Banking of Things (BoT)

The Wall Street Journal’s article titled “Measuring the Economic Potential of the Internet of Things” cited McKinsey’s estimate that by 2025, the economic value of the Internet of Things (IoT) will be somewhere between $4-11 trillion. Couple this with  4.3 billion smartphone users by 2023 and the emergence of digital banking and you have the rationale behind the Banking of Things (BoT).

First things first, what is the IoT?

In the most basic terms, the IoT is a series of interconnected ‘computers’ (electronic devices capable of receiving data and performing certain functions) that communicate with each other. For example; The city of London’s recently launched project to connect a series of street lamps to improve efficiency of operation, with the aim in mind that these lamps or ‘nodes’ in more technological terms, will sometime in the near future be able to monitor pollution levels and more. With the rapid increase in broadband speed and availability, the day that everything is connected may be closer than you might think.

Why do Banks need the IoT?

These days, Banks are facing a constant uphill struggle to stay relevant, with new, cheap and efficient easy access FinTech start-ups representing a serious threat to the retail banking industry. It is not only market newcomers sharpening their spears, but also the market itself. The rolling out of PSD2 and Open Banking regulation has sparked what some are calling a financial services revolution, by attempting to ‘level the playing field’ by opening up consenting customers account and transaction data to authorized third party providers, and in turn granting these parties the ability to authorize payments directly from their account. This is primarily causing a shake up across the money management, payment and lending markets, prompting an urgent need for banking innovation…. below we have provided a quick reminder of the regulations.

Taken from one of our previous articles “Recap : PSD2 and Open Banking”

• Money Management: It is now possible to view all your finances in one place, therefore increasing competition and transparency. Apps such as Mint and Yolt (ING) offer this, and we are starting to see more and more banks develop their own ‘open’ applications.
• Payments: There has been a ‘cutting out’ of the middle man which has made payments vastly more simple and cost efficient. The customer, who consents to third party providers accessing their data, can complete a transaction whereby the money is taken directly from their account, without contacting ‘acquirers’.
• Lending: The process of securing a loan, which includes proving to the company or investor, whether it be institutional lending or P2P, is becoming a lot straighter forward. The lender, for example can be given one off access to the income and expenditure data for the party they are investing in.

What does this mean for Banks…?

The incumbent banks are facing a threat in the form of commoditization, as third parties are now capable of owning the primary customer relationship via a separate single interface (other than that of the incumbent). There is also an increase in competition due to the emergence of more personalized and in-depth price comparison between account providers.

The opening up of Bank data leads to data ubiquity, which is something that Banks, on aggregate, have failed to take advantage of. This has in turn lead to the ever-growing line of competitors wanting “a piece of the pie” not only comprising FinTech start-ups but also firms like Amazon and Apple, all who make a considerable effort to harvest and analyze data.

Its not all doom and gloom

The arrival of the BoT concept brings new ideas to the table, which could revolutionize the way we, or rather ‘things’ pay, and help Banks reclaim some ground lost in the last decade.

The Banking of Things is essentially the application of IoT to the Banking industry. The concept means pretty much any IoT device can be transformed into a point of sale (POS). So what does this mean and what are the possibilities? A point of sale (POS), or point of purchase, is the place where a customer executes the payment for goods or services, and where sales taxes may become payable, whether it be in a physical store, where POS terminals and systems are used to process card payments, or a virtual sales point such as a computer or mobile electronic device. Here’s an example of how the BoT can transform our daily lives…

Imagine your household objects; your fridges, your light bulbs and your television remote…. now imagine them smarter, imagine them with POS capability. Your light bulb is equipped with a sensor which automatically orders a new bulb (after informing you and receiving confirmation) by communicating directly with the vendor, e.g. Amazon. The bulb will have purchasing capability and on your bank statement, you will see outgoings titled “bulb x 2” or “milk” from the fridge sensing your supplies are depleted….

In theory, pretty much anything with IoT capability could become a POS, so the possibility of a full connected household and city moves closer each day.

“Better banking”

Below we have an extract from Temenos‘ report titled “What the Internet of Things brings to banking” By Dharmesh Mistry, UXP and Digital Product Director, Temenos.

Better banking There are already examples of innovative approaches to banking services:

• Santander teamed up with carzapp to involve dealerships in a car-sharing scheme. Customers use an app to pick up and drop off vehicles as required, one benefit being that they can use different models – a people carrier for a holiday or a convertible as a treat – rather than having to stick with the one they own. The scheme was launched in Germany where Santander is one of the largest providers of car finance in the market, and is clearly very different from simply advancing a loan.
• Poland, Idea Bank has a fleet of vehicles that travel to business customers so they can deposit their takings or withdraw money with ease. You can request the car free of charge via an app and it will arrive at the chosen pick-up point. The bank claims the average deposit made through the mobile ATM is three times higher than at a bank branch. A fleet of self-driving cars could make this an even more viable service.
• Canada, BlueShore Financial has been thinking about how passengers in driverless cars will fill their time. In response it has come up with new interfaces designed specifically for car windscreens, so that customers can review their wealth portfolios as they travel.

These are just some of the imaginative ideas that connected cars have stimulated in the finance industry, and in the era of the “Bank of Things”, there will be a lot more to come.