The Internet of Things (IoT) is already a widespread theme in retail banking, but there are still avenues for growth.
Retail Banker International spoke to Rob Cottrill, technology director at digital transformation company ANS about what the landscape is like now, where it’s going and why.
What does the IoT in the retail banking space look like at the moment?
I think there are two sides to that question. You get the perspective of the consumer who is leveraging the IoT, and a lot of the stuff that’s happening within the IoT space is aimed towards the consumer for convenience. You don’t have to go into physical banks anymore, you can do more things with your smartphone, more things with devices, you can use Alexa to make payments or send money. You know, all of that is IoT-related, it’s all around convenience and customer experience.
Virtual cards are a great example; you no longer need a physical card. You can generate multiple virtual cards so if you’re buying stuff from somewhere you don’t typically buy from, it’s very easy to generate a virtual card, spend on it, cancel it. You’ve got no risk of fraud.
When you look at it from the banking institution’s side, it’s less about the convenience to the consumer, but more about the power it gives them in terms of having edge computing and edge power at these devices. Real-time transactions and real-time information is a big part of it. When someone uses an IoT device or makes a payment electronically, things happen really quickly; it goes into the ether, and then the banks can work with that straight away.
Obviously, that leads to a great source of data for fraud detection, real-time transactions and monitoring consumer habits. They can tailor that information for customer profiles to really get to know customers a lot better and pivot how they interact with that consumer. It’s a much more efficient way for them to work and operate, which is why they’re investing quite significantly in it.
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How are banks making sure they’re not misusing data collected in terms of cybersecurity and data handling?
It’s a question that swirls around not just the banking industry, but other industries as well. The data they’re collecting needs to be secure; it needs to be done in a very controlled way. Since a lot of the data they collect is auditable, they know where it’s being used, what they’re collecting, and when they’re collecting it. A lot of the risk from IoT devices certainly comes from the misuse of the IoT device.
ATMs are a good example of an early IoT-type device. The physical attempts to breach that security [included] cameras stuck up top so people can see the card number and the pins or a fake keypad. That changes slightly when you look at more of the modern IoT devices. It’s really the compromise within the device or software layer that they need to worry about, some of which is outside of their control. So they need to do a lot of checks and balances on their side.
This unlocks the ability to use IoT devices for payments, but it’s not foolproof. It’s much more easy to trick people into social engineering to get access to devices. Certainly, older generations are much more susceptible to that social engineering aspect. The thing is acceptable risk within banks where the convenience and the real-time data they’re getting does offset a lot of the losses from fraud and allows them to compensate an account for that within the flaws and vulnerabilities of such IoT devices.
Where do you see IoT in banking going from here?
For me, it’s going to be focused on convenience for the consumer and customer insights for the banks and institutions. I think those are the two key drivers of how [banks] can make it more convenient for consumers to spend money, whether that’s on a phone, on a watch, with Alexa. ATMs might be upgraded, maybe it’s a finger or face scan rather than a four-digit PIN code, all of those sorts of innovations are possible.
If you remove the hassle of spending money, you tend to spend more, and that’s where we want to get to. To make it much easier for us to spend money and consume goods and remove that barrier to entry, while also giving us the safeguards and protections that are needed.
From [the banks’] side, the more we spend, the better they get to learn our habits to better understand how we operate, and how we want to spend money. That allows them to be much more proactive in fighting fraud, but also make tailored recommendations to us, in terms of borrowing money, spending money, using money.
It’s those sorts of insights that they want to lean on for us to use more money with them. They make more profit and our lives are much more convenient. So it’s a relationship of harmony, but the insights we give them are arguably more powerful than the convenience we get out of it. I think you’ll find when you start reading the small print of some of these [contracts] when signing up for a new credit card, taking out a loan, [it] will actually cover quite a lot of that of the data they collect and how they use it and what you’re signing up for.
Is that something you think customers should be worried about?
I think so. I’d always advocate to read small print. It’s definitely worth understanding how your data is going to be used, and how they proceed when using it. You’re agreeing for them to use data to do fraud protection and tracking and everything else; that will be in that small print.
The sad reality is, though, that I think a lot of the banking institutions will be doing the same thing, and the same small print will be there. So you’ve got a choice of accept it or don’t bank. But it’s definitely something that we should be taking more concern over as IoT devices get more capable.
What do you currently see as the main hurdles to this implementation?
Digital equality might be a good way to start. [Banks] probably would love to shift to a full digital model overnight. It’s much easier for them if it’s all self-contained, everything’s digital, physical money doesn’t really exist anymore. What they probably struggle with is consumers who don’t have access to the same level of technology. So they’re not got the same capability, you know, someone might still have a really old phone that can’t do contactless payment and can’t do online banking. So they still have to facilitate those as well. Technical laggards [are] probably what’s slowing down that transition for us.
I think that’s going to be a gradual phase over the next couple of generations. Once that shift starts to happen more, that’s when we’ll start to see a massive spike in innovation due to technology and IoT devices, because it won’t have to accommodate the legacy way of using spending money, if that makes sense, which is probably what’s that I say holding the innovation back. We’ve certainly seen a massive innovation over the last 10 years in terms of digital banking, but it’s not accessible to everyone at the minute due to their own personal circumstances, so they need to accommodate both.