Christoffer O. Hernæs Contributor Christoffer O. Hernæs is chief digital officer of Sbanken, Norway's first digital-only bank and leading challenger bank. It is widely acknowledged that the Internet of Things (IoT) will have a huge impact on nearly every industry, and financial services is no exception. Gartner estimates that connected devices will reach an installed base of 25 billion units by 2020, with an annual compound growth rate of 35.2 percent from 2013-2020. Insurers are already exploring how the IoT will transform the insurance industry through improved customer dialogue, more precise price models and faster settlements. This is achieved through real-time monitoring, collection and analysis of behavioral data for both P&C and life insurance. This creates many opportunities for incumbents, as well as threats from new entrants like Google. Although the impact of the IoT on insurance is inevitable and more obvious, an analysis by Deloitte predicts that the IoT has potential in both retail banking and capital markets, as well. While use cases may seem somewhat less obvious, banks ultimately rely on access to data for risk management and credit analysis. Deployment of sensors and M2M communication represent a new array of data sources that may be utilized in a banking context. In addition to adding new data sources to credit scores, sensor technology could revolutionize loan collateral tracking and balance sheet reporting for both SMEs and corporate clients. Imagine the possibilities for real-time monitoring of inventory or livestock for manufacturing and agriculture segments. This would potentially enable banks to perform automated and near real-time balance sheet reporting. Paired with the promise of smart contracts, banks could be able to deliver credit and loans at a much lower cost, as well as give existing loan officers efficient tools when reviewing credit portfolios. Access to real-time client data also enables new business models like dynamic installments based on real-time analysis of available working capital and cash flow. Much like iZettle and Square, which offer pre-approved loans based on payment data with installments as a fraction of future sales through their terminals. When moving on to payments, we are already starting to see the beginning of the use of connected devices and wearables. In addition to Apple Pay though Apple Watch, Visa is collaborating with Pizza Hut and Accenture on a proof of concept for online purchases through connected cars, and MasterCard is enabling payments through the fitness band Jawbone. Banks are also starting to collaborate with different loyalty companies to reward customers for their purchases in real-time by identifying offers and deals through geo-location. While the IoT raises security concerns, personal biometrics though wearables and connected devices could potentially increase security, if done right. However, all these solutions are still operating on the premise that an identity is tied to a human. For the IoT to reach its true potential in payments, the concept of identity must also include things. This would also challenge the concept of connecting identity to a bank account, as well as existing card schemes as means of value transfer. When machines are able to perform transactions with machines in real time at a marginal cost basis, the concept of payments will become obsolete in many use cases as transactions become automated and integrated into other services. As paying for an Uber today is hidden for the end-customer, the car of the future could perform payments to the charging station on your behalf. While the IoT and M2M communication will render payments invisible as a utility in some cases, banks are also exploring the use of connected devices for increased customer engagement through automated branches and contextual services based on consumer behavior and geo-location. The IoT is predicted to reshape the world’s economy, and we have merely scratched the surface of some of the potential use cases in banking and financial services. Looking back at the use of big data in banking, few would have predicted it was possible to prove a correlation between correct use of capitalization when writing your name online and your credit worthiness 20 years ago. Just imagine the possibilities that lie in utilizing real-time data from billions of connected devices in the future. However, with great possibilities comes great complexity and uncertainty, and as Machiavelli said, “There is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things.“
The Internet of Things (IoT) will significantly impact nearly every industry; the financial services sector is no exception, says HernaesChristoffer O. Hernaes, Vice President of Strategy, Innovation and Analytics at Sparebank 1 Group, Norway's second largest financial institution. Insurance companies are already investigating potential ways the IoT can transform their industry, and retail banking and capital markets companies need to act now to prepare for the impact of IoT. The possibilities include: use of sensors and machine-to-machine (M2M) communication to produce new data sources for banks to conduct risk management and credit analysis, and improved customer engagement through connected devices with automated branches and contextual services based on consumer behaviour and location. These potential uses of IoT have 'merely scratched the surface' says Christoffer O. Hernaes, who also cautioned that 'with great possibilities comes great complexity and uncertainty'.