Thinking about the Internet of Things
By networking devices such as appliances, vehicles and mobile watches, the Internet of Things holds the promise of a banking revolution—one that ups the ante on convenience, connectedness and customer satisfaction. (See part one of this two-part series.)
That kind of grand vision might imply off-the-charts investment. But IoT experimentation has not been the exclusive bailiwick of big institutions such as U.S. Bank and Citigroup. Charlotte Metro Federal Credit Union, a $400-million-asset institution, has dabbled with the technology, says J. Paul Leavell, senior marketing analyst for the North Carolina credit union.
“The Internet of Things has been on bankers’ minds for a decade,” Leavell says. “We just didn’t think about it as IoT at first because it was just the mobile phone.”
Since he’s not confined to the complex, silo-based systems of a larger bank, Leavell claims that his credit union can approach IoT at an advantage. Charlotte Metro Federal is testing a rewards program that would operate in conjunction with customers’ mobile phones, while also working on incorporating payments, or pairing banking or financial information with auto systems. The objective, he says, is “to get involved earlier than at the point of payment.”
Leavall notes the advantages of leveraging IoT tech: “I want to have more relevance with that member. I want to know when a member is using their car to make a payment. … I’d love to know when they’re in the line at Starbucks, know from their past payment history that they typically spend $7 there—and message them that a purchase might trigger an overdraft.
“Or,” he adds, “send them a coupon.”
MasterCard is another player sold on the crossover of IoT and payments. The credit card company envisions a future “where every device is a commerce device,” says Kiki Del Valle, senior vice president for MasterCard’s Commerce for Every Device team. “Long gone are the days when cards were the only form factor for payment.”
In May, MasterCard did a stealth launch of a novel IoT usage, releasing a Groceries by MasterCard iOS (Apple) app. It allows consumers to automatically order groceries at ShopRite or FreshDirect through a Samsung “smart fridge.” (The refrigerator runs as much as $6,000.) The phone’s mobile app can also scan what’s in the consumer’s fridge and when it’s running low, use voice search or recommend purchases.
MasterCard also made two IoT-related announcements at the Money 2020 conference in late October: one with Fit Pay Inc. to develop a payments platform for wearables; and another with General Motors and IBM to develop contactless payment systems for GM cars equipped with OnStar Go. Del Valle says MasterCard is particularly interested in the near-term potential of marrying wearable IoT devices (from jewelry to watches to fitness trackers) to payment, as well as cars and household appliances.
What’s more, MasterCard and its bank partners can already leverage existing infrastructure and investment in its 6.5 million contactless card readers. “Helping drive commerce is less about the device and more about making sure the consumer can pay however they want,” Del Valle says.
At U.S Bank, chief innovation officer Dominic Venturo has plans for IoT tech that extend into myriad touchpoints. With IP protocols and smarter applications in place, this technology architecture could create better monitoring of customer-facing machines—ATMs, kiosks, digital marketing displays and even the customer’s own mobile or laptop—as well as internally track documents, data and physical maintenance.
These interconnected devices, and the plethora of new ones just entering the market such as Google Home and Amazon Echo (Alexa), could improve customers’ access and experience with banks—all while elevating the bank’s brand and delivering more feedback about customers to the bank.
But for the heavily regulated and carefully scrutinized banking industry, no technology is easy to implement, especially of late. IoT’s primary issues include its broader effects on regulatory compliance, IT security, customer privacy and interoperability.
“Obviously, cyber-risk management is going to be an important part of all this, if all of these devices are riding the same rails,” says Jim Eckenrode, executive director of the Deloitte Center for Financial Services. “The risk of managing huge new volumes of data and making sense of it is striking, especially when you look at how difficult it is to manage on existing systems. With IoT, the spigot gets opened up wide on all those data flows.”
Leavell agrees that there are “lots of potential risks.” For example, if you have a banking or payments application that wirelessly links to your car, a person with the right cyber skills could collect your streamed bank or payments data.
Like other industry experts, Leavell recommends the use of multi-factor authentication to initiate access and conduct transactions. “Any time you put payment credentials on another device, there’s a risk for breach,” he says.
But who knows? The more sophisticated the Internet of Things gets, the higher the likelihood some no-nonsense gadget will head off hackers at the pass: a robocop, perhaps.
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.