How the IoT is transforming financial services
For better or worse, connected devices could radically change banking and insurance
If there is one area of technology that's getting everybody excited, it's the Internet of Things connected technologies and objects that have the ability to change our lives and the world of business in many of different ways.
While the IoT may still be in its infancy, it's expected to grow to massive levels over the next few years. According to Cisco, the market's size could be worth a staggering $19 trillion within the next decade and could add over $10 trillion to the world's GDP. Analysts at McKinsey Global, meanwhile, expect the industry to rake in $6.2 trillion annually by 2025.
These numbers are exceptional and however you look at IoT, the fact remains it's a revolution that will have an impact on us all. There are many people who believe everything will be connected to the internet, not just devices like smartphones and computers, and that it will eventually be abnormal to come across an object that doesn't have a connection.
There is, however, often an assumption that IoT is focused on our domestic and consumer needs, but that couldn't be more wrong. Yes, we'll see everyday objects like kettles and fridges become connected, but IoT will also make major strides in the world of business and enterprise. One notable area ripe for transformation by the IoT is the financial services and insurance sector.
Insurance is an expensive business. Customers pay for policies to protect their homes, cars and other valuables, and expect insurers to foot the bill if something goes wrong. While this is how the industry has always worked and seems quite fair, insurers are starting to lose too much money doing business this way. Consequently, it's increasingly being seen as dated and unsustainable.
This is where IoT comes into the picture. Neos, which has just launched, claims to be the UK's first connected home insurance company. The firm provides consumers with the latest connected tech to monitor potential threats in real-time. That way, they can identify problems and fix them before damage occurs.
Matt Poll, CEO and co-founder of Neos, says his company wants to help homeowners prevent accidents from happening. "We believe insurance should do far more than just pay out for claims. It's in the interests of both the consumer and the insurer to actively prevent things from going wrong. Preventing damage saves consumers the hassle of extensive repairs and the heartache of losing their priceless possessions, as well as reducing costs for the insurer," he tells IT Pro.
"That's why we're taking a fresh approach to insurance, harnessing the power of internet connected devices to monitor for the biggest threats to the home fire, floods and theft in real time. Any time the user wants to check up on their home a few taps of the app [will grant] them instant peace of mind, and if something does go wrong they can be alerted immediately."
While the latest innovation can offer many benefits, there are always plenty of people who need to be convinced on its merits. Indeed, when both the financial and time costs involved are taken into account, they may have a point.
Alexandra Foster, head of insurance and strategy of global banking and financial markets at BT, says insurance firms should begin implementing IoT strategies because the benefits are wide-ranging, but they need to be aware of the challenges at the same time - especially around data.
"For insurance companies traditionally a digital laggard the Internet of Things has the potential to transform their relationship with their policyholders. Used imaginatively, the data collected and analysed through the IoT should facilitate a better understanding of a customer's risk profile, cleverer marketing and more accurate pricing. But the use of this data must be managed safely, securely and confidentially," she says.
"More and more CIOs and CISOs are coming to us under pressure not only from growing security requirements but also by demands for increased scalability as the sources of data presented by the IoT increase. They want to know how they can manage and analyse the huge amount of data the IoT will generate while ensuring it is protected," she adds.
When it comes to working with IoT and data in this space, Foster recommends firms take a cloud approach. "One of the answers we at BT give is what we call a 'Cloud of Clouds' offering, [which combines] public, private and hybrid services into one single cloud that companies can manage centrally. This creates a highly secure ecosystem that connects thousands of applications and services with users worldwide," she says.
Transforming finance and banking
It's not just the insurance sector that's going to benefit from IoT in the near future; Finance and banking firms will also reap the rewards. Dharmesh Mistry, UXP and digital product director at financial services software provider Temenos, predicts the "Bank of Things" will come to fruition as the industry moves towards a connected tech revolution. Essentially, like insurance firms, our banks will rely heavily on connected devices, sensors and data.
"We are on the cusp of a new technological dawn that is going to bring about the Bank of Things'," says Mistry. As they gain access to an increasingly rich data set about their customers' lifestyles ... financial institutions [will be able to] respond in real time to customer needs. It will transform products such as insurance, which will become more personalised to suit an individual's lifestyle."
"With connected homes, one account for a family could connect utilities with the bank, linking a smart meter to the bank account and switching between suppliers to get the best deals; meanwhile in the kitchen, your fridge will manage your shopping, and possibly even work with the bin to record which items have been taken from the cupboard," he explains.
Banks could even play a more active role in our daily lives, providing spending advice.
"As the concept of connected cities comes to fruition, banks will become more helpful in day-to-day situations," Mistry says. "Your bank could send a warning to skip Starbucks that day if you have overspent on sundries that month; it could prompt you to think twice about buying a takeaway pizza if you haven't exercised that day; or could suggest delaying going into the city by an hour, to avoid peak toll fees caused by current congestion."
"In connected cities, banks will have a sizeable role to play in the facilitation and control of payments, but again, there are also huge opportunities for them to act as trusted infomediaries not only in providing relevant financial offers, but by supplying contextual advice and rewards in other areas of life to attract and retain customers," he claims.
Connected technology could also make financial services more accessible to emerging markets. Kriti Sharma, VP of bots and artificial intelligence at Sage, says: "For me, the world's emerging markets give us the best examples of how IoT is revolutionising banking and finance. IoT enabled devices like kiosks and video conferencing have made banking accessible to entirely new populations.
"Of the 130 million bank accounts opened in India under the financial inclusion program, two thirds are in rural areas there's huge appetite for banking in these spaces, but setting up physical bank branches is often impossible. And in Africa, IoT devices have become the primary interface for businesses to manage all aspects of their money and business performance."
The IoT will no doubt continue to develop and impact more industries as the years go on, but it's increasingly clear that it's already affecting diverse sectors such as banking, finance and insurance, as well as the traditional examples of manufacturing and transport. It will be be even more interesting to see how this revolution moves forward in the future.