Wouldn't it be nice if there was an easier way to do business with your bank? Easier than online banking and mobile apps? More convenient that heading into the branch? A smarter, faster, and more efficient process to get a loan, make a deposit, and manage your money?
Likewise, wouldn't it be amazing if your favorite bank stock could post dramatically higher margins and better efficiency, and take on less risk?
Bank of America (NYSE:BAC), Citigroup (NYSE:C) and other large banks think that both scenarios are not only possible, but will soon be reality. The key is utilizing technology from the "Internet of Things."
What the heck is the Internet of Things, anyway?
The Internet of Things is defined as a new way for sensors and machines to communicate with each other autonomously, using all the capabilities of big data, analytics, and artificial intelligence to anticipate needs, solve problems, and increase efficiency.
It is easiest to understand in the manufacturing context. A company takes raw components and assembles them into a finished product. Sensors can be networked into the assembly line that can determine when a certain component is running low in stock. Artificial intelligence can then order more of those parts based on production speed, costs, and projected sales. Sensors in the shipping and receiving dock will register those parts when they arrive, updating the inventory count, and preventing the factory from slowing down to wait for more parts.
It's a simplistic example, but it conveys the point well. Without the Internet of Things, this process would rely on a team of workers from various departments manually working through the problem. The Internet of Things automates it. It works instantly and with complete accuracy.
Conceptually, it works the same for financial-services companies. All you need is a little imagination to see the potential.
First, the Internet of Things will make banking easier for consumers and businesses
Bank of America is already working with early-stage technologies that incorporate elements of the Internet of Things. The bank is testing what it calls a "Teller Assist ATM" that uses technology to merge the experience of the bank branch with the ease of access of an ATM.
These ATMs feature a screen that can videoconference with an actual human being. If you have questions or need assistance, the on-screen teller can assist you and answer your questions. The Teller Assist ATMs will also be equipped with more denominations of money and more transactional capabilities, and, in conjunction with the virtual teller, they can do pretty much anything you'd be able to do inside the branch.
The Teller Assist ATM is just scratching the surface of what's possible. In the not-so-distant future, location-aware technologies will allow you to automatically "check in" to the branch before you arrive. That will trigger a process to prepare the branch staff with your specific account information, your history, and your most likely needs that day. When you walk in the door, you're already first in line and the banker will be fully up to speed on your unique financial situation. It's a proactive, fast, and customized system for every customer.
Citigroup was the first bank to roll out an app for the Apple Watch. The smartwatch is the most recent wearable technology with the potential to make this level of customer service possible.
Or consider an example put forth in a thought paper published by Cisco Systems:
Would you like to be able to enter into an agreement with your bank that'll automatically issue a HELOC to cover your roof replacement costs and issue a work order to a crew of affiliated repairmen when the sensors indicate your roof has reached its end-of-life?
Today's software and hardware technologies are close to being able to support these capabilities, and a whole lot more.
Second, the Internet of things can improve data security
Most large banks are currently rolling out new debit and credit cards to their clients equipped with a computer chip. These "EMV cards" are designed to improve your data security and reduce the risk of identity theft. The chip syncs up with the point-of-sale device at the store, verifying the authenticity of the card. The chip is much more difficult to steal and replicate than the current generation of magnetic strips, and it may require a PIN to complete a transaction, instead of an easily forged signature.
Bank of America began the widespread roll out of its EMV cards in September of last year, while Citi has been upgrading its cards since 2012.
In essence, the more data points the bank has to verify that you are, in fact, you, then the more protected you are. The Internet of things does exactly that; it allows the bank more data points to use to verify real purchases versus fraudulent ones.
Biometrics is likely the next iteration of this concept. It won't be long before bank customers use their fingerprint to authenticate their identity when making withdrawals, doing transfers, or logging into online banking. Wearable technology has the potential to make this process even easier as well, with smartwatches leading the way.
Third, the Internet of Things can improve risk management
More data points can do more than just protect bank customers from fraud. It can also help the bank make better risk management decisions. Companies are already tapping into social media, spending, and other behavior data to help with loan decisions, but there's much greater potential than that.
Think back to the manufacturing example at the beginning of this article. That manufacturer probably uses a line of credit from a bank to finance the process of buying raw components and constructing a finished product. This type of loan is typically managed by the bank using a process called a borrowing base. The bank must monitor the business' inventory levels, sales, cost of materials, and more to ensure that the loan agreement is being followed. That process takes up many man-hours between the highly compensated loan officer, the credit offer, and loan administration staff to manually verify and document the borrowing base.
With the Internet of Things, the bank can replace those wasted man-hours with sensors that track the raw, in-process, and finished inventory. Those sensors can sync with the account balance and availability, and it can verify that the loan is paid down appropriately when sales are made. The business owner can upload any invoices or other required documentation with a picture snapped in the bank's smartphone app.
What was an expensive, burdensome process ripe with opportunities for mismanagement is now an automated, audited, and reliable business loan on auto-pilot.
The possibilities are endless
The real beauty of the Internet of Things is that the possible applications are limitless. There are hundreds, if not thousands, of other use cases that can improve the customer experience and the bank's financial performance.
It's all about gathering more data, analyzing it in smart ways, and automatically taking proactive action at the exact right moment. The sky is the limit, and everyone wins.