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.