IoT and Banking

As the Internet of Things (IoT) expands into industries and businesses around the world, consumers and business leaders will witness significant changes in the banking industry. With the invention of the ATM, the banking industry began moving toward digitization in the 1960s, but IoT technology will take it to a level we could not imagine just a few years ago.

The span from 2010 to 2015 saw the number of ATMs grow from two million to 2.7 million in 2015 (“Future of Banking: IoT, Retail & Mobile Banking Industry Trends,” Andrew Meola, Business Insider, December 20, 2016), making it abundantly clear that the trend toward automated banking is only increasing in velocity. As more devices become connected, the banking industry will gain additional visibility into a multitude of transactions that will increase their efficiency and give banks more direct access to potential customers.

On the flip side, with enterprises like PayPal, BitCoin and Venmo stealing a share of the market, banks are already seeing threats to their monopoly on their administration of commerce and their access to spending-related data. According to Albert Costill of Search Engine Journal, there were no fewer than a dozen alternatives to conventional banks and credit cards in 2013 (“The Top 12 Online Payment Alternatives to PayPal,” October 17, 2013) and there are certainly even more now.

Changes Resulting from More Automated Banking

When consumers shop for autos, or order products online from the comfort of their homes, banks will know instantaneously and address consumer needs immediately; offering car loans, for example, as soon as a potential buyer begins to research autos. And as more consumers increase usage of mobile banking, banks will have greater visibility into each and every commercial transaction. According to Grace Noto of Bank Innovation,

“86% of millennials already use mobile banking,”

making their financial data more accessible to businesses and banks than ever before (“6 Hottest Trends in Banking 2017,” November 10, 2016, BankInnovation.net).

Taking it a step further, adding voice capability, and audio transmission (like Chirp.io) to this process will improve the customer experience, making it simpler and more straightforward at all stages of the process. Many ATMs are now equipped with voice support, should customers need service in the middle of a transaction. Additionally, many banks have installed beacons that detect customers when they approach a branch so the bank can instantly send out special offers for loans and address other banking needs in real time (Meola).

Disruption

Despite all of the aforementioned advances in banking-related technology, banks are beginning to see competition in forms that never existed before. Right now, all eyes are on the European Union, as it prepares to implement the Second Payment Services Directive (PSD2) in 2018. According to TransferWire.com, PSD2 will abolish the banking industry’s monopoly of user data by enabling retailers to charge customers directly, without having to go thru a credit card company, or a service like PayPal (“PSD2 Explained: What is it and why does it matter?” December 12, 2016).

This shift will have dramatic repercussions, as the stranglehold banks have had on consumer data will evaporate. Under the traditional model, consumers could open and close accounts as they chose, but the bank retained their customers’ data in perpetuity, even after an account was closed. Going forward, consumers will have the potential to retain all of their own data and essentially “lend” their data to financial institutions as necessary.

These shifts will benefit consumers, as they will avoid many transactional fees, especially the high fees on international transactions, but it will significantly cut into the profits banks have reaped for decades as the facilitators of these transactions.

Conclusions

The bottom line is that while the banking industry will experience numerous new methods to interact with customers, they will also experience new forms of competition for the profits that arise from managing transactions for consumers and businesses. It remains to be seen exactly how all of this will shake out, but it is clear that IoT technology will change the way people bank, and new opportunities will emerge for businesses to get traction in managing commercial transactions. The players who best take advantage of these shifts, and utilize modern technology to get into this field, will stand to benefit tremendously.

This blog originally appeared on the website for UIB (http://uib.ai.)