Introduction
What Is the Internet of Things?
The Internet of Things (“IoT” or sometimes the Internet of Everything) is taking the evolution of the Internet to the next logical stage by allowing any physical object (or “thing”) to be added to the Internet. This is in addition to the traditional devices such as PCs, tablets, printers, and phones. These new objects (or “things”) could be anything from photocopiers, security sensors, wearables (such as watches), and televisions.
The Main Uses of IoT
At a general level, the IoT has three main high-level uses:
• Firstly, it allows some sort of activity to be monitored remotely (such as a person’s health, a gauge on a machine, or a security alarm) with no human interaction. Then if a pre-defined level is breached, an action is automatically triggered (such as calling a doctor, switching off a machine, or calling the police).
• Secondly, it allows data gathering to be performed remotely and with no human interaction. For example, IoT sensors are often implemented to record traffic volumes over periods on certain roads. This data can then be used (using Machine Learning techniques (see Chapter 7)) to model driver behavior so that planners can look to divert traffic in different ways to reduce congestion or even look to develop new roads.
• Finally, IoT allows technology to be used easier and more efficiently by humans. For example, people can connect to the Internet to request music by just using a watch or speaking into a speaker as opposed to using a bulky laptop or tablet. Another example is the Smart Home where all parts of a house (heating, locks, lighting, etc.) can be remotely controlled by the homeowner using an application.
Benefits of IoT
There are a variety of benefits of IoT at a general level:
• There is improved automation with less reliance on humans and people. This means that there should be fewer errors.
• Operations efficiency is improved and it is also more cost-effective. Real-time monitoring (with rules and triggers) will ensure operations are run better. This also allows better controls, the collection of better data, and also the better use of assets (such as powering down hardware that is
not being used).
• IoT allows real-time and accurate data to be collected. This will help with understanding customer behavior which will help firms improve their customer servicing, improve their product offering, allow firms to cross-sell to existing customers, improve efficiency, and reduce costs.
Uses With Financial Services
Compared to some of the other emerging technology trends in this book, the use of IoT within financial services is not as advanced but there are still a variety of very good uses for IoT within Financial Services which are described below.
Monitor Financial Services Assets
Firms have a large number of physical assets which are critical to their operation and need to be maintained and managed.
• Automated Teller Machines (ATM)—While the use of cash is reducing, people still do use a large amount of cash and most people obtain cash from ATMs. Banks have implemented IoT sensors to monitor the usage of ATMs. The feedback from these sensors will allow banks to initially determine when cash levels are running low so they can be filled up. They are also looking to monitor ATM usage, length of queues, how many people leave the queue because of the long wait, and so on. This will allow banks to forward plan whether they need to implement new ATMs or remove underused ones.
• Branches—Banks have used IoT technologies to monitor the number of people who use their branches. These sensors will record how many people enter the branch, how many people leave the branch because the queues are too long, how long the queues are, and so on. This allows banks to determine their servicing levels in terms of staff, self-serving pods, and opening hours.
Provide Remote and Real-Time Customer Services
Providing remote customer servicing over PCs, tablets, and phones have been standard for many years now but IoT allows similar servicing to be provided using virtually any object that can be connected to the Internet. This covers wearables (e.g., a watch), smart TVs plus many others. This ensures that the customers can receive the benefit of instant client servicing if needed.
Collect Data on Customer Behavior
IoT allows firms to collect data on customer behavior which can then be used to improve customer servicing, enhance products, and allow firms to cross-sell their products. For example, an application can be implemented on a wearable (such as a watch) that will track what the customer does, where they go, what they spend their money on, and other behaviors. This data can then be used to improve customer servicing, develop more appropriate products, and also allow firms to cross-sell new products to existing customers.
IoT also allows firms to implement better fraud detection controls. For example, if a customer changes their details or makes a payment then a confirmation can be sent to a wearable device to ask them to confirm that they have performed this activity. Likewise, banks can use IoT wearables to determine where the client is to ensure they are in the same place that a payment is being made. If there is some difference then a confirmation can be sent to the client for confirmation.
Shock Treatments
IoT is being used to track customer spending. If the client is nearing (or has even breached) their credit or overdraft limit, then a message can be sent to a wearable to warn the client of this so either they can stop spending or look to transfer money into the offending account.
General Health of Customers
Firms are also using IoT technologies to try and generally increase the health and well-being of their customers. One large UK health insurer is offering points (which can lead to prizes such as a spa break) if their customers walk so many steps a day, sleep for so many hours, drink so many glasses of water, and so on.
Challenges of IoT
While IoT does have several real benefits, it does also pose some real challenges that firms will need to tackle for a successful implementation.
Clear Business Focus
There are many stories of firms (not just in the Financial Services) implementing new technology for the sake of the technology as opposed to implementing technology to meet some type of business or strategic need. (In the same way as any major change) this means before embarking on an IoT implementation, a firm must have a clear business reason to implement the technology.
Please refer to Appendix B for a list of variables to be discussed when completing a Business Case.
Start Small and Then Grow Implementation
There is a clear tendency to try and implement new technology too quickly. This is because people get carried away with technology. This is especially true in Financial Services. However, implementing any new technology is a challenging process and it should be taken gradually with regular point reviews.
Therefore, it is normally advisable to perform some sort of pilot implementation to assess whether the technology work? Does it offer the benefits promised? And does the firm have the skills to implement the technology? The results of the pilot study can inform the rest of the implementation. For example, how quickly should the roll-out be performed? What skills are needed? Will IoT provide the benefits promised? And so on. It is not that uncommon for firms to considerably rethink IoT projects after the pilot stage because the technology is more complex or costly than originally thought.
Even once the pilot study is completed then a gradual rollout plan should be implemented. This allows the firm to understand the technology and associated impacts as well as build confidence, momentum, and a return on investment with senior management and if any major issues are encountered, it is easier to roll back a new facility from a small subset of “tame” customers (staff, partners, “friends and family,” etc.) than from the entire customer base.
Build an IoT Capability Covering Technology, Processes, and People
The actual platform consists of three parts: (a) the technology platform, (b) the new processes and oversight required to monitor IoT, and (c) the new skills that are required to run IoT.
This is a key decision because if the wrong or inappropriate technology platform is selected then it will cause issues during implementation and day-to-day basis, which will ultimately cause the change to fail.
It is possible to develop an in-house technology platform to develop and support IoT but this could be complex and costly. There are a variety of third-party packages that could be used and it would seem sensible to use one of these. These platforms range from very functionality-rich (and often costly) platforms that offer a wide range of features to simpler platforms that do not offer a massive range of features but are often much cheaper and less complex to implement and operate. Therefore, some type of formal technology platform vendor selection process must be followed. Please see Appendix A which contains a list of the checks to be performed when selecting a supplier.
Also, any new IoT infrastructure will need to be integrated with the existing backend systems used by the firms. These existing systems are likely to be legacy, supported by a combination of in-house and external suppliers, and use a range of different technologies. The result is that the operational model becomes increasingly more complex and risky to support.
New Governance and Oversight Processes
As well as the implementation of the technology, new processes, and governance frameworks will need to be designed and implemented to control the new technology. This will cover four main areas.
• Oversight of the daily processes—Controls need to be in place to ensure IoT works as designed. If problems are identified then the cause needs to be discovered so the problem can be addressed to stop the problem from happening in the future. Any material issues will need escalating to management.
• Oversight of the supplier—The firm will likely be reliant on the supplier in some way. This could cover areas such as hosting the platform, providing support, providing consultancy, and so on. Therefore, the firm needs to ensure that the supplier complies with what they have committed to on the contract and appropriate service levels are agreed and in place along with a process for monitoring them. For example, are support calls being responded to per schedule? Are there issues with the hosting? And so on. If there are issues then these need to be escalated to senior management at both the supplier and firm.
• Change control process—IoT hardware and software will need to be added, updated, or removed. This could cover activity as part of the implementation project or part of business-as-usual running. Therefore, there needs to be a process to ensure changes are made safely to ensure existing functionality is not impacted adversely. Depending on the involvement of the supplier (such as hosting the platform), the supplier may need to be involved as part of this process.
• Policies for the development of IoT—Good standards need to be created around the development of bots. This will cover programming standards, integration standards, information security standards, testing standards, version control, and release procedures. Depending on the involvement of the supplier, the supplier may need to be involved as part of this process.
Ensuring the Firm has Sufficiently Skilled Staff to Support IoT Once the Project Completes
A dedicated project team will have been formed to implement the initial IoT project. This will have consisted of senior management to provide oversight and steer plus many “on the ground” people who would develop the software, rules, integrations, and so on as required. This group of people would have been sourced from in-house staff, contractors, and possibly staff from the external platform vendor if appropriate.
Therefore, firms must develop the necessary skills to be able to support the IoT platform once the project closes, because otherwise they will be reliant on external contractors and platform vendor staff.
This means that senior management will need to be educated on understanding IoT and its benefits at a general level.
Also more junior staff will need to be trained on IoT, the specific platform selected, the integration with back end systems as well as the suite of bots developed and rolled out as part of the project. This training can be done by training existing staff but it may also be necessary to recruit new permanent staff with the required skillsets.
Robust Security Must Be Implemented
There are some real challenges regarding security and IoT.
To allow IoT to work effectively then it will require data to be passed from the various remote IoT objectives (wearables, sensors, etc.) to a central back-end system for processing. This data could be related to personal data (names, addresses, etc.), payment details, balance details, customer service requirements, and other confidential data.
This means the IoT hardware and software must be secure, be able to cope with robust encryption, be impossible to tamper with and be able to combat viruses and other malware. If the firm owns the hardware and software (say as a sensor in branch) then this is possible by ensuring the relevant controls and governance is implemented. However, if the hardware is not owned by the firm (say a customer TV or watch) then this will create a challenge because the firm will need to support a range of different hardware each will differing operating systems. (This area is discussed in much depth under Self-Servicing in Chapter 6.)
There are various “horror” stories where hackers have accessed a firm’s technology via inappropriately secured IoT devices. For example, a hacker gained access via the connection between a tropical fish tank and the firm responsible for maintaining the tank and its water quality.
The key point is that if people are nervous about security then they will not trust IoT and will not use it.
Social Acceptance of IoT
Like all new technologies, it does take a while for society to generally accept the new technology. This is true for IoT. Customers may feel uncomfortable having a device on them which is monitoring their behaviors, tracking their actions, and recording what they do (even if this monitoring is for the customers’ benefit). In effect, it is a “big brother” worry.
Therefore, firms need to recognize this by being very clear and open on what the firm is using IoT for to ensure there is no confusion or misunderstanding. Firms also need to ensure that their customers are not materially disadvantaged if they do not use IoT functionality.
Power Supply Dependence
To allow IoT to operate successfully then all the remote devices (sensors, wearables, cameras, etc.) will need some sort of power source. This could be using the mains electricity, some type of battery or a newer type of power source (such as solar or wind power). The remote devices must have sufficient power to operate with backup options in the event of problems.
Remote Maintenance
The devices used to support IoT (such as sensors or cameras) will need to be maintained. This could be due to errors detected or due to the required hardware and software upgrades. These devices could be spread around the country, located in inaccessible places, or located in places that the firm does not own. Therefore, firms must have processes and procedures in place to allow for these devices to be remotely maintained quickly and efficiently.
Network Dependence
To allow IoT to operate then all the remote sensors, hardware, wearables, and so on will need a connection to the Internet to work, pass data, and so on. This connectivity could be via 4G, 5G, or local Wi-Fi. If there is no connectivity then IoT will not operate. Therefore, firms must ensure that Internet connectivity is in place with suitable backup contingencies in the event of problems.
Table 9.1 The future challenges for IoT
Area | Details |
Increased regulations | This area is neutral at the moment. At the moment, the take-up of IoT within Financial Services is still relevantly low compared to other technologies covered in this book. For this reason, local and global regulators are not looking to implement IoT-specific regulations at the present moment (although IoT is still liable to current regulatory demands around data protection, supporting customers, etc.). However, if the use of IoT increases within Financial Services or there are high-profile issues then the regulators will start to look to implement rules. |
Changing nature of clients | IoT should have a good impact on clients. IoT will allow quicker and more convenient customer service through wearables and devices such as Internet televisions. IoT should also allow firms to collect data on customer behavior which will allow firms to improve their customer servicing, enhance product offerings, and allow internal efficiencies which will, in turn, provide cost savings and cheaper fees for customers. However, there are some issues that firms will need to manage carefully. Customers may feel uncomfortable having a device on them which is monitoring their behaviors, tracking the actions, and recording what they do. In effect, a “big brother” worry. Firms need to recognize this but ensure that customers are not materially disadvantaged if they do not use IoT functionality and also to be very clear on what the firm is using IoT for to ensure there is no confusion or misunderstanding. |
Evolution of products | IoT should have a good impact on products IoT should allow easier, better, and more convenient product servicing through wearables and devices such as Intelligent televisions. IoT should also allow firms to collect data on customer behavior which will allow firms to enhance product offerings. |
Lack of trust | This could be negatively impacted if the firm does not manage this area. Customers may feel uncomfortable having a device on them which is monitoring their behaviors, tracking their actions, and recording what they do (even if the monitoring is for the customers’ benefit). Therefore, firms need to recognize this by being very clear and open on what the firm is using IoT for to ensure there is no confusion or misunderstanding. Firms also need to ensure that their customers are not materially disadvantaged if they do not use IoT functionality. |
This area is impacted adversely. IoT needs very accurate data for its processing. If IoT is not passing or receiving data correctly from its remote devices then IoT will not work. Therefore, IoT means the firms need to ensure data is correct, timely, and accurate. | |
Poor operating and technology models | Operating models will be impacted negatively. IoT requires new technology, process, people, and so on to be layered on top of the existing complex and costly operating models. This will increase the overall complexity, cost, and risk of firms operating models. |
Profitability/Cost drivers | IoT should be a benefit for firm profitability in the medium to long term. IoT will allow efficiency improvements which should reduce costs and increase profitability in some way. IoT allows firms to provide better customer servicing, perform cross-selling of products to increase revenue, and enhance products to also increase revenue. However, IoT does a large amount of money to implement. Therefore, it does require a sizeable implementation fee which will take a period to pay back. |
Changing nature of the workforce | This area is neutral. While some staff will lose jobs because their roles have been replaced by IoT processes, there is the opportunity to learn new skills to support NLP going forward. |
New competition and replacements | The impact here is neutral. Although IoT may be able to allow new competitors or entrants to move in the business slightly quicker and cheaper. |
Risk profile | There is a negative impact on risk levels. While IoT has great benefits around reducing risks around customer servicing, operational efficiency, and internal risks (around fraud), this is massively out balanced with (a) the additional risks to the operating model and the need for correct data and (b) with the significant security risks where a firm’s technology infrastructure can be accessed easily via an IoT device such as a vending machine. |
Case Study
A large retail bank is using IoT technologies to monitor the number of people who use their branches. These sensors recorded how many people enter the branch, how many people left the branch because the queues are too long, how long the queues are, what requests the customers performed, and so on.
This monitoring has provided a wealth of data which has allowed the bank in question to manage customer servicing much more efficiently. This does not just cover opening (or closing) servicing booths but opening them at different times and creating specific service pods for specific common requests (such as paying in cheques).
Summary
IoT is a useful technology although its take-up is not that large within Financial Services. This is probably because IoT is more suitable for other industries such as physical manufacturing which would use IoT for monitoring machinery and factories.
However, if it is implemented then it will provide benefits around customer servicing, enhanced products, internal operational efficiencies, cost reductions, and revenue increases. But there are some challenges around IoT increasing the complexity, cost, and risk of a firm’s operating models and putting more pressure on firms to manage data well.
Like all technology, the rollout of IoT does need some thought and focus. Therefore, firms will need a clear business reason for implementation. This should be supported by designing a robust IoT infrastructure covering the actual technology but also the required processes, skills, and oversight required. To further reduce the risk profile then IoT should be rolled out on a gradual basis.
Finally, there is a social acceptance challenge. Customers may feel uncomfortable having a device on them that is monitoring their behaviours, tracks their actions, and recording what they do. In effect, a “big brother” worry. Firms need to recognize this but ensure that customers are not materially disadvantaged if they do not use IoT functionality and also to be very clear on what the firm is using IoT for to ensure there is no confusion or misunderstanding.