The 'Fin'-ternet of Things: exploring the potential of IoT in the finance sector

The finance sector has always led the way in customer analytics and the IoT will bring a new wave of opportunities, argues Mike Laven

The Internet of Things, a term coined back in 1999 by Kevin Ashton, describes a system of computers capable of "knowing things" without the need for human input. The term has now been fully absorbed into the mainstream tech (and indeed consumer) audience. We could barely move for IoT headlines and predictions during CES a few weeks ago! And perhaps for good reason - this sector is expected to grow to reach a value of $1.6bn worldwide by 2021.

The digital revolution, in which technology marches from simple user-operated devices to fully automated ones, is slowly becoming reality, with 2016 promising to be the year where we finally see these interconnected devices become part of everyone's daily life.

Beyond gadgets - and the much hyped example of the connected fridge - the IoT has the potential to have a transformative impact across a range of industries, including the financial sector.

Mastering consumer behaviours

The financial services sector, starting with insurance, capital markets and actuarial information, has always led the way in the collection, analysis and monetisation of personal data. The very concept of KYC (Know Your Customer) regulation revolves around the bank's ability to detect and prevent identity theft, fraud, money laundering and terrorist financing by identifying unusual behaviour patterns from the customer.

Away from regulation and compliance requirements, this enhanced customer insight is helping to change and improve the way financial institutions interact with customers. When IoT crosses with finance, we suddenly get an explosion of data, which will bring even greater opportunities to obtain data and build even more accurate profiles of customers. This data can be used to streamline the user experience, reducing the number of false positives and unnecessary challenges from a security perspective, as well as to further the innovative services offered by financial services providers.

Branch-based innovations such as sensing technology that can monitor and take action on the consumers' behalf is one example. The potential here is almost infinite.

Increasing accuracy

A mature example of how IoT is increasing accuracy in the finance sector is usage-based insurance, also known as Pay-As-You-Drive (PAYD). Advanced automotive electronics now allows insurance companies to acquire information through sensors in cars or even smartphone apps automatically, providing information on vehicle driving history. This helps understand drivers' performance and estimate costs for the insurance using this information against the type of vehicle used, distance and place.

Government support

In February 2015, the UK government launched a "call for evidence" on the benefits of greater data sharing and use of open data in banking, noting the lack of standardisation in Application Programming Interfaces (APIs), despite their increasing usage. Since March 2015 the government has pushed banks to open their APIs to FinTech providers. This move is intended to increase competition and enable innovative "value added" tools.

Nevertheless, before financial institutions can deliver such an experience, they will need to get a better grasp of other concepts such as open infrastructures and data feeds to enable the development of new applications, while keeping a close eye on the regulatory implications.

Figuring out the way

Providers are still figuring out how to take advantage of this data explosion as the potential surrounding IoT is fully realised. It will be interesting to see how traditional finance services industry - with its deep history of complex data capture and analysis - and FinTech providers come together to navigate this new era of finance.

Mike Laven is CEO of Currency Cloud

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