The Internet of Things (IoT) has gained a considerable amount of hype as the “Next Big Thing” to change the world as we know it. Applications of IoT are thought by some to be limited only by the human imagination. From simply controlling your home (e.g. - lights, thermostat, etc.) with a smartphone, to life saving medical and healthcare systems, IoT is pervasive and growing rapidly.
The financial services industry has recently started experiencing the IoT disruption in the form of mobile banking. While mobile banking is seen as an incredible advancement in financial services, it may only be the tip of the iceberg for the Bank (Credit Union) of Things.
In recently published whitepaper, The Bank of Things: How the Internet of Things will Transform Financial Services, Author Ian Webster of Accenture discusses what he refers to as 'Customer 3.0.' Much like I discussed in my last article, Why Attracting Millennials Requires Big Data/Analytics, Webster's 'Customer 3.0' is “hyper-connected, highly informed, very demanding and spoilt for choice. They expect to be engaged as individuals, and on their terms — when, where and how they want.” This new information expectation is requiring banks/credit unions to think of innovative ways to transform their data into valuable assets that provide a better customer experience.
Examples of IoT in Financial Services
'Customer 3.0' is being conditioned to expect much more information in all areas of their lives with retail banking being no exception. IoT is still in its adolescence in the financial services industries but there are several practical example of IoT in banking that do not seem far-fetched.
Consider the following example: Loans are a major source of revenue for financial institutions but with interest rates at historical lows, differentiating one loan from another is difficult. So how do you ensure someone uses your financial institution for their next loan? By being the first image a customer sees when deciding to make their next big purchase. With advanced geo-tracking using beacons (IoT technology), financial institutions can send out the most accurate and timely marketing alerts.
Imagine walking onto a car dealership and receiving an alert from your mobile banking app that automatically tells you how much financing you’ve been approved for. Even better, the auto loan application can be completed using your smartphone and contain prepopulated data stored from previous transactions. Imagine an app offering you a deal if you purchase the exact car you're looking at. With beacon technology you can send offers such as, “Save $1,000 on that new 2015 Chevy Impala if you use Sample Credit Union financing.” This may seem like a “too good to be true” scenario, but with IoT (beacons) and Big Data, this is something retail banking institutions could start doing today.
IoT and Big Data/Analytics Live in Harmony
IoT presents a tremendous opportunity for financial services, but it also presents a serious challenge. In addition to the countless new applications for internet connected banking, IoT is also expected to generate a plethora of data. This data is coming from a variety of new sources, at high-velocity and in increased volumes (also known as Big Data).
“...Internet of things-related technology and services revenue is forecasted to grow from US$4.8 trillion in 2012 to US$8.9 trillion by 2020. The future is coming fast — and to capitalize on these opportunities, today’s banks need to invest in developing the ecosystems and capabilities that will drive tomorrow’s Bank of Things.” -Ian Webster, Accenture
Time is of the Essence
Without the proper technology to store, process, and analyze the data generated from Internet of things-related banking, retail banking institutions will not be able to serve 'Customer 3.0' in the way they desire. Failure to address the needs of 'Customer 3.0' will challenge the future viability of most banks and credit unions. The financial services industry is at a cross roads and needs to think about how to reinvent itself before it's too late. There are several companies that have noticed this tremendous opportunity and have started investing in similar technology. A few of these companies worth mentioning are Apple (Apple Pay), Google, PayPal, and Lending Club (backed by investment from Google).
As we enter the era of IoT and the ensuing massive data explosion, how will your institution react? Will it sit on the sidelines and wait for the innovators of the industry or will it get ahead of the curve, start investing in Big Data/Analytics, and be one of those innovators