Much has been written about the global forces gathering to create a ‘perfect storm’ in the world of banking, causing unprecedented pressure on the financial system. There’s economic volatility, seemingly never-ending regulatory change, customers demanding slick, easy and convenient digital experiences, and a new type of competition from FinTechs. Additionally, there is an unprecedented level of innovation in technology, with Blockchain, Open APIs, Cognitive Learning, Advanced Analytics, Robotics and the Internet of Things (IoT) all likely to become a critical part of our everyday business lives in the near future. Never has it been more important for financial institutions (FIs) to embrace these technologies. Let’s take a look at a couple of these new technologies that, when combined, will enhance customer experience and allow FIs to be more competitive.
Internet of Things (IoT)
Numerous studies have predicted a substantial number of connected devices in the next several years. These devices include smart phones, watches, wearables, cars, domestic appliances and other connected devices, devices that can share information with each other in real time.
"The potential of IoT and Blockchain to create new business models is incredibly exciting"
As consumers, we will be surrounded by intuitive, connected devices, helping us work, bank and shop. The devices will also help us pay smarter, drive safer and live healthier, more active lives. IoT will create a huge amount of real-time, contextual and geo-locational data for banks and insurance companies to harness.
Insurers will make better risk decisions based on how, where and when we drive, how active we are, where we’re traveling, and the structural condition of our homes. They’ll have the ability to monitor risks to assets in real time and take preventive and proactive measures to control the likelihood and extent of claims. One of the offshoots of IoT is Machine-to-Machine communication, and we know very well the ongoing debate about how driverless cars are going to become a reality within the next decade as well as the impact that this will have on auto insurance.
In banking, it has been a different story. IoT senses and gathers data in the ‘physical’ world and converts the data into actionable, digital output. However, most things in banking are already digital in nature, such as customer information files and accounts, complex, structured finance models and exposures, derivatives and stock holdings. If we look at a particular subset of IoT— the Internet of ‘Moving’ Things—a host of new opportunities are available that were not possible before. Viewing IoT through this lens brings it back in line with what we are already seeing in Insurance with ‘things in motion,’ such as speeding vehicles and rapidly rising temperatures, and ‘things in transition,’ such as infection or disease spreading. In banking, we can already detect customers approaching a branch, for example, via their geo-location.
Banks will have a more vivid picture of the consumer, understanding how they move and where they spend money. This will allow banks to make more accurate lending decisions and deliver more real time, personalized offers to customers. Branches will be equipped with sensing technology to biometrically recognize customers as they enter. Commercial banks will use real time biometric and positional sensors to continually assess the well-being of a farmer’s crops and livestock, track inventory at a retailer, or monitor the location of goods on container ship that they’re financing, for example. Complex and typically very manual businesses, like supply chain and trade finance, will benefit from understanding things in transition.
Blockchain’s core attraction is the ‘trust’ that it delivers via a unique and innovative database, shared and supported across multiple locations, as an immutable record of transactions. The secure data or the crypto currency is also accessible anywhere, provided you have the key. This will support simplified operations, reduced costs, faster settlement of securities trades, and digitization of manual processes in businesses like supply chain and trade finance.
Initially skeptical because of concerns around security and privacy, banks are now investigating how they can utilize Blockchain to transform their operations, develop new business opportunities, enhance the customer experience and unleash billions in capital tied up in current inefficient processes.
In the world of Insurance, for any transaction involving multiple parties or requiring the assurance of an intermediary or a precise record of date and time, Blockchain offers a disintermediation solution. Blockchain is also very effective in preventing retroactive manipulation of data, and it is quite useful where multiple users of the same asset are very likely and no central trusted asset-registering authority is available.
In Payments, both SWIFT and the R3 consortium are developing new Blockchain platforms and projects around faster payments. Ripple has already achieved a cross-border payment of Euros, from ATB Financial in Canada to Reise Bank in Germany, using their proprietary Blockchain. Blockchain will also extend to B2B, P2P and all classes of payments. Elsewhere, companies like Digital Asset Holdings and SETL are looking to use Blockchain to digitize the clearing and settlement processes, something that currently costs banks billions. In the future, sovereign identity will be guaranteed by the State as a digital identity on the Blockchain. This will allow consumers to access their digital identities from a permissioned state ledger and then link their IoT devices to their identities, automating payments and account opening. Smart assets and smart contracts will manage the transfer of assets and will simplify many of the manual processes in businesses like trade finance, supply chain management and mortgage lending.
New Business Models
Imagine a scenario that combines the automation of payments, access to things in motion and a way of connecting and managing these capabilities in an autonomous way. For example, a 40 foot shipping container could start to ‘manage’ itself via the Internet: It could record and report when its cargo is loaded and its doors are sealed. It could source and book its road haulage from a factory in Shanghai and arrange shipping to a warehouse in East London. It could generate the Bill of Lading between the shipper and the shipping company, arrange its own insurance, clear customs, and pay for everything automatically via Blockchain as it delivers itself around the world.
The potential of IoT and Blockchain to create new business models is incredibly exciting. Any FI that has the vision and creativity to develop new business models by combining these powerful technologies will gain a real competitive advantage in the cutthroat world of today’s global financial services.