IoT plus finance – a recipe for success?

The Internet of Things (IoT) is booming. Research released by Gartner suggests that the number of connected things will grow by 30% to 6.4 billion in the next 12 months – at a rate of 5.5 million per day. If there was any doubt that IoT is merely a product of overblown hype and speculation, this is certainly changing. 2016 is the year that IoT means business, writes Mike Laven, the chief executive of Currency Cloud.To date, we have seen an initial wave of consumer-focused applications enter the marketplace, but over the next four years, cross-industry devices will dominate the number of connected things used in the enterprise space. This so-called “third revolution” will have a huge impact on nearly every industry, from retail and manufacturing to transport and energy – and financial services is certainly no exception.

Indeed, financial institutions are investing increasing amounts into infrastructure that will support this new network of connected devices. IDC Financial Insights found that that retail banks would spend over $16 billion on digital information technology initiatives in 2015, while PWC claimed that financial services is one of the top 10 industries that has been investing in sensors for potential IoT innovations.

A data explosion
A surge in connected devices comes with an explosion of data – about people, their behaviours and location. The IoT enables real-time interactions between different devices, where the resulting data can be used to generate a truly intelligent and adaptable technological system. In this way, it acts as an intermediary platform that can help financial services use the power of data to augment their business capabilities and drive operational improvements. The value of the data, then, is not in its volume – it’s the actionable intelligence that can be gleaned from it.

There are few industries better placed to unlock the full potential of IoT than the financial sector, which is built on the collection and analysis of data. From mitigating risk in insurance, through to the analysis of investments for Capital Markets and Know Your Customer (KYC) regulation, data is the stock in trade of the industry, and has been for decades.

Data plus knowledge – the power of IoT

With data comes knowledge, and with knowledge comes opportunity. So what exactly does the IoT mean for the financial services sector?

One of the most talked-about benefits of this increased connectivity is the ability for financial services companies to deliver a more personalised customer experience. Data can be used to develop accurate profiles of account holders, which can be leveraged to boost customer relations and retention. Banks can anticipate the unique needs of each customer and offer well-timed advice and solutions to help them make the wisest financial decisions. ‘Overspent too far in advance of payday? Here’s how you can manage your cash flow for the rest of the month.’

But beyond boosting compliance and security processes, more data will also provide opportunities to proactively develop innovations that improve the user experience, streamline the business and provide new revenue opportunities for financial institutions.

Payments get personal

Nowhere is this more apparent than when applied to payments. With the advent of IoT and an explosion of connected devices, we are suddenly faced with the possibility of any internet-enabled appliance becoming an e-commerce platform. If situations such as a blown lightbulb are suddenly going to be able to prompt an instant payment, reliance on digital payment platforms will soar. By default, these platforms will need to enable instant, seamless transactions is huge volumes.

And, with financial services able to build up even more accurate customer profiles, they will be able to easily spot when any ‘unusual’ payment activity from a connected device is taking place. Only in these instances would step-up authentication – or active authentication – be required by the cardholder.

This would effectively transform the payment experience without compromising on security, and as more and more connected devices are developed with payment functionality, this model could become the new status-quo.

A positive outlook

The potential for innovation in this space is infinite, and will be enhanced even further by the government’s plans to encourage traditional banks to open up their APIs to emerging financial technology solutions. In this way, specialist financial technology companies, global tech leaders and banking conglomerates will be able to collaborate to drive new innovations that could reshape the future of financial services.

While IoT has been well-known in the tech space for some time, it’s only today that we’re seeing it break through into mainstream adoption. For the financial sector, change is imminent and unstoppable – but it’s abundantly clear that the financial players that get ahead of this trend today, will be the industry leaders of tomorrow.