Howard Berg Senior VP, UK & Ireland at Gemalto
Discussions around the Internet of Things (IoT) are widespread in the technology industry, with many analysts suggesting that we are entering the second digital revolution. Gartner is even predicting that there will be 25 billion smartphones, smartwatches, wearables, connected cars and other devices by 2020, giving IoT the potential to make an even greater impact on society than earlier digital revolutions.
In a future where we are surrounded by intuitive connected devices, there is a dizzying world of possibilities, which could help us to save time, work smarter, drive safer, keep healthy and live a more active lifestyle. In particular, there are a myriad of opportunities for businesses to benefit from IoT, with Gartner further forecasting $2 trillion of economic benefit globally.
However, while many industries like insurance and commercial real estate have shown early signs of innovation and embraced its benefits, the banking industry is just beginning to see how IoT can push business to the next level.
Insurance, in particular, is one sector of the financial services industry that is well positioned to be an early centre of IoT innovation, with insurance FinTech companies already developing valuable new ways of using sensor data in wearable technologies to generate and analyse really high quality risk data on individuals.
How does the flow of IoT-generated information create value for the banks and their customers?
Modern consumers expect convenience and demand an always-on personalised service – as evidenced by the mass adoption of online banking, mobile banking apps and contactless payments. They also expect and demand total digital security from their banks, which is another major challenge the sector faces in the IoT era.
By enabling the collection and exchange of information from objects, the IoT has the potential to open up numerous opportunities for banks, who will be able to benefit from a whole new set of data about the behaviours and demands of their customers, which can be used to provide them a truly personalised experience with targeted advice, offers and insight. It’s a new level of customer intimacy with benefits for institutions as well as consumers and business banking.
Potential scenarios include using IoT to improve banks’ customer experience, create customer rewards, generate customer cross sell opportunities and generate engaging digital experiences. From a business perspective, IoT will also help banks to devise new ways to improve risk management, reduce cost and improve operational efficiency.
By accessing the data captured by connected devices, banks can provide customers with a holistic view of their personal finances, updated in real time, and anticipate their needs in order to offer products and solutions enabling customers to make the right financial decisions.
Real time data can make a difference to the risk a bank is taking when they provide a financial product. For example, the ability to obtain far more useful information and data on residential and commercial premises, in addition to collecting social media, spending, and credit behaviour data, allow banks to make better commercial decisions.
Boosting business performance and reaching new markets
The same type of process can be applied to assist business customers and to help them achieve better commercial results, thanks to the bank’s ability to access data from across their business customers’ value chain, from suppliers to distributors to retailers.
Conversely, physical performance, and behavioural data generated from biometric and positional sensors for individuals, and shipping and manufacturing control sensors for businesses, could help banks improve underwriting processes and reach new markets.
Those banks that are ahead of the curve in terms of using these types of IoT-generated data streams to make vital decisions on business lending will lead the way.
For example, banks might benefit from various sensors that monitor the activity and condition of retail industrial and agricultural businesses, such as connected field devices in manufacturing or agricultural sensors that monitor livestock.
Plus, real-time data feeds will allow farmers and their banks to continuously and accurately assess the health of the farm’s crops and livestock; and more accurately gauge expected yields, property and overall business value.
Closer to retail banking branches, IoT uses could include video tellers and kiosks in equipped with sensing technology that can recognise customers the moment they walk in and take actions accordingly.
Securing IoT for banking
As IoT impacts on the banking industry over the next five to ten years, there will also be new security challenges for banks to manage. Making the whole connected banking experience safe and secure is vital to gain consumer trust and ease any concerns around their personal privacy and private banking being hacked. Any personal information from customer financial data to location history is potentially a target while on the network. No matter where it is, be it on the device or moving along the network, for example from the bank to the customer’s connected car, it needs to be protected. This is where tools like encryption to protect the data itself and authentication tools to authorise access to this data by only those allowed to, is vital. We’re already starting to see the development of biometric data – fingerprints, voice-recognition software and iris-scans – come into play to prove the customer is who they say they are.
With the proliferation of IoT devices, banks will have a far more detailed picture of the customer. This means that banks need to add an extra layer of security to extend across the entire IoT ecosystem – from the device through to the network and cloud level.
The more devices and points of entry there are on a network, the more opportunities there are for cybercriminals to sneak in. For banks to embrace IoT in an impactful way, security must be built in from the start, and at every level, to win and maintain customer trust.
Open Banking: the perfect pandemic tool – Equifax comments
With COVID-19 related financial fallout set to dominate the credit landscape in 2021, Dan Weaver, Open Banking Expert at Equifax UK, believes Open Banking solutions can provide lenders clarity in a sea of uncertainty:
“With lockdown once again in place across the UK, it’s clear 2021 will be a year of extreme financial flux. While the vaccine roll-out programme will provide an economic boost and eventual easing of restrictions, forbearance measures, such as mortgage holidays and the government furlough scheme, will be wound down. This will lead to income shocks for many, and the potential for a nationwide surge in personal debt.
“With the third anniversary of its implementation today (13 January), Open Banking is entering a new mature phase of its development. The initiative’s credentials are now widely established, offering creditors the perfect pandemic tool to assess the most accurate picture of an individual’s finances.
“Consider someone who has just returned to the workforce after being made redundant or placed on furlough. Traditional credit bureau or legacy data alone would not always provide potential lenders with the most up-to-date information on their current financial circumstances and ability to repay credit at the point of application. Open Banking platforms, through customer consent, pull live data directly from the user’s bank account, allowing creditors to make an informed, responsible and fair decision about their current affordability on the most recent data available – a game-changing factor amid such widespread financial upheaval and rapid change in people’s circumstances.
“Open Banking is a tool for our times and it’s vital more credit providers, not just big banks and finance but utilities, insurance, auto and telcos companies, accelerate its adoption. Throughout our society and economy in the past year, we’ve witnessed feats of great innovation, executed at rapid speed. In 2021, we need to apply this transformational energy to the Open Banking landscape, slashing the time it takes for creditors to test protocol and fully set up their solutions.
“Three years after its arrival, we’re seeing Open Banking platforms improve digital, real-time income verification rates by more than 25% * – which is no mean feat. If an industry-wide, mass acceleration strategy was successfully achieved in 2021, it would prove extremely valuable and timely, and lead to better customer and creditor outcomes throughout the credit space.”
Over a quarter of Brits now have an account with a digital-only bank
The number of Brits with a digital-only bank account has gone up by a percentage increase of 16%
Almost 1 in 6 Brits (17%) plan to open a digital bank account over the next 5 years
The top reason for opening an account was the convenience of banking online for the third year running
However, 16% of traditional banking customers who aren’t planning to switch said their bank had been helpful during the COVID pandemic
Currently over a quarter of Brits (27%) say they have at least one bank account with a digital-only bank, according to personal finance comparison site finder.com.
This is a percentage increase of 16% from last year when 23% of Brits said they had an account with a digital bank. It is also over 3 times the amount of Brits who had one in January 2019 (9%).
Finder’s 2019 research found that 24% of Brits intended to have a digital-only account by 2024. However with 27% now having an account, Brits have gone digital 3 years earlier than expected.
A further 17% of Brits intend to join them over the next 5 years, with 11% planning to do so over the next year. This could mean that 44% of Brits could have an account with a digital bank by 2026. If this percentage were applied to the UK adult population, it would equal almost 23 million people.
The top reason for opening an account continues to be convenience that digital-only banks provide, for the third year running (26%). The second most common reason was that users needed an additional account and setting up a digital account seemed to be the easiest option (20%). Customers also wanted to transfer money more easily (19%), making this the third biggest priority.
People wanting a trendy card is still driving signups as well, with 1 in 10 (10%) existing, or future, customers citing this as a reason to get an account.
Despite the increase in digital-only banking customers, the numbers who aren’t considering one have actually risen. Last year, 23% of respondents said they aren’t considering a digital-only bank account, but this has risen substantially to 42% in the latest survey.
This is likely a result of increased customer loyalty, 58% of those without a digital bank account said they felt as though their incumbent bank had treated them well and therefore had no desire to open a digital bank account. Additionally, 16% felt as though their incumbent bank had performed particularly well during the pandemic.
Over a third (36%) of those without a digital bank account said they had not decided to bank with digital providers because they preferred to be able to speak to someone in branch.
Digital banks are still most popular with younger generations, 46% of gen Z say they currently have a digital bank account, with a further 28% intending to get one over the next 5 years. This would mean that by 2026 just under three quarters of gen Z (73%) could have a digital bank account.
To see the research in full visit: https://www.finder.com/uk/digital-banking-adoption
Commenting on the findings, Matt Boyle, banking specialist at finder.com said:
“This research shows that digital-only banks are here to stay, with the number of users in the UK rising for 3 years straight. On top of this, Starling and Revolut announced this year that they have made a profit for the first time, really demonstrating that digital banks are starting to become a serious part of the banking furniture.
“The pandemic has also played a role in the rapid digitalisation of the banking industry, with those who had never experienced online banking having no other choice but to take their finances online. It seems that Brits are starting to realise the convenience that can come with digital banking and this is reflected in our research.”
Finder commissioned Censuswide on 6 to 8 January 2021 to carry out a nationally representative survey of adults aged 18+. A total of 1,671 people were questioned throughout Great Britain, with representative quotas for gender, age and region
The Impact of the Digital Economy on the Banking and Payments Sector
By Gerhard Oosthuizen, CTO Entersekt.
New banking regulations, digital consumers, the eradication of passwords, contactless technology – these are just some of the trends that will shape financial services and payments in 2021, writes Entersekt CTO, Gerhard Oosthuizen.
Since the outbreak of COVID-19, traditional businesses have been compelled to further undergo the digital transformation to meet the needs of a consumer base largely confined to their homes. Indeed, we estimate that there has been a 30% growth in the digital space. With this acceleration towards a digital world, banking, transacting and payment trends have and will continue to be redefined into 2021.
We have witnessed a rising number of digital first timers. That is, people signing up for online banking and e-commerce, whilst progressively shifting away from traditional channels. Businesses that have previously depended on walk-in stores and having a physical presence have also had to recognise that online transactions are now the new norm, and to adjust accordingly.
Whereas in the past, registering a customer for a service could take place in a shop, a booth or a branch, today it has become more important than ever to have a remote digital registration option available as well. Even working behaviour has changed considerably, with many businesses accommodating for remote working in the long term.
This is what sets the scene for 2021 – people expect to work from home as well as carry out their transactions from home.
Banking and Payment Trends in 2021
The use of contactless technology is undeniably growing, but on top of more people tapping with their cards, we are also seeing much more engagement with QR payments. A technology already frequently employed in Asia, we know QR codes can work. It would enable consumers to authenticate themselves when making a transaction without needing a PIN pad. More importantly, it allows consumers to gain complete control of their transactions from their own device and have an overall richer experience. Recognising this, we anticipate noteworthy developments in QR and NFC-enabled tap and go payments over the next year.
In light of FIDO (Fast Identity Online) and the ever-expanding network of FIDO-compliant solutions, we also expect the emergence of entirely passwordless systems. Organisations will likely begin enlisting customers by way of biometric authentication through devices and digital identities that already exist, such as banking apps. Long gone will be the days of having to remember numerous passwords, only to forget and reset them again. That is the idea anyway.
In 2021, there will probably be a pronounced adoption of delegated authentication as well, whereby
merchants as opposed to traditional issuing banks will take the reins of authenticating e-commerce payments. In this way, consumers will be offered a greatly improved online shopping experience with a simple and intuitive checkout that acts as an extension of the retail brand.
The Challenge of PSD2
While each of these transitions will undoubtedly introduce growing pains, PSD2 will be among the most challenging. Europe is already going through PSD2 now, implementing a number of regulations that is opening up competition in banking and electronic payment services. However, on the 1st of January 2021, these regulations will take a legal effect. At the end of the first quarter, so too will another set of regulations concerning 3-D authentication of card-not-present payments. Europe is simply not prepared to make this leap into “open banking”. As such, banks will face a tough year of struggles with regulators and competition from non-traditional quarters.
In fact, the process towards becoming PSD2-compliant is often arduous for banks and recoups hardly any additional revenue. Many banks see it as a competitive disadvantage as they are being forced to open up their systems and processes for the likes of Google, Facebook, Apple and many smaller niche fintech operations. Their valuable client data risks being taken by a challenger and used to on-board their accountholders.
Regardless of the commercial opportunities that open banking may provide, fraudsters will also endeavour to take advantage of this change and the weaknesses that will appear as systems open. With money moving faster, the faster it can be stolen too. We will likely see some reaction to this in 2021 as fraud returns to being a top priority for banks. Yet, whether through regulatory pressure or by market forces, open banking will become the new normal – and the world needs to prepare for this. Hopefully, many lessons will be learned from Europe’s experiences in 2021.
Next year is going to be about change – and managing that change without alienating already unsettled consumers. Organisations that have customer experience top of mind will emerge as winners, but they must nonetheless expect additional pressure from regulators, new competition, ever more digitally-demanding consumers, and no slowdown in technological innovation.
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