The Internet of Things to come
Banks always seek to better connect with their customers. But the idea, say, of a coffee pot talking to a refrigerator, which links to a bank server, which chats up your car, which rings your smartphone, involves customer connections of a different sort. Sure, it might not foster much of a personal touch. But it will certainly put people in closer touch with their finances in a way bank executives could’ve barely imagined at the turn of the millennium.
Welcome to the Internet of Things, and we’re not talking all the crazy stuff you can buy on Amazon, either. Self-descriptive to a T, the moniker refers to a network where devices engage in their own digital “conversations.” They use what are called IP protocols to collect and share information, track movements or location, and communicate with other IP-based systems.
So what does this have to do with banking? The smart money rides on this rapidly approaching future: As banks increase their use of IoT technology, they will advance on many a consumer front: picking payment options, helping customers make transaction decisions and pinpointing marketing efforts represent just the start.
In fact, you could call IoT the “Investment of Trillions.” Industry research firm IDC of Framingham, Mass. predicts global spending on IoT will grow to $1.3 trillion by 2019—and that estimate sits on the very conservative end of the spectrum.
“A lot of what we’re seeing right now is representative of the transition from just having mobile devices, sensors in mobile phones and tablets” to a future where many devices are embedded with this technology, says Jim Eckenrode, executive director of the Deloitte Center for Financial Services, which published a report outlining opportunities for banks in the Internet of Things.
Among these new smart devices or objects are Amazon’s Echo voice control device, Samsung’s Family Hub Refrigerator, connected auto systems, and a growing host of wearables that include watches, clothes, jewelry—even tattoos. Cambridge, Mass.-based Forrester predicts that by 2021 nearly one-third of Americans will use at least one wearable “smart” device. (How a tattoo will talk to your bank, let alone another tattoo, remains to be seen.)
Retail banks have just scratched the surface of what’s possible in this interconnected landscape. Before the end of the decade, the industry could well embrace biometric authentication through a smartphone or purpose-built touchpad, or leveraging the iBeacon [Bluetooth] location technology on Apple and Android smartphones to identify when a customer walks into a branch. (New York-based Citigroup reportedly began piloting iBeacon for determining customer presence in its New York City branches earlier this year.)
Meanwhile, innovative financial institutions, large and even small, dabble more actively in using connected devices for customer-facing applications, as well as efforts on the wholesale, commercial, and operational levels.
“If you look at the broad picture, there’s a lot of enthusiasm sparked up around the iBeacons… and what banks can do with more precise check-in and location,” says Dominic Venturo, chief innovation officer at U.S. Bancorp of Minneapolis, Minn. Venturo adds that while his bank’s Innovation Lab has tested the technology internally, the iBeacons—like other interconnected devices—raised security and privacy questions. Basic technical issues also arose, such as who would refresh the system batteries and the precision of location awareness.
U.S. Bank has been testing IoT devices and applications that would connect banking rewards to meeting health goals, and allow customers to pre-order and pay for food from a car. The possibilities are exciting, even if the overarching experiment has raised the larger issue of how retail banks should best use IoT given all the other tech options available/.
“The retail industry in general has a lot of experimentation around iBeacon, and geolocation combined with email marketing and mobile apps,” Venturo points out. “And it can create a lot of noise [for customers].”
Part II explores how the Internet of Things will impact banks across a wide range of concerns, including payments, compliance, information security and more.
Karen Epper Hoffman has been writing about banking and technology issues for nearly a quarter of a century for publications including American Banker, Bloomberg Businessweek and Financial Times’ The Banker. She has also spoken and moderated panels at industry conferences. She lives in Olympia, Wash.