Connected devices find a home in trade finance

The number of devices connected to the internet is steadily growing and expected to surpass 6.4 billion thingamajigs this year, supporting total service spending of $235 billion.

In banking, IoT is still in its experimental stage, which is a bit weird considering ATMs were one of the first devices ever to get connected, way back in the ‘70s. IoT isn’t currently a top priority for banks, but as the IoT ecosystem expands, it will have a significant impact on banking.

The first domino to fall for IoT adoption will be authentication use cases, explains Srikumar Ramanathan, head of solutions group for banking and capital markets at Mphasis. Banks can use mobile devices and wearables to more easily identify a customer, making his experience more seamless, or a staff member, reducing the risk of insider fraud.

The second domino will be in the payment space, through smart home devices, like a connected refrigerator that can replenish food by ordering more when it runs out.

Another example from the payment space might be using connected devices and smart contracts to automatically authorize payments once a connected device registers that a service was provided. A dog walker, to illustrate, can be paid automatically once an IoT device signals the dog walker actually walked the dog for the agreed upon amount of time.

Retail banks are increasingly looking to improve their digital offerings, leveraging customer data and cross sell offers based on predicted customer needs. Through the use of IoT beacons, banks can take these offerings to the next level, delivering offers for products and services when they are most relevant.

Probably the most transformative application of IoT will not be in retail banking but in trade finance, where banks facilitate payments associated with complex global supply chains. “In the same way that shipping companies track raw materials and finished goods, banks could use the same sensors and GPS locators to determine more precisely when payments should be issued and received,” said David M. Wallace, global financial services marketing manager at SAS.

According to Tata, financial institutions reported an average IoT budget of $117.4 million in 2015 , which amounts to 0.4 percent of their revenues. The median reported spend was $6.3 million. The difference between the two indicates that only a small number of institutions are investing substantial amounts into IoT, while the majority are just dipping their toes in the IoT water. Those numbers are slated to increase: projected IoT spend in 2018 is an average of $153.5 million and a median of $26.3 million.

Insurance is probably the most mature financial service to implement IoT. However, customer acceptance of usage-based policies that collect data from IoT sensors has been lackluster.

“The banking opportunities for IoT are worthy of experimentation by the larger banks that have transaction services and trade services businesses,” Wallace said, adding that investments in IoT should not de-prioritize the current, and more pressing, investments in customer experience and existing products and services.

Hi 5! The five fintech stories we’re following this week

top fintech stories

Insurtech’s rising star

Insurtech continues to shine on with the hope and possibility of youth. Tradestreaming’s Gidon Belmaker examines how insurers are increasingly offering IoT-enabled policies for different lines of insurance that calculate the risk for each person, digitally. In a world where a house is smart enough to know what room temperature its owners prefer, IoT-enabled policies make a lot of sense. The challenge for insurers looking to get into the IoT game will be filtering, processing, and reacting to really big data in real time.

In the spirit of being hopeful, insurtech’s top women execs spoke with Tradestreaming to share their career advice for women looking to enter this fast-growing field.

Fintech’s murky waters

It’s been a hard couple of weeks at Wells Fargo. After the firm’s pamphlet for Teen Day 2016 angered the theater community by implying that the arts were merely a childhood pastime, scandal struck one of America’s biggest banks yet again, on a much larger scale. After discovering that over 2 million fake bank and credit card accounts had been opened at the bank, Wells Fargo fired 5,300 employees.

Twitter did not approve. Analysts lambasted the bank for trying to shift a top-tier management problem onto hapless employees facing unrealistic sales goals. And while Wells Fargo has since eliminated product sales goals, Carrie Tolstedt, the unit leader in charge of those 5,300 ex-WF employees, walked away with about $125 million in stock and options.

Speaking of crime and payment, Tradestreaming’s Josh Liggett’s in-depth reporting on the shady world of prison payments showed that justice – and fintech – are not always accessible to inmates.

While the financial industry is experiencing a surge in growing transparency and lower fees thanks to growing competition, the prison payment industry isn’t undergoing a similar renaissance. Instead, inmates are held prisoner to high fees and limited services within an old system masquerading as innovative fintech.

Fintech real-estate companies are getting creative

Ok, yes. A fraudulent mortgage market did cause the Great Recession of 2008. But the mortgage market is getting innovative with online offerings that seem to have the consumer – not just profit – in mind. Digital lender Point, which enables homeowners to sell a percentage of their home to investors, is putting borrowers and lenders on more even turf by better aligning incentives between them. Last week, the company raised $8.4 million, bringing total fundraising to $15.4 million.

Real-estate crowdfunding platform Roofstock is also out to change the digital real-estate market, by simplifying the process of buying or investing fractionally in occupied singly family housing. According to Roofstock’s chairman and co-founder, Gregor Watson, Roofstock recently signed a deal with an Asian group that wants to invest a whopping $250 million on the platform.

Work and play

The fintech interview process can be daunting for interviewees. Potential candidates can take solace and solid tips from Tradestreaming’s interview advice from top fintech execs. Keyword takeaways: passion, motivation, openness. Oh, and don’t ask about salary.

Of course, young fintech wannabes might have other things on their minds. Like beer. On last week’s ESPN College Gameday show, a student put up a sign with his Venmo number and a request that his mother send beer money. Instead, over two thousand complete strangers donated to his beer fund. Here’s a selection of what fintech companies’ signs might look like come next College Gameday.

Prophets of Wall Street

No one knows exactly what the future has in store – but people are making some educated guesses. Aon estimates that self-driving cars will cut U.S. insurance premiums by 40%, though automation will carry its own unique risks. Chinese ecommerce giant Alibaba thinks the future of identify verification lies in the red veins of your eyeballs.

And because your week wouldn’t be complete without a blockchain update, Goldman Sachs filed a patent for blockchain-enabled forex, in the hope of speeding up and reducing cost of trading currencies.

New technology turns smart cars into payment devices

payment technology turns the car into a credit card

Payment technologies in cars have gained a lot of momentum in the past few months. From the recent successes of Uber, GetTaxi, and Lyft, to the prospective idea of a fleet of driverless Tesla-Uber vehicles, financial technology companies have been able to enter into the taxi world through providing payment services. However, the establishment of strategic partnerships in the last year has given insight into a new, and bigger, concept: Turning the personal automobile into a credit card.

MasterCard and the payment key fob

Mobile payment companies have entered the personal automotive market in two distinct ways. The first is turning the key fob into an Internet of Things (IoT) item. By embedding physical objects with network connectivity in order to exchange data, normal objects are transformed into payment devices. MasterCard, using its Digital Enablement Service, has partnered with General Motors to release an IoT key fob in 2016. In this alliance, MasterCard has partnered with a multitude of companies in various sectors, including fashion (Adam Selman), wearables (Ringly and Nymi), auto (GM) and tech (Qualcomm, NXP, and TrackR). Through this partnership, MasterCard has broadened its Digital Enablement Service product line, allowing customers to pick a more specific wearable that fits their needs and desires.

MasterCard’s partnership with GM is an excellent way to capitalize on current products and technologies. However, it’s more focused on providing customers with “another” way to use payment services on the go, not turning the car into a credit card. With that in mind, we move to the second way mobile payment companies are entering into the automotive world: Turning the car itself into an IoT object.

Turning the car into a payment device

Visa unveiled a new partnership with Honda and ParkWhiz at the Mobile World Congress in Barcelona earlier this year. Visa is providing accessibility to its Token and Checkout services to Honda, integrating one-touch payments into the car dashboard/head unit.

While both the Visa dash unit and MasterCard key fob allow payments on the go, that’s where the comparisons end. Honda has developed two apps, allowing consumers to purchase gas, convenience items, and public parking time while remaining seated in their car. Due to the full-dash integration, the apps/Visa have seamless access to the consumer’s car. When low on fuel, the car provides an alert and GPS guidance to the closest gas station, the precise amount of fuel needed to fill the tank, and automatically pre-pays the exact fuel cost at the pump.  Instead of waving an IoT device at a hotspot on the pump, the whole transaction takes place on the car dashboard, turning the vehicle itself into a mobile payment platform. The three companies are aiming to start product testing later this year.

Apple’s a dark horse

There is another company that may be attempting to accomplish the goal of turning the car into an IoT object: Apple. There have been countless reports about Apple’s “Project Titan,” including hiring employees from Tesla, strange noises coming from Apple’s Sunnyvale complex, and even a “secret car lab” in Germany. Although there is no confirmation that the project even exists, it can be assumed that Apple will integrate its Apple Pay system into the car’s dashboard.  Unlike Honda, Apple would be able to work straight with app developers in order to maximize the potential of an IoT car. With Apple’s already established mobile payment system, the transition into the car dashboard seems like a smooth and easy concept.

Although nothing tangible has been released for public use, the concept of an integrated payment system in the dashboard of the car is enticing for both consumers and business alike. Once the integration into the car dashboard has been smoothed out, the opportunities for strategic partnerships are vast. Companies will have to make strategic alliances similar to Visa and Honda, leading to opportunities for financial technology companies to link as many services together and to become assets to car manufacturers.

Sky’s the limit

Other than the gas and parking examples, which companies are already working on, other use cases include:

  • Purchasing food from a restaurant while driving there, and the kitchen being informed of when to cook the food in accordance with traffic and arrival time
  • Purchasing groceries while driving to the supermarket, while the supermarket knows when you will be arriving to allow curbside delivery
  • Emergency mechanical situations, where the car guides the driver to the nearest mechanic, with the part needed to be fixed already waiting and paid for before the car arrives

Although these examples seem incredible, some people may not be comfortable with having a fully integrated IoT car. For those who don’t embrace this concept, they can still use products like MasterCard’s key fob to pay on the go. However, an IoT car may be essential for many purchasers in coming years. This level of connectivity may be a deal-breaker for millennials, the next generation of car buyers. Especially with connected cars, the integration of in-dash payment processing may be a requirement for car companies to maintain market share. The next “most popular car” may be the one that best turns the car into an IoT object, providing the best services for on-the-go payments. However, if companies continue to team up and innovate together, we may see some truly remarkable features in the next generation of IoT automobiles.

Photo credit: steakpinball via Visual Hunt / CC BY