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Why the Internet of Things Should Be a Bank Thing

Editor at Large

Asked about the Internet of Things, bankers often shrug and admit they haven't given the subject much thought.

But as more "things" — cars, refrigerators, dryers, scales and such — get connected (Gartner forecasts 25 billion new sensors will be deployed between now and the end of the decade), participating in the IoT could help banks stay relevant.

Forward-thinking companies could get a reputation lift from being first out of the gate with interesting apps for the Internet of Things. Banks could also be first to help protect customers from the inevitable privacy and security breaches that the Internet of Things will make possible.

A handful of banks are studying this technology. U.S. Bank is looking at IoT use cases that include secure payment management (think subscriptions and supplies) and information exchange. The bank's innovation center recently made a video about some of the projects it's working on, such as a link between an Internet-connected body weight scale and a financial rewards program. And financial institutions from Santander to USAA to Charlotte Metro Federal Credit Union in North Carolina are pondering a range of IoT ideas.

"As bankers, do we care if our customers connect their refrigerator to the Internet? I say we should care," said J. Paul Leavell, senior marketing analyst at Charlotte Metro Federal. "If you're paying for groceries with your refrigerator, as a banker I want to have my credentials in your refrigerator making that payment."

The most obvious IoT application for banks is in payments. In a commonly floated scenario, a customer's refrigerator senses the household has run out of milk and orders a fresh carton from the local grocery store. The payment seamlessly takes place in the background.

A good experience would incent the customer to use a bank app for this rather than a built-in payment system. Loyalty programs could flow through such an app, and the bank could collect data that could be used in marketing and customer service.

"The Internet of Things opens up a wonderful opportunity for us to get into the lives of our customers and segment them even further than we have in the past," Leavell said.

For instance, if a bank knows which customers are paying parking garage fees from a BMW versus a Hyundai, those car preferences might indicate a propensity for certain financial products.

That brings us to car banking.

"Cars are interesting to think about for any number of reasons, not the least of which is because many people spend an inordinate amount of time in their cars," said Dominic Venturo, chief innovation officer at U.S. Bank in Minneapolis.

Insurance companies have begun using sensors to improve underwriting for collision policies. Down the line, a connected car might not only tell the driver it's time for an oil change, but order the oil and send it, or find a service deal nearby, schedule the maintenance and complete payment when the driver pulls out of the garage.

"Or imagine driving by a parking spot and your device recognizes you're in a parking spot and texts you to ask if you want to pay," Venturo said.

Recently, USAA led the investing round for the company that sells the device featured in U.S. Bank's video, Automatic Labs. The device can be plugged into a car to share relevant data — such as engine diagnostics or where a car is parked — with Automatic Labs' smartphone app and other apps.

No one has come out with a car banking app yet, although FIS is working on one. Such an app would most likely be voice-controlled.

Beacons — wireless sensors that can be connected to the Internet and gather local data — open other possibilities for banks. Westpac New Zealand, for example, is using beacons in its branches to enable staff to personally greet and help customers when they walk in (those who opt in to this feature, of course).

Banks could use beacons in their branches to collect information about customers. "We know how many teller and ATM transactions customers have done, but we don't know how long they stood in line," Leavell said. "We don't know where they go first in the store."

And banks could work with partners' beacons.

"If you're looking for a house, you put a beacon on a sign and download information to your phone from it," Leavell said. A bank's app could then autofill data into a mortgage application.

"If we're not doing that, one of our competitors is," Leavell said. "This presents so much more opportunity for data and segmentation; it's exciting and spooky."

Another use case for the Internet of Things is in commercial lending and international trade finance decisions.

Chips could be used to track the condition of fleet vehicles and factory machines. And at the end of a lease term, there might be a benefit or a penalty to lessees depending on how much they used the items or what condition they were returned in.


(6) Comments



Comments (6)
What's most interesting to me about this article is the implication that IoT experiences will happen within each individual device. Buying groceries through the fridge. Paying for oil changes with your car. That doesn't seem convenient at all, especially when we already have an existing universal integration layer called mobile devices. Look to wearables as the "beacon" (pun intended) of the future of the IoT experience. The sensor is on me collecting data, but the mobile device is my interface, where I am able to interact with the data, make decisions and take action.

Using this framework, it should be easier to imagine future experiences where financial institutions can add value to their customers' everyday lives.
Posted by Onovative-Chris | Tuesday, December 01 2015 at 12:41PM ET
Very interesting read, Penny. I totally agree with what Leavell said - Leveraging IoT devices such as smart refrigerators to get into the lives of customers and segment them even further than banks ever have in the past, sounds like a great idea. Especially with most consumers willing to opt in to release data in exchange for relevant, personalized experiences that will in turn help streamline bank visits for consumers and employees. We have discussed in detail no how beacons can irrevocably change the traditional banking sector here: http://blog.beaconstac.com/2015/03/why-banks-are-betting-big-on-beacons/
Posted by DevikaG | Monday, November 23 2015 at 2:22AM ET
The most important is really to shift the current digital banking mindset and improve our current user experience and de facto get ready with the IoT vision. What does it mean? Let's stop focusing on customerssss... Focus on individual and let him/her decide about the interactions he will have with the bank. When you have understand this... you are ready to enter the IoT echosystem and get the best of it for your bank. The bank will not decide instead of connected object. It will allow them to interact with. Payments are in fact quite interesting... But it does not mean that each object must use credentials. Tokenisation will be usefull... and maybe each objects that could trigger payments should be registered with the bank. The master object (smartphone) of the customer should confirm each payments upper to max limit (2 factors authentication) ... But in fact, this is a bank thing... and maybe the future of banking app is not mobile banking anymore. It will maybe move progressively to some kind of dashboard to monitor and manage transactions requested by external triggers (tools, connected objects, ...)
Posted by beaule | Sunday, November 22 2015 at 4:58PM ET
"The Internet of Things opens up a wonderful opportunity for us to get into the lives of our customers and segment them even further than we have in the past," Leavell said". This is a comment that should be considered by all readers very carefully. Contemplating the statement and its implications should give everyone pause.
Posted by kwrector | Friday, November 20 2015 at 12:19PM ET
Investing in IoT is a self-indulgent diversion. Most banks struggle to deliver a decent customer experience (industry average Net Promoter Score 23) through conventional methods and technology. Nor can they harvest and apply the data they already have. Really, in 5 years how many people will be buying milk through their connected intelligent refrigerators? Thatís the big opportunity in payments? Your customers and shareholders will be better served by improving the functionality, usability, and reliability of your online and mobile banking services, and by figuring out what youíre going to do with all that retail real estate.
Posted by MrPotter | Friday, November 20 2015 at 10:53AM ET
The precursor to IoT is already big (and important) and IoT will be huge. Gartner and the other analyst firms really have no clue how big or how important. That is fine. Directionally they are correct. I tweeted yesterday [link: https://twitter.com/dmgerbino/status/667385096354295809 ] my dissatisfaction with many of the bank related IoT articles I have seen over the last several months. I am very glad to see that Penny Crosman put together a relevant article on the subject.

Many bankers and payments people were in Las Vegas in late October for Money 20/20. I was nearby at the IBM Insight conference and spoke with many people about IoT in general and specifically in banking. There are already agricultural lending use cases in Africa relying on IoT devices that control the release of funds based on stored water for crops. We need to move out of our comfort zones of how banking works today and look at what is possible. There are both direct and indirect use cases that will need to be integrated into the banking ecosystem. The challenge with IoT is the data it produces. There is a concept called Dark Data [Defined and sized: https://datafloq.com/read/dark-data-big-datas-best-friend/950 ]. Dark Data needs to be solved as IoT has the potential to add to the challenge. The emerging tools from IBM and others already exist for analysts to make use of this data and provide insight. Dark Data is not the only problem, there is data we could be storing that we are not. All these pieces need to come together in order for the banking sector (and all the rest) to find the data that provides insight to make banking better. We are truly in the midst of exciting times.
Posted by dmgerbino | Friday, November 20 2015 at 12:22AM ET
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