Technologies based on the Internet of Things (IoT) are changing the game across sectors, from industrial manufacturing and telecom to healthcare and hospitality. With the exception of specific use cases, such as point-of-sale payments solutions like Square, however, financial services companies have been less quick to leverage IoT’s potential.
This is beginning to change. In the insurance and asset management subsectors of the financial services industry, both fintechs and traditional financial institutions are beginning to leverage maturing IoT technologies, like sensors and beacons, to improve internal operations and individualize customer service offerings and experiences. For example, insurance companies like Allstate (Drivewise1) and State Farm (Drive Safe & Save2) are using IoT to offer discounted automotive insurance to individuals willing to have their driving behaviors automatically monitored.
Meanwhile, some asset management companies are leveraging IoT solutions as a part of building management, such as to support real-time monitoring and analysis of building security, room usage, air quality, and temperature. Smart and connected home IoT systems provide similar capabilities directly to customers through the integrated use of water sensors, automatic temperature controls, entry cameras, motion detectors, and other equipment to provide real-time home monitoring.
The big challenge: data privacy and security
While the insurance industry has looked at personal IoT (wearables like smart watches) to support individualized life and health insurance offerings, to date there has been little traction in this area due to the significant privacy considerations related to data collection and usage. This challenge may also be holding back banks and other financial institutions that recognize how IoT could enable more individualized customer service, such as by using beacons to identify individuals entering a bank, yet recognize their customers are concerned about how their data will be monitored and used.
Another stumbling block toward the use of wearables to enhance financial services is the need to work with other organizations. To provide an integrated experience, financial institutions would have to work with Apple, Google, Samsung and other big techs to integrate any fintech IoT offering into a broader product ecosystem. This would only increase the complexity of data privacy and security.
Interestingly, while IoT raises challenges related to data privacy and security – it can also be used to help address those issues.
The challenge but also the solution
Interestingly, while IoT raises challenges related to data privacy and security, it can also be used to help address those issues. Already, numerous companies in Asia, the US and beyond are developing biometrics-focused security and ID management technologies. As these solutions mature, they will be increasingly applied to the financial services industry. While many technologies will be mobile device-focused in the short-term, over the long-term, apps and other offerings could be included in other smart devices.
Trends to watch for in 2020 and beyond
The asset management space is expected to remain the clear leader in the financial services sector when it comes to the use of IoT, primarily due to its strong applicability to building management. With the increasing focus on sustainability in some jurisdictions, like Germany, IoT-enabled building management solutions will continue to be of strong interest to investors.
The insurance sector is also well positioned to see relatively quick growth in terms of the use of IoT. As data ownership and privacy issues are addressed, more insurance companies will likely offer a greater variety of IoT-enabled insurance offerings similar to the connected car insurance already on offer. For example, discounted home insurance for houses monitored by smart devices.
Traditional banks will likely take longer to embrace IoT opportunities, simply because they will need to rely heavily on partnerships with big techs in order to create offerings that appeal to customers. However, as big techs continue to look for ways to expand their customer service offerings, they will increasingly look to form partnerships with banks to offer specialized products and services. These types of strategic alliances will help propel an increased use of IoT in the financial services industry over time.