December 14, 2020 - It’s not a question of “if” but “when” will financial institutions begin widespread adoption and use of technologies such as the Internet of Things, AI, 5G and quantum computing.
But, even as their use is virtually a given, it’s not always clear how these technologies will be implemented in the financial services sector.
That’s the topic of a new report from the World Economic Forum entitled, “Forging New Pathways: The Next Evolution of Innovation in Financial Services.”
Working with Deloitte, the World Economic Forum interviewed more than 200 senior executives at financial services firms as well as subject-matter experts, academics and regulators. In addition, the group conducted nine workshops to collect even more information about where things are headed with the use of these technologies.
Here are some of the most interesting use cases involving IoT predicted to change the financial services industry in the near future:
Financial institutions could begin offering small and medium-sized businesses lending products that are provided at the moment of need and come with personalized advice.
Imagine a small manufacturing business owner that works with the bank to allow the bank’s credit engine to connect with the business owner’s supply chain data and accounting system. In addition, the bank would have access to data coming from IoT sensors on the business’s critical equipment and machinery in order to monitor usage and maintenance.
Using a mix of AI and IoT data, the bank could automatically provide more lending whenever the business has a new order come in or whenever a key piece of machinery breaks down. The report goes on to say that the bank can use all of its information, along with relevant marketplace data, to equip the business owner with personalized intelligence for how to improve operations.
This helps reposition the financial institution in the borrower’s eyes as a strategic advisor and a trusted source of operational assistance.
Dynamic life and health insurance
The Internet of Things could be leveraged by financial institutions to provide a blended insurance product that incorporates real-time data to improve risk analysis.
In this use case, an insurance customer with a blended health and term-life policy would be motivated with reward points to improve their fitness level and their diet. The financial firm providing the insurance could track the customer’s health data through a fitness tracker and offer additional rewards if the customer meets weekly goals. The insurer could also receive data from partners at a grocery chain about the customer’s food choices or from a fitness brand about the customer’s use of at-home exercise equipment.
The financial firm would benefit from taking two previously separate products (health and term-life insurance) and combining them into one holistic offering that uses data to improve pricing and reward healthy behavior.
Connected post-claims experience
IoT data could also help insurance firms in other ways. For those offering auto insurance, data from IoT sensors on customers’ automobiles could help mitigate loss and optimize the claims-filing process.
Imagine a customer driving home from work who gets rear-ended by another vehicle. The customer’s auto insurance firm could be notified automatically thanks to IoT sensors embedded in the car. The data coming from those sensors could tell the insurance company right away whether this was as serious accident or one with only minor damage.
The insurance company would then leverage partnerships to provide immediate services to its customer. For instance, the insurance company could send a tow truck and book an appointment at a body shop for the next day.
While the insurance company would need to spend capital in order to develop and maintain the partnerships with trusted service providers, they would likely increase revenues due to increased customer loyalty and increased premiums. Presumably, customers won’t mind paying the increased premiums if they see the value of having a turnkey solution in the event of an automobile accident.
According to Juniper Research, the IoT payments market, which includes sensors that facilitate per-mile insurance payments, voice assistants with a payment card on file and other similar devices, is set to reach $410 billion by 2023.
How might these machine-to-machine payments work? First, imagine an electric vehicle with an embedded digital wallet linked to the driver’s personal bank account. On a typical day, the car may trigger a number of different payments. If the driver pulls onto a freeway, they may need to pay a toll that’s automatically deducted. Once the driver arrives at work, they may pull into a charging spot where the car’s wallet automatically pays for the electricity. And, while the driver is in the office working for the day, the car may be used by a ride-sharing company that pays for using the car by depositing money into the car’s digital wallet.
Digital wallets, however, are not just for cars. They can be embedded into real estate property as well. Imagine a short-term rental company that uses embedded wallets at its properties to take payments from guests, pay out maintenance fees and taxes and hiring cleaning services automatically. Of course, the wallet can also be used to pay the mortgage and, if the property is fitted with solar panels, payments could be received for any energy sold back to the grid.
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