Blog By: Tushar Chitra, Senior Director, Product Marketing, Oracle Financial Services
As disruptive technologies continue to fuel innovation, banks are not likely to remain unaffected by the emergence of the Internet of Things (IoT). While IoT has been around for longer than the surrounding hype, it’s time to acknowledge that IoT is real and exhibits tremendous growth. Research* suggests that around 6.5 billion things will be connected in 2016 growing to 20.8 billion by 2020 – creating a vast network of appliances, cars, smart phones, manufacturing equipment and wearables with a potential to reshape our lives.
Are banks prepared to seize the new opportunities presented by IoT? Here is a three dimensional perspective on how banks can gear up if indeed IoT reaches a tipping point.
1. Get ready to Connect
Banks need to constantly re-design customer experiences to reflect the lifestyle trends of customers and to stay ahead of niche players offering innovative services. We have seen a transformation in the way customers interact with a bank – which include touch points ranging from telephone, web and mobile to the now popular apps and wallets. IoT is further set to accelerate this proliferation of customer touch points requiring banks to take a fresh look on how they establish the customer connect. For instance, we saw how the Amazon Dash Button enables a consumer to place a direct order for a re-fill and also make the payment by just a single push of that button.
Consider a scenario where a car acting as a wallet can make payments on the go. A biometric identification on the car’s ignition start button can help a fuel dispenser instantly authenticate the driver and authorize the car for refueling. Or when driving into a parking lot the parking can anticipate the car’s arrival, direct it to a vacant spot and deduct payment as it leaves, all this without the driver having to stop or look around. And when the car is close to a Best Buy store, the bank can make an attractive loan offer on a television set that the consumer has been browsing online and social media for days. What if the insurance company can gain insight about the car’s health and the driver behavior? Banks and Financial Services Institutions can leverage the IoT ecosystem to connect and act as trusted advisors using information from the networks built around the life of the customer - from cars, kitchen, toaster, coffee maker, washing machine, refrigerator, medical records, healthcare providers, doctors, retailers, weather, cars, traffic signals, web, social, and so on.
2. Design for Scale and Agility
As IoT innovations cut across industries, it will enable banks to collaborate with their customers and businesses in new and unprecedented ways. Undoubtedly, there will be a deluge of data stemming from IoT, creating an impact unseen since the birth of internet in the 90s. We will see ‘Cloud’ applications and ‘IoT’ produce a virtuous circle of growth. This data will be up for grabs and organizations across industries will benefit based on how well they can leverage big data insights in real-time. Banks can draw insights from the data available to help bank personnel in functional roles, say credit officers for identifying risks and evaluating credit worthiness, or collection agents for using the data for debt recovery. Origination process for a bank is likely to be disrupted considering the vast network of devices, people, data and the resulting hyper connectivity. Loans can potentially originate from failing washing machines, refrigerators and car service stations. Banks must be able to adapt to the changes with improved operational strategies and by designing for agility and scale within the bank. IoT in banking has the potential to redefine a number of functional roles, business processes and products. IoT is capable of creating an impact on the banking industry similar to what Ford’s Model T created for the automotive industry in the early 20th century. When we look back, the adoption of assembly lines in the manufacturing of Model T created massive efficiencies, scalability and cost reduction which led to its success and widespread car usage. Similarly, IoT will raise the bar for operational agility within the bank.
In order to stay relevant, banks will be forced to readjust their technology requirements. Banks should look at ‘business technology’ as an approach to prepare for IoT. In this approach, customer interests are identified first and then technology requirements are designed to meet those needs – this is different from the traditional information technology, which is highly focused on internal operations. To manage both the complexity and the level of uncertainty, banks must build a modern banking architecture and an application landscape that is flexible, one that supports real-time processing capabilities synchronized across channels.
Such increasing levels of sophistication in the front-end driven by IoT will push banks to move from an omni-channel world to a world of ‘intertwined’ channels. Transaction volumes will see massive growth with an increase in the number of customer touch points. Banks that are capable of scaling up to the demands of new banking methods stand a better chance of reaping the benefits of IoT. Conversely, a traditional bank operating with a complicated legacy system runs the risk of losing their competitive edge to other agile banks. Chances of cost escalations while trying to cope with a sophisticated front end cannot be ignored in a legacy system. Traditional banks have the choice of running their operations on an updated legacy system or moving to a banking platform which is modern, nimble and scalable.
3. Bake in Security
On one hand IoT builds security through more monitoring devices and sensors, and on the other it increases vulnerabilities because of the number of entry points available to hackers. With more and more unsecure devices connecting to the internet, banks run the risk of becoming easy targets for hackers. We have witnessed enough number of data breaches across organizations in the past to know why banks should be more vigilant.
The current level of security features within the banking landscape is simply inadequate in an IoT ecosystem. A strategy must be in place for banks to mitigate potential risks by building enough safeguards against data siphoning. For example, consider your printer on the IoT network is running low on ink and the cartridge needs a replacement. Now, the printer can place a direct order for a new cartridge with an online retailer by itself using your banking credentials linked to your retailer account – of course as authorized by you. If a hacker is able to gain access to your printer, then he may also possibly be able to gain access to your retailer account and place orders for a host of things that he may want to buy! Also, consider the fact that your printer and the retailer account could be linked to your accounts on other applications and a host of other devices like laptops, mobiles and tablets, etc. Security risks have just been multiplied exponentially!
To step up security in an IoT world, banks must include increased levels of authentication and authorization which can include biometric measures and geo-location/contextual verification. A holistic approach to security will encompass people, data, network, applications and processes. We can also expect core banking regulatory and compliance mandates to get increasingly stringent and mechanisms for guarding customer information and privacy will be tightened. Corporate CEOs and CIOs will be uncompromising when evaluating their choices for a banking partner and security will be a critical factor that will influence their decision.
With IoT, the opportunities for multi-device banking will continue to rise and bring in several new customer touch point apps, increasing the need for more real-time data integration and reconciliation within a bank’s application landscape. Banks may be required to expose many parts of banking functions as API services to these customer touch point applications. This emphasizes the significance for a common customer data hub and service oriented architecture. Banks will need these two elements to form a strong foundation that can house and serve a constantly evolving application landscape. While these are key ingredients, getting the right design and level of granularity will determine success.
It also drives home the point that banks will have to gain a deep understanding of their customers to derive maximum benefit from the new and emerging opportunities. However, gaining insights that enable real-time contextual customer engagement requires dealing with a large amount of external unstructured data and structured data from within the bank’s application landscape. Early adopters who are ready with an infrastructure and intelligent strategies will be better poised to gain a competitive advantage and win new customers, especially the millennials.
Finally, going back to the question on whether IoT can shake the banks, the answer to this may be in the answer to another question –
How ready is your bank?