Saturday, February 18, 2017

Internet of Things Banking: What Could Possibly Go Wrong?

Many years ago I was counseled: "Just because you can do something does not mean you should do something."
Good advice, it keeps you grounded when you catch yourself shifting into superhero mode.
From FinExtra:

Building a case for Banking of Things
The networked economy of devices could hold promise for accelerating both banking services and operations to the next level of seamlessness
On the one hand, rising operating costs have led banks to explore technologies that could reduce the cost of operations and increase revenue while minimising costs.

On the other hand – the consumer side - clamour for ‘super-convenience’ has already reached a crescendo with banks engaging customers in discussions around sharing data for personalised services. Location based offers, personal financial management, robo-advisory are instances of solutions that rely on customers’ willingness to share personal information in exchange for convenient, contextual, customised advice and services.

So why should ‘super-convenience’ draw any attention when digital has improved the convenience of banking?

Going beyond digital
Undoubtedly, digital banking heralded the era of accessibility. Digital levelled the playing field for both established and upstart players, paving the way to move beyond the Age of Information Asymmetry, where information was held under the control of a select few.

Admittedly, analytics has played a crucial role in furthering the evolutionary journey, generating insights delivered at the right time through the right channel with the right messaging. The blend of digital with analytics has thereby, helped shape the Age of Information Democracy.
But for banks aiming to move beyond the role of transaction facilitators to information brokers and advisory partners, there are newer frontiers to conquer. 

Here comes the Internet of Things
There’s a revolution brewing and it’s marching towards the bastion of financial services, so say the tech experts.

A lot of hype exists around the technology called Internet of Things or IoT. Turns out it’s not a technology. It’s a framework.

Still, what is it?

In a nutshell, IoT comprises sensors, actuators, software and electronics that can be embedded in physical objects or ‘things’ – think anything - from cars, homes, clothes, streetlights, to even human bodies – all connected through either wired or wireless networks and using the Internet Protocol to communicate with the Internet. At its simplest, IoT is the coordination and communication of the data generated by all such interconnected things.

Let’s take the retail or the consumer facing side – an average customer uses up to 3-5 devices (smartphones, smartwatches, IPTV, laptop, desktop) to connect to internet. Household devices such as refrigerators, washing machines, thermostats and so on, if connected, will generate thousands if not millions of data. Add automobiles and wearables to the mix - the volume only grows larger. Essentially the permutations and combinations of the range of ‘things’ that can be connected to spawn data are only bound by imagination.

So, can banking remain untouched by IoT? Should banks even bother given the security, privacy and interoperability challenges posed by IoT? Yet, is it wise for banks to remain immune to this technology?

Certainly, novelty of a technology shouldn’t be the reason for considering it. Given the pace at which new technologies are introduced, it’s easy to get blinded and side-tracked by the sheer dazzle of the variety.

The real benefits of any technology can only be evidenced through identifying practical use cases. And in looking at how IoT can transform banking, there are many scenarios where the coming together of the two, IoT and banking, will benefit not just the customers but banks themselves.

Banking + IoT = Banking of Things
Banking’s mainstay is lending and taking deposits, while managing risks. But increasingly a sophisticated and demanding customer base means banks must find ways to stay relevant by not just meeting customer expectations but also devising new experiences.

Banking of Things (BoT) could help create new products, services or business models. BoT could usher in an era where products are designed not by banks but led by customers. Customers would be incentivised to build a product or a service, say a home loan or savings account, and decide the interest rate, which in turn will be dependent on behavioural factors such as customers’ utility payment patterns or eating habits, new age indicators of characteristics such as prudence and health consciousness.

Additionally, BoT could give rise to unique partnerships forged between banks and industry players, from not just within but also outside the financial services ecosystem. These could simplify or enhance the value propositions besides addressing challenges banks typically grapple with – those of compliance, unified view of customers, and customer experience.

Here are some potential use cases for banking of things in consumer finance and banking operations, each designed to simplify or improve some aspect of banking:

Appliances-turned-POS Terminals
What if home appliances could signal when they are about to malfunction? What if the appliances could place orders for their replacements or schedule repair and also initiate payments, on behalf of customers? Effectively, BoT could transform any object such as a fused bulb or faulty thermostat into a point of sale terminal, placing orders and seamlessly connecting to online payment systems. Data, read by smart sensors embedded in all such objects, would be streamed continuously to a cloud based analytics platform. Banks could extract and combine this information with other transactional data to proactively alert customers to maintain adequate balance in their accounts in addition to recommending potential cost saving options.
Banks thus, could operate along the entire continuum, from facilitating payments to being real time advisory partners.

Thank you, Jeeves, er, refrigerator
Smart fridges are already here, alerting users to replenish their fridges when the food quantity levels decrease. The data generated by the fridges could be of interest to the banking providers, who can study the food consumption patterns of customers to tailor the right set of products and services such as offering ‘Amazon-like’ services – using data from the smart fridges to predict food ordering schedules, complemented by simplified payments....MORE
See also:
Putting your kettle on the Internet of Things makes your wifi passwords an open secret (plus Izabella Kaminska does a driveby
...From FT Alphaville:
Cybersecurity dispatches: Managing the IoT poltergeist threat
Imagine the scene in the not too distant future.

An Uber self-driving electric car has just dropped you home. Your front door has recognised your face, and your fingerprint has authenticated that it’s definitely you. You get into your house, not a key in sight, kick off your shoes, and happily discover that the 3D printing feature in your fridge has already printed the food you plan to consume for dinner. All the appliances you need are on. And everything you don’t need is off, nice and efficiently saving power.

You decide to treat yourself to a quick 30-minute Netflix holographic update, only to get a nudge from your wearable tech that you’ve still got a 10 minute exercise deficit to meet your daily exercise quota. It’s a problem because you happen to have signed up to the extreme health management option which shuts down ApplePay access — without which Netflix won’t work — if you fail to meet your objectives. You quickly get busy on your smart-grid connected treadmill (which conveniently sells off the energy produced by your system back into the grid).

When all of a sudden… your utility door flings open and your iRobot Roomba begins singing Daisy, Daisy....MORE....
"How Smart Houses And Big Data Will Change Real Estate Economics" (just wait 'til your house gets a virus)