The “Fin”-ternet of Things: How IoT affects Financial Services

The Internet of Things (IoT) is booming. There are staggering stats about a network to include 25 billion devices by 2020 with a nearly $2 trillion global economic benefit. While this “third industrial revolution” automatically brings to mind dramatic effects for the retail, manufacturing, transportation and energy industries, financial services doesn’t always come to mind. However, since the underlying value in IoT is the transfer of data, and the financial sector relies heavily on gathering and analyzing data, it’s hard not to imagine IoT disrupting the financial services industry. Financial institutions, especially retail banks, have invested increasing amounts of resources into developing both their internal infrastructure and consumer-facing technology capabilities. IDC Financial Insights predicts that retail banks will spend over $16 billion on digital information technology initiatives, and this spending will continue to increase. In fact, according to PWC’s 6th annual digital IQ survey, financial services is one of the top 10 industries that has been investing in sensors for potential IoT innovations.

The appeal of IoT is to make static, physical objects engaging and smart. More and more the customer experience will overtake price and product as the key brand differentiator. This means that potential customers will pick the brand that is easiest to work with, before they will consider price or brand loyalty. How can you transform the ATM experience by augmenting it with the smartphone or smartwatch and skipping the debit card experience? Retail banks can also mimic how retailers are starting to place sensors in stores to suggest product details, discounts and recommendations through the consumers’ smartphones. Recent research shows that consumers who receive personalized messages are nearly 20 times more likely to buy. By connecting the retail banking environment, banks can increase the adoption rate of extra lines of services dramatically with personalized, contextual messages.

This experience can also be taken outside of the retail banking outlet to the point of purchase, like when financing a new car. With banks competitively providing low interest rates, consumers will typically go with the financial institution that they’ve been recommended or exposed to the most. With IoT, when a consumer enters the dealership, it may be possible for retail banks to alert the consumer on how much financing they’ve been approved for or deliver customized loan proposals in a timely manner.

Another opportunity lies in the insurance sector. With regard to risk management, some car insurers are starting to offer usage-based insurance  to align driving behavior with premium rates for auto insurance. With the emergence of telematics (in-vehicle telecommunication devices), cars are now able to transmit drivers’ behavior data back to the insurance companies so that they can assess drivers’ risks and premiums accordingly. This not only benefits insurers but also low-risk drivers because their reduced premiums are better representations of their safe driving behavior. Now, imagine a similar use case but with home insurance. With emerging smart home platforms, homeowners can voluntarily provide data about how they manage their households. Insurers can reward behavior like locking their doors when leaving their homes in order to lessen the risk of theft or turning off their stoves and ovens when not in use to minimize the risk of a fire. Until now, there was no measurable or reliable way to convey this information with home insurers. But now, with the Internet of Things and Smart Homes, all of this data can now be collected, managed and shared.

The “Fin”-ternet of Things is quickly becoming a reality for many financial services institutions. For companies to truly innovate and provide their customers with the experiences that they are expecting, connected products and environments need to be a part of the roadmap.