The IoT and the disruption of the financial services industry

  • Telematics monitoring your driving behaviour may get you better insurance
  • Premiums
  • Using electricity wisely could increase your chances of loan approval
  • The way we pay will never be the same again
  • Establishing our identity will shift to include things
  • With billions of connected devices, security becomes a bigger deal than ever

The year 2020 will see a staggering 25 billion devices connected to the Internet of Things. Just imagine the possibilities of using real-time data from all these connected devices. The financial services industry is also hugely impacted by the IoT. In fact, the economy of the world will be reshaped by the Internet of Things. As more and more things get connected, players in the financial services industry should realise that, in order to stay relevant, they need to become much more forward-thinking and get on the bandwagon. They could, for instance, get a significant reputation boost from protecting their clients from privacy and security issues – an inevitable result from the Internet of Things. Over fifty percent of the financial industry’s top performers are already making plans to increase their investment in sensor technology this year. In this article we will see how and why transactions in the financial services industry will never be the same again and how issues around identity and security need a serious rethink.

The Internet of Things is transforming The Insurance Industry

The Internet of Things will have a huge impact on insurance as well. It can facilitate improved client dialogue and faster insurance claim settlements. Some insurance companies have already implemented telematics; a wireless communication system that monitors vehicles in real time. With this system, insurers can collect and analyse behavioural data to assess risk. It will, for instance, also enable the insured to pay for the number of kilometres driven instead of paying a monthly premium, or to pay according to his driving behaviour. Other areas in the insurance industry that could greatly benefit from the Internet of Things are health insurance, home owners insurance and life insurance. Think health monitors that can communicate information with the insurer about their clients’ health or devices that can send information on the structural condition of their homes. With smart devices tracking carbon monoxide levels, water leaks and fire, a home is safer – potentially leading to lower insurance premiums. Not only will the Internet of Things have a major impact on the efficiency of the insurance industry, it will also reduce the potential for loss, resulting in significant savings.

Using electricity wisely could get you better deals on your loans

Credit scores are an integral part of financial institutions’ risk management tools. Add real-time data to the toolbox and you have a much better understanding of prospective client behaviour, giving you even more valuable information with which to assess risk. Let’s say a client resides in a low-crime area, exercises regularly and uses electricity and water wisely. A model citizen. This type of ‘responsible’ behaviour may statistically mean that he is more likely to make timely loan repayments. This would also be beneficial for the client, as it could increase his chances of getting a loan approved plus he could get the loan at more affordable rates. (Sensor) data used in this way does however raise concerns around privacy. The idea of your behaviour being monitored twenty four hours a day is a scary thought. It would also mean that a loan applicant could be excluded based on factors that may have nothing to do with his payment behaviour.

Payments will be nothing like we’ve done things up until now

A glimpse into the future of payments shows us an interesting trend towards the use of connected devices. A widely used example is the fridge that knows when we run out of milk and orders a new carton from the supermarket – with the payment happening in the background. Many merchants are starting to integrate mobile payments at their traditional points of sale and customers can already make payments from store aisles by scanning QR codes. In October last year, Mastercard introduced the ‘Commerce for Every Device’ program which enables any accessory, wearable or gadget to become a payment device. Mastercard has already formed partnerships with Moov, the personal wrist fitness coach, Atlas Wearables fitness trackers, smartwatch producer Omate and various financial companies such as Qualcom, Coin and NXP. As everything becomes connected, people will have unlimited options as to how they pay and they will need all the devices they use to work together seamlessly.

Apple Watch has Apple Pay and Visa is working on a concept in collaboration with Accenture as well as Pizza Hut for payment systems through connected cars. Can you picture your car paying for your pepperoni pizza as you exit the drive through? How about your car making payments on your behalf for refuelling or charging your battery? Imagine if your car could tell you when it’s time for a service. It could find the best car service deals and schedule the appointment – first checking your calendar, of course. Your payment would be completed upon leaving the service station. The technology is expected to appear in the US in 2016, after which it will expand to markets in other parts of the world.

Then of course there’s Bitcoin, the cryptocurrency that operates as its own internet with its own built-in transaction system. It’s the world’s first global, decentralised, free market currency. You could think of Bitcoins as trading cards that can be exchanged for goods and services or other currencies. Many merchants, e-commerce stores as well as giants with billion dollar revenues such as Dell, Amazon, Fiverr, Badoo, Shopify and Tesla are already accepting Bitcoin.

a hand pointing to a square with a dollar sign

Identity will no longer solely be tied to a human – it will shift to include things

With more and more devices being able to make financial transactions, verifying an account holder’s identity will become a challenge, as it can no longer be linked to a human being alone. Today, our identities are established by what we are; what we look like, our fingerprints, iris images and voice prints. Our identities are also established by what we know, such as our passwords, PIN numbers and ‘secret’ facts. Then there’s the things that we have, such as our ID documents, access badges and mobile phones. In order for the Internet of Things to reach its full potential in the financial services industry, establishing identity will also need to start including things. Devices such as smart watches can receive and display local information. Some of these ‘personal’ devices can only be used by one owner, while others can be shared by several different people, such as the NEST thermostat. Then there are devices intended for public use such as digital signage. Not only are all these different devices connected to the Internet of Things – they are also connected with each other. When things start to perform financial transactions on our behalf, you can see that a vastly different approach to identity management is necessary. Over the next decade, the way we look at financial services and how our identity is connected to an account will be completely disrupted.

With billions of connected devices, security becomes an even bigger nightmare

The fact that the Internet itself is still not secure means that we certainly can’t bank on the Internet of Things to be secure. The explosion of the Internet of Things with its networked access points and sensors embedded in everyday devices could pose tremendous privacy and security risks. It presents unlimited opportunities for cybercrime – criminal organisations with sophisticated resources and skills and we could be facing our biggest nightmare yet. Developers of Internet of Things devices haven’t spent enough time considering ways in which to secure their devices from hacks and information falling into the wrong hands. Measures are however continuously evolving and security could potentially be increased by biometric identification technology built into connected devices and wearables.

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Conclusion

There’s no question that the Internet of Things has a dramatic effect on the way financial services companies will collect data, how they operate and how they interact with customers. Succeeding in this era depends on how well these new technologies are deployed. While the IoT offers new opportunities, it also has the potential to disrupt the marketplace. It will facilitate the development of new business models and new competitors. In order for the financial services industry, or any industry for that matter, to yield value from the Internet of Things, we need to adapt, rethink and address factors such as privacy concerns and cyber security.

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This article is written by Richard van Hooijdonk

This article is written by Richard van Hooijdonk

Trendwatcher, futurist and international keynote speaker Richard van Hooijdonk takes you to an inspiring future that will dramatically change the way we live, work and do business.

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