IoT is a major opportunity for financial services
The Internet of Things (IoT) will generate vast amounts of information that will enable financial services companies to deliver existing services better and develop entirely new categories of services.
Financial services deal largely in numbers on computer screens. The IoT uses sensors to connect billions of physical things—buildings, machines, people, medical devices etc. So what does the IoT have to do with financial services?
In fact, the IoT is about to provide an array of new use cases for financial services.
Consider for example commercial insurance. Deploying sensors on shipping containers and vehicles will enable insurers to detect and model risks due to theft or damage. This will move pricing of insurance from an actuarial exercise to an assessment of risks and losses in close to real time. In trade finance, smaller businesses will be able to ship goods more efficiently as data from embedded sensors tracks the location and condition of goods and is disseminated by trusted data providers.
Sensors that monitor equipment and other physical assets will enable lenders to partner with electronics or household appliance manufacturers to offer credit when sensor data shows that equipment is deteriorating or about to fail. Leasing companies will be able to monitor assets to determine a more precise residual value of assets at lease expiration.
Or consider how real estate finance values properties. IoT will generate data from sensors that manage building energy and security and monitor human interactions within the building and its neighborhood. With this information, commercial real estate analysts will value properties more precisely, reducing friction in leasing and buying and giving investors greater transparency into property values.
In consumer banking, IoT applications could include beacon and sensing technology in branches that “introduces” a customer upon entering a branch and steers them to a video teller or kiosk for service.
Finally, consider a frequently discussed topic: connected and autonomous cars. Sensors in cars will provide insurance carriers with telematics data about vehicle driving history and driver behavior to use in pricing insurance. Self-driving cars will force a shift from automobile casualty insurance, where the driver is at fault, to product liability insurance, where the manufacturer may be held liable.
Some observers see IoT giving rise to an Internet of Value, or ValueWeb for short, that allows machines to trade with machines and people with people, anywhere and in real-time, with minimal friction. “Smart” lightbulbs that are beginning to drive decisions about buying electricity is just one example.
To be sure, these scenarios will require banks and other financial firms to resolve challenging privacy and security issues.
Nonetheless, now is the time to explore the new world of opportunities that will arise as IoT becomes widely adopted over the next few years. For financial services, developing strategic partnerships with IoT innovators should be the first step.
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