in 2015 – more than the 427 million branch interactions.
Today, there are even banks which operate entirely on the internet, and many with high street branches cite increased Internet banking as a key reason for selectively closing them.
In this context embracing the Internet of Things (IoT) is arguably just the next logical step for banking. Indeed, an October 2015 report from Deloitte says “the IoT may be as broadly transformational to the financial services industry as the Internet itself.”
This potential comes at a difficult time for banks. They’ve been heavily into using computing since its earliest days, and can find this more of a burden than a blessing. As Paul Schaus, president of CCG Catalyst, a bank consulting firm puts it, “Banks’ legacy systems obstruct the movement of data between silos, preventing the 360-degree view of the customer that is required to provide personalized services to customers anywhere, anytime. They’ve built layers and layers on their legacy core systems to support new consumer tech trends like mobile and social media. Those layers mean banks can’t move quickly: most banks struggle to update their mobile banking apps on a biannual basis, or tie together their smartphone, tablet, and online banking experiences.”
Difficulties don’t just spring from complex and old IT systems – it’s about the data too. IoT generates huge amounts of it giving banks massive opportunities, but that data needs to be managed properly and understood for it to be used effectively, not to mention legally and in compliance with strict industry regulations.
Nimish Shah from data integrator Talend, says: “This is a challenge for the banks, of course, in terms of integrating, managing and processing these new data stores but if they are able to effectively harness this data for their own commercial advantage, it also represents a huge opportunity.”
The other problem that banks face is data privacy. With various devices sharing information about our location and purchasing history, and with that data coming from a number of companies involved in any single relationship, the technical challenge of preserving personal privacy becomes more complex.
Every entity in a communications chain including the consumer, data network provider, partner companies, banks and any big data storage and analytics partners need to provide both the customer and the legislature with 100 percent confidence in data privacy measures.
One way forward for banks – and a crucial one – is to make new relationships with young, agile companies. Careful selection of partners can help a bank do ground-breaking new things. They need this to stand a chance of competing with the likes of newcomers, such as Samsung Pay, Apple Pay and Google Wallet.
Wearables are one avenue being explored. Barclays has taken the tack of developing its own wristband, bPay, which lets you make payments of up to £30 from linked credit and debit cards. In the US, American Express has teamed up with Jawbone to facilitate payment through a popular fitness band the Jawbone UP4.
Location-based services are a vast seam to be mined. Options here include partnering with loyalty and voucher companies to offer geolocated services. A user’s phone could alert them to offers specific to their current location, make any relevant coupons or vouchers available, and even direct people to stores.
And in the new IoT enabled world, where things talk to other things, there is potential for people to be taken out of the payment chain altogether. Imagine a visit to the petrol station where an in-car system or authorised wearable quietly makes a payment on your behalf. No more standing in queues. In the UK, Shell’s Fill Up & Go mobile payments system is a first move in this direction. You pay at the petrol pump by scanning a QR code. But you still have to do the process yourself. One day, you might not have to.
Agile behind the scenes
While some might say that having and manipulating the big data that banks will acquire through the IoT is all about the ‘upsell’ and ‘cross-sell’ of retail, it also has the potential to empower and protect consumers, whether personal or corporate. A bank could, for example, suggest I don’t buy a particular big ticket item with a debit card as it will send me into the red at which point I will be charged.
And there is also the potential for banks to offer flexible, and maybe entirely automated services to businesses. To give one example: Inventory tracking for a retail outlet will allow both bank and customer to understand cash flow in minute detail. This could result in automated, real time profit and loss, balance sheet, projections, faster decisions on financial support services, flexible loan repayment plans that alter themselves in real time, and more.
Banking has a lot to gain from the IoT, and it isn’t all about services to individuals or services which require human intervention. Expansive thinking, strong business relationships and a willingness to invest in new technologies are key to the sector’s success.