Internet of things coming to banking by John Ginovsky

30/04/2015 09:13

By now, most people have at least heard the term “internet of things” and have at least a hazy understanding of what it means.

Sometimes this concept is referred to as “M2M”—“machine-to-machine”—communication. In general, it refers to the phenomenon where one device—say, an ATM—automatically relays data through a digital connection to another device—say, a server-based database, which collects and aggregates that data over time.

That lump of data, at some point, then is retrieved by a human, who uses it in some way and for some purpose.

Okay, fine, but what good is it?


How IoT could transform our lives

It turns out that many business people, including some in the banking industry, believe the “IoT” see a lot of potential good. They think the concept could have as much radically transformative effect—both for good and bad—as the onset of the internet itself has had over the past 25 years.

Just as the internet has vastly connected people globally, the internet of things will vastly connect all the systems, devices, and infrastructures people use and depend on. In that process, the soothsayers say, we’ll all end up knowing each other—what we like, what we need, what we do—much more accurately and speedily than now.

More important—just as every television weather station now employs predictive graphics of what the weather patterns will be like through next week—analysis of data from the internet of things will give us more concise predictions of what we will like, what we will need, and what we will do.

It’s still early in the game. But this kind of awareness is starting to enter the consideration of the C-suite, although it’s too soon to start making operational plans.


Acceleration in the future?

That could change. A survey of 348 senior business leaders who had heard the term “internet of things” (by Flextronics, a supply-chain solutions company) showed that 86% believe it will be important for success in the future. However, only 44% said that an internet of things strategy is currently a high priority in their company.

Gartner Inc. has tracked the evolution of the internet of things for several years. In a recent post, it identifies four related trends:

1. Information of everything—The internet of things enables detailed insight into what customers want, and how to connect their needs with the journey planned by an organization for its customers.

2. Shift from the thing to composition—While individual things are perhaps not incredibly interesting, using their connectivity to group them to measure certain data, or to form new business models and uses, creates almost unlimited potential.

3. Convergence—Smart, connected technologies don’t just bring together things. They link and combine people, places, and information, creating new opportunities.

4. Next-level business—The internet of things will intrude on established procedures by revealing better ways to measure and operate the organization through new and powerful analytics.

All well and good, but think of it: By one account (from Accenture) there already are more than 10 billion connected devices, and another 10-20 billion expected to be connected in the next decade.

Consider how the legacy internet has inadvertently enabled many bad actors to commit digital crimes by accessing and corrupting human-controlled portals. The internet of things potentially could expose many more thing-controlled portals—adding lots of risk to the world.

“With the internet of things, cyber risk now stretches across a third dimension. Employees may come to work with a compromised wearable device, or pull their hacked connected vehicle into the company parking lot. This creates a new type of cyber risk for organizations—with significantly increased complexity and exposure,” says a study by Booz Allen.

Such scary possibilities won’t stop the onset of the internet of things. But it ups the ante on how to defend against the negative effects.

Booz Allen’s study points to a rising trend of “proactive defense,” which shifts away from simple response.

“Tired of being a step behind, companies will gravitate to a more active, anticipatory approach to preparedness and defense,” says Booz Allen. “We will see more organizations take an intel-to-operations model that enables companies to use real-time intelligence and threat-assessment data to shape decision making, fine-tune defenses, and pre-empt emerging threats.”

Ironically, such an approach seems ideally suited to the potential offered by the internet of things.

How about a “bank of things”?

Which circles back to a white paper issued late last year by Accenture, in which it coins the term “the bank of things.”

In it, it argues forcibly about how and why banks must adopt and adapt to the internet of things.

“For banks the internet of things will deliver an unprecedented level of data and data-driven customer insight. This will allow banks to provide their customers—individuals and businesses alike—a truly bespoke experience, with insights, advice, and offers that reflect the day-to-day events in customers’ lives. The internet of things is the key factor that will enable a bank to fully transform into a bank of things,” the Accenture paper states.

Of course, this is easier to say than to do. Accenture highlights six necessary investments in critical business capabilities:

1. Analytics—In the internet of things era, the volume of data available will explode. Banks need to continue investing in analytics capabilities to make sense of all this new data, in context with individual customers.

2. Tailored pricing—Equipped with a vast amount of granular data, tomorrow’s bank will need to design and provide products tailored to a specific customer’s needs at price points reflective of that customer’s overall financial position.

3. Distribution—Banks will need to be absolutely precise in the choice of distribution tools, applications, and methods used to communicate with each customer.

4. Agility—Banks will need to invest in developing their capacity for change as new technologies and infrastructures emerge.

5. Continuous innovation—Developing the capacity to innovate rapidly and successfully will enable banks to grow their customer base and increase customer value while fortifying their market position.

6. Digital risk management—The internet of things will enable banks to collaborate with their customers to better understand their needs, financial position, and collateral value—while automating much of the work involved in doing so. By gaining access to the data of their customers’ daily lives, the bank of things will be able to refine its credit models and improve its overall risk position.

So, it’s safe to say that the internet of things, already here, will take on increasing importance in business operations.

Improving the IQ of daily life?

As Mike McNamara, CEO, Flextronics says: “As we move into this era of intelligence, we believe the future is going to be quite a bit different as we interact with our environment easier and more quickly. And putting a new kind of intuition in the things that we interact with isn’t just about making the devices smarter. It is about making how we live a lot smarter.”


John Ginovsky

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor forCommunity Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at