Perhaps more than any sector, digital technology has been disrupting the Financial Services industry in complex and sometimes unexpected ways. There is even a new term for it: “FinTech” – though if you ask two people what it is, you might get four different opinions.
Now, traditional financial organizations are leveraging digital technologies for innovative financial products and services. But we are also witnessing the emergence of new financial services organizations that are digital technology focused from the get go.
Interestingly, Internet of Things (IoT), especially the Industrial Internet of Things and Industrie 4.0, realizing the Fourth Industrial Revolution, is having a tremendous impact on the financial industry. IoT is no stranger to Financial Services – especially banking. Many consider the ATM machine as one of the earliest connected devices for banking – changing how consumers accessed their funds. But today, with the more recent advances in computational speeds and Artificial Intelligence (AI) in conjunction with other core digital technologies, IoT may end up being the most disruptive technology for Financial Services!
We have already seen some of the disruption through mobile banking. Depositing checks via a mobile apps can be achieved with a couple of clicks. Complex financial transactions can also be carried out via mobile applications. In the next couple of years there will be many more connected (aka IoT) devices than just smartphones and tablets.
These devices are becoming ubiquitous and an additional channel to conduct different types of interactions, including of course financial transactions
Here we will highlight three major areas of Digital Transformation with IoT in Financial services. These are not orthogonal and there are definitely interdependencies.
- Monitoring – Insight to Action: By 2020 there will be anywhere between five to eight connected devices per individual. Everything from the location of the users, to their movement, transactions, and preferences could potentially be monitored. A tsunami of raw data will be generated by device connectivity. Big Data? More like Thing Data? Fraud detection, compliance and avoidance will become tremendously important and a high priority in Financial Services. Using AI techniques, device data combined with transaction data can be mined to gain new customer insights. This insight can then be used to detect fraud and resolve fraud vulnerabilities, especially through automatically instantiated dynamic cases that are intelligent and contextual. Connectivity can also be used to make next best offers that include financial transactions or financial products. Connected auto as well as connected retail organizations are starting to leverage the consumer connectivity to push offers. FS can do likewise, through a variety of channels, that is discussed next …
- Automation of Payments through IoT: From connected cars to connected appliances, a plethora of new omni-device channels are becoming seamless for the consumer. She can use multiple devices to carry out a number of financial transactions – banking, wealth management, purchases, etc. Connected devices (aka IoT) are becoming channels for the consumer. The mobile device is the most obvious and the way we process payments - instantaneous and seamless. These transactions can also now be fully automated with connected devices incorporating financial transactions. Secure payments are now offered to connected devices – through connected vehicles, connected homes, connected wearables, or connected appliances. One example, the Visa Ready Program for Internet of Things now provides IoT device solution providers, as well as customers, a path to embed secure payments into their connected devices, enabling anything from a watch to a car to a connected appliance initiate payments – seamlessly and automatically. Devices being smart and enabled to conduct financial transactions opens up many new opportunities for automation– and yes, also challenges for governance. Enabling automated payments has yo have even more stringent requirements for security. One emerging FS technology being experimented for IoT is Blockchain, that is discussed next …
- Blockchain and Bitcoin for IoT: One of the most innovative and disruptive FinTech technologies is the emergence of Bitcoin cybercurrency that is based on the underlying blockchain technology for distributed financial transactions. Blockchain and bitcoins are being leveraged for IoT applications as well as IoT issues like security. Blockchain technology claims to be secure, is peer-to-peer, and distributed. It avoids many of the vulnerabilities of centralized systems. Of course the jury is still out on blockchain and bitcoin. Like all new technologies there are several technical and adoption challenges. Nevertheless, it is becoming increasingly pervasive. There are two fundamental advantages of blockchain for IoT. Last year we witnessed a major Internet denial of service security breach that was caused by insecure IoT devices. Blockchain technology can be used to secure transactions between devices, much the same way it is used for secure bitcoin cybercurrency transactions. More importantly, the blockchain, potentially with bitcoin cybercurency, can be used for peer-to-peer policy contract as well as financial transactions involving connected devices.
These three areas are only some clearly illustrating how financial service technologies can benefit and be leveraged in FinTech.
ABOUT THE AUTHOR: Dr. Setrag Khoshafian is an author, speaker, and leading expert on the Internet of Things, digital process automation, and digital transformation. As Pega’s chief evangelist and VP of BPM technology, he provides valuable insight on business transformation and innovation to our clients.