How IoT is Impacting the Financial Services Industry
The Internet of Things (IoT) is growing rapidly.
In 2010, people owned 12.5 billion networked devices; whilst it is estimated that by 2025 this number will have climbed to more than 50 billion.
While the IoT has already impacted sectors such as manufacturing and healthcare, it is still a nascent technology in the world of banking. Research has found that banks have still not implemented IoT technologies within their organisations or in their products or services. In the long term, however, this is set to change. Reports have shown that 40% of financial services businesses are currently experimenting with IoT and big data.
Given the wealth of statistical data which can be gathered from a range of devices within an IoT network, the applications of IoT and big data can go hand in hand. For example, retail banks can combine IoT and big data to offer increasingly personalised services to customers. Rather than providing a ‘one size fits all’ approach, banks can create personalised offers to customers by using IoT capabilities to analyse various aspects of its customers’ behaviour – including the regularity in which they visit merchants or purchase from them – and offer bespoke budgeting plans or financial products relevant to their lifestyles. Furthermore, the data from wearable payments technologies, for instance, could be used to help build detailed customer profiles and enable fraud detection. The same data could also enable banking institutions to build partnerships with brands that can push relevant deals through to banking customers in the area, enabling even closer relationships with customers and providing more useful perks.
The benefits of IoT services within the financial sector aren’t just limited to retail banks. Insurers can use IoT capabilities to aid interactions with customers and to accelerate and simplify underwriting and claims processing, as well as default prediction.
The benefits of IoT services within the financial sector aren’t just limited to retail banks.
It can also help insurance companies to determine risk more precisely. Automotive insurers, for example, have historically relied on indirect indicators, such as age, address, and creditworthiness of a driver when setting premiums. Now, data on driver behaviour and the use of a vehicle, such as how fast the vehicle is driven and how often it is driven at night, are available. These new data sets can help insurers provide premiums that more accurately reflect their consumers.
Another application of IoT within the financial sector that has the potential for huge implications is in trade finance. International trade flows are currently expensive and predominantly paper-based due to the inefficiency of the supply chain in moving goods. IoT within trade finance can be used to make these processes quicker by tracking movement, supply and demand. This can significantly improve the efficiency of the process by reducing the cost and risk for the enterprise. However, in order to have any meaningful impact on trade finance, there would need to be a large scale, global adoption of IoT – allowing every part of the ecosystem to be accounted for and creating a seamless process.
If key issues around cybersecurity can be overcome, the IoT presents a huge opportunity for the banking sector. And there will certainly be disruptors willing to provide that access – so the time is now for banks to start thinking about technology development that will take advantage of this before a competitor gets there first.
Authored by David Murphy, Managing Partner, Financial Services EMEA at Publicis Sapient.