Ethan Wang, Product Manager, Infosys Finacle and Pramod Krishna Kamath, Lead Product Manager, Infosys Finacle
Banking on Things
IoT is the interconnection of uniquely identifiable embedded computing devices within the existing Internet infrastructure. IoT is expected to offer advanced connectivity of devices, systems, and services that goes beyond machine-to-machine (M2M) communications and covers a variety of protocols, domains, and applications. In the financial services space, the interconnection of these embedded devices is expected to usher in automation in several legacy processes.
As IoT led digitization begins to take root, new business models and products are emerging. This is opening up new frontiers of innovation that can potentially reshape customer experiences, and throw up clear winners or losers in the financial services sector.
IoT Use Cases – Shaping Banks’ Digital Future
IoT has the potential to impact traditional business processes in banking such as KYC, lending, collateral management, trade finance, payments, PFM, and insurance. Coupled with other emerging technologies, such as digital identity and smart contacts, IoT can create new P2P business models that have the potential to disrupt banking in a few areas. Listed below are 12 use cases that may be adopted in banking in a time span ranging from near-term to long-term.
#1 Account Management on Things
As more devices acquire digital interfaces, the term “mobile” or “digital” banking will acquire new meaning and customers will be able to access their bank accounts from practically any “thing” that has a digital interface – for instance, from entertainment systems in autonomous cars or planes.
Banks will be aware of the context of the channel and can provide appropriate contextualized service or advice enriching the interaction experience. Biometrics – voice or touch – can simplify account access in these new “anywhere” digital channels. Processes requiring physical signatures could use “Wet Ink” technology, i.e. The customer can remotely sign through any touch screen device and the signature can be cloned onto physical paper with “Wet Ink”. This will eliminate barriers associated with in-person, paper-based transactions and enable clients to conduct business even when they cannot be physically present.
#2 Leasing Finance Automation
Real-time monitoring of wear and tear of assets as well as metrics like asset usage and idle time could provide important data points for pricing of leased assets. This could lead to introduction of a new daily leasing model for a wide variety of digitally enabled assets – effectively turning even traditional products into services. Terms of leasing could be simplified and automated as the bank wields greater control over the leased asset. For instance, in case of contract termination or default, the leased asset could be locked or disabled remotely by the bank.
#3 Smart Collaterals
IoT technology can enable banks to have better control over a customer’s mortgaged assets, such as cars, and also monitor their health. In such a scenario, a retail or SME customer could possibly raise short-term small finance by offering manufacturing machinery, cars, or expensive home appliances as collateral. The request for financing as well as the transfer of ownership could be automatic and completely digital. Enabled by digital identity for people as well as things, the transfer of ownership of an asset can be achieved in a matter of seconds. The bank can then issue the loan immediately, and monitor the collateral status in real-time without the need to take physical custody of the asset. The bank can remotely disable or enable the machine/motor anytime based on defined business rules. For instance, in case loan EMIs are not paid, the engine could be disabled. The quality of the collateral can also be monitored in near real-time.
#4 Automated Payment through Things
When moving on to payments, integration of IoT and payment functionality will lead to greater number of payment endpoints.
Beyond the clichéd milk ordering refrigerator, we are already starting to see the beginning of the use of connected devices and wearables, for instance, payment through Apple Watch or the fitness band Jawbone. When machines are able to perform transactions with machines in real-time on a marginal cost basis, the traditional concept of payments will become obsolete in many use cases as transactions become automated and integrated into other services – virtually any “thing” could include an automated payment experience. Though the IoT raises certain security concerns, personal biometrics and digital identities could potentially increase security in payments, if done right. Eventually the opportunity extends not only to the end user, for whom automated payments will lead to greater convenience and smarter transactions, but to banks, payments companies, retailers, and technology manufacturers.
#5 Risk Mitigation in Trade Finance
Tracking of high value goods delivery using RFID is already reality in the trade finance space. IoT will accelerate this to include fine-grained tracking of the asset, for instance, monitoring temperature of the container for shipments involving temperature sensitive goods such as pharmaceuticals and medicinal molecules. Alerts could be triggered if there is a chance of spoilage during the shipment process – say one of the parameters being monitored goes out of bounds. These implementations can result in risk mitigation and more informed decision making at banks for scenarios involving trade finance.
#6 Wallet of Things
As an extension of automated payment through things, when more devices become digital and “smart”, it will be possible to have wallets associated with each device. For instance, an autonomous car could potentially pay for parking, gas, rental or even maintenance service using its embedded wallet. Each and every home appliance or consumer equipment could eventually host an embedded, pre-funded wallet that is capable of managing its running expenses on its own.
From an owner’s perspective, a digital identity based “wallet of things” might provide an integrated view of costs and expenses associated with owned or leased devices.
#7 Contextualized PFM
Early incarnations of PFM focused on little more than expenditure categorization and generic insights for users – such as benchmarking finance management with “People like Me”. The future generation of PFM tools can offer more contextualized alerts and advice by accessing IoT data from the customer’s owned or leased devices. For instance, alerts on parking fees or air conditioner electricity consumption could be contextualized based on real-time data. These alerts could be based on the owner’s estimated personal budget for electricity consumption or parking fees. This paradigm will enable usage of devices and services to be capped to a pre-defined amount and has the potential to facilitate better management of service consumption and operating expenses.
#8 Frictionless Customer Onboarding and KYC
Banks crave holistic insights into customers’ financial behavior. Having this information during customer onboarding can help them profile the customer correctly and cross-sell relevant products.
However, information available at the bank’s disposal at this stage is scarce and does not provide a comprehensive view of the customer’s financial behavior. In a world where all of the customer’s devices are linked together with the customer’s digital identity, having access to the customer’s unique digital footprint might help uncover usage patterns of different devices and provide insights into financial behavior as well. People already use their Facebook / Gmail id to login to different Internet sites; this might be extended in the future to have a blockchain-based unique digital signature which is used for most transactions. This universal blockchain-based digital identity may also help with KYC processes in the future. Knowing about the financial inclinations of the customer through the digital signature, banks can offer relevant products at the time of onboarding – for e.g. offer a co-branded credit card designed with rewards from a particular petrol station that the customer frequents.
#9 Tailor-Made Auto Insurance
Insurance Companies are already offering devices that plug into the on-board diagnostic port of cars and send driving behavior data back to them. Based on driver habits, the owner is eligible for discounts. However, innovative products, such as those from Tesla Motors, promise to take digitization to a whole new level in the automotive industry. Tesla Cars even have a Linux-based OS that automatically upgrades features “over the air”. This digitization will throw up newer metrics that can be used to provide tailor-made insurance to customers based on driving habits, engine health and general wear and tear of the vehicle. Additionally, by overlaying GPS data on the actual speed of the vehicle in speed sensitive zones (such as schools or residential areas), insurance companies can gain critical insights into the likelihood of accidents and price insurance premiums appropriately.
#10 Real-time Life Insurance
Companies across sectors are looking at connected programmable products and services that can generate customer-specific data, which can eventually be aggregated to build our digital twins.
While conventional thinking might lead us to believe this is intrusive, business models have begun to emerge that embed incentives for customers to share data willingly. E.g. Fitbit is offering integration with Wellcoin to enable users to purchase rewards based on sleeping habits, exercise routines, beverage preferences etc., with the Wellcoin virtual currency. All this may mean that while today it is almost impossible to issue life insurance automatically, IoT may empower users to do just that. By combining health metrics from wearables with medical history and a biometric digital identity stored on blockchain, people will be able to request, and get life insurance instantly anywhere, anytime. Time required for underwriting could also be drastically cut from months to near real-time.
#11 IoT enabled Smart Payment Contracts
Smart contracts are computer programs that facilitate, verify, or enforce the negotiation or performance of a contract. IoT, together with smart contracts and digital identity, can make payments partially or fully self-executing and self-enforcing. For instance, pay after a trial of 7 days for home appliances, or control access to a house based on timely payment of rent. This model of IoT-assisted smart contracts holds huge potential in terms of process automation and also mitigation of operational risks. More importantly, this can plausibly create new product options which offer better customer experience.
#12 P2P Finance on Tangible Assets
Peer-to-peer models have proved to be a disruptive trend for banks in areas such as lending. A futuristic application of IoT might extend the P2P model to several new areas and impact traditional financial services products such as leasing.
In the future, it might be possible to lease assets to individuals or businesses through 100 percent online services that directly match lessor with lessee.
Leveraging digital identity, the leasing process can be completed in real-time as the ownership of the asset can be switched from lessor to lessee in a second after payment is confirmed. This has the potential to unleash a completely new business model, whereby any financial dealings based on digital objects can be carried out peer-to-peer, disrupting banks in areas such as leasing and mortgage.
IoT has the potential to reimagine banking as we know it completely. And it is more important than ever for banks to look at providing services and products on the channels that their customers prefer. In 2017 and beyond we will see progressive banks take it a step further and provide “banking on things” – which can be anything from a smart car, to smart walls.