IoT Use in Banking

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IoT in Banking - Trends

Four trends that are related to the use of Internet of Things (IoT) in banking are connected cars banking, blockchain-based smart contracts, personalization with beacons, and wearables banking. Details of these trends are below.

Connected Cars Banking

    • The use of connected smart cars to perform and enhance various banking experiences is being adopted by both banks and car manufacturers. For example, Blueshore, a Canadian credit union, offer installable wealth management applications that are displayed on car windscreens, and Idea Bank has a fleet of smart cars that serve as deposit boxes and ATMs. This trend is identified by Temenos, Internet of Business, and PWC, and is being practiced by Blueshore and Idea Bank.
    • Instead of customers visiting banks and ATMs, these smart connected cars now visit them.
    • Data from idea bank suggests that with these smart connected cars for banking, cash deposits at one car is three times higher than at a normal branch.
    • The regulation changes (such as the Payment Service Directive in the EU) that accompany the use of connected cars in banking allow banks and financial institutions to sell each other’s products and services. This helps to broaden competition among banks and creates new frontiers that can foster the innovation of banks and financial institutions.
    • By using smart IoT devices and sensors, cars with internet connectivity allow passengers to perform many financial operations seamlessly, such as reviewing their portfolios, which are displayed on their windscreens, as they are driven to their destinations.

Blockchain-Based Smart Contracts

    • Smart contracts are digital programs that help to facilitate the performance or execution of a contract. A combination of IoT, smart contracts, and some form of digital identity (provided by blockchain technology) can be used to make payments self-executing and self-enforcing.
    • The IoT, in combination with blockchain technology, can be incorporated into banking and financial processes used to carry out trade transactions between banks, as well as facilitate smart contracts by leveraging blockchain technology. Blockchain technology also has the potential to keep secure records of authenticated transactions. This trend is identified by Temenos, Datafloq, and Edgeverve.
    • By leveraging the possibilities of Blockchain-based smart contracts, the Commonwealth Bank of Australia, Wells Fargo, and Birmingham Cotton, a trading company, were believed to have completed the first ever global trade transaction between two banks, using the IoT, smart contracts and blockchain technology.
    • As there is no need for intermediaries, blockchain significantly reduces payment processing fees.
    • When leveraged, blockchain technology can enable banks to improve risk assessment and threat reduction when performing contract processes. This will help banks and financial institutions reduce losses and increase efficiency as 40% of financial institutions and intermediaries are susceptible to heavy losses that result from economic crimes every year.
    • In simple terms, blockchain link transactions together as part of an interconnected global distributed ledger that can be accessed globally. Being part of the blockchain, transactions cannot be tampered with and can have global visibility (with anonymity).
    • Blockchain technology helps to make transactions more secure and efficient by reducing fraudulent activities and labor costs.
    • By using blockchain with smart contracts, only transactions whose conditions are met would be allowed to proceed. This can help in enforcing transaction limits and thus provide added security.

Personalisation with Beacons

    • Wearable devices (such as smartwatches, fitness trackers, and eyewears such as google glass) contain sensors and software that can collect information about its users. The collected information (data) is then pre-processed in order to extract essential insights about the user, which can be leveraged for banking services and payments. This trend is identified by Datafloq, Internet of Business, and PWC.
    • Barclays Bank uses beacon technology to help guide disabled passengers while navigating their branches. Also, Chase Bank used beacon technology to pre-announce customers who signed up for the service, before they approach an ATM or a human teller.
    • According to Tata Consultancy Services, 31.6% of companies leverage IoT technologies by using digital sensors and devices in various business locations. The information are extracted, pre-processed and explored to deduce customer insights informed by the personal preferences of consumers.

Wearables Banking

    • The use of wearable IoT devices to facilitate different banking operations and services is a well-established trend among many banks. For example, Barclays bank has bPay, a contact-less wearable payment solution, and Australia’s WestPac Bank has PayWear. This trend is identified by Temenos, Tata Consultancy Services, and Finextra.
    • While some banks have their own wearable devices, others develop applications for popular wearable devices such as Apple watch and Fitpay.
    • Wearable devices such as fitness trackers and smart watches offers the possibility of allowing bank customers to perform financial operations right from where they are, such as invisible payments for transports and restaurant services.
    • By fostering customer satisfaction and spending preferences, wearables banking help banks to retain and acquire more customers. For example, the company ieDigital offers a service called Interact IoT, that allows customers to log in to and connect their bank accounts with many compatible IoT gadgets that help in checking their spending. An example of a device compatible with Interact IoT is Nest Smart Thermostat, which allows customers to set the amount they want to spend on home heating every month; when that amount is used up, the device turns itself down to a set temperature to help save cost.
    • According to Tata Consultancy Services, 15.8% of financial institutions leverage IoT technologies through wearables and allows the company to track how customers use products and services.
    • Being internet enabled devices, wearables act as additions or extensions to mobile technologies to optimise operations and boost productivity in financial operations.

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IoT in Banking - Case Studies 1

Two case studies of financial institutions that have adopted the connected cars banking trend are Blueshore and Ideabank. Information regarding Blueshore was however mostly unavailable. A complete account of the research findings is below.

Ideabank Case Study

  • Name of the financial institution: Ideabank
  • In Poland, sellers go to their bank branches daily to handle large deposits, and this mostly occurs during evenings. This presents a security concern for the customers.
  • In response to this, Ideabank developed a service through which, with a dedicated mobile application, a customer can book a mobile ATM integrated into a connected car. The process is similar to ordering a cab.
  • When the car reaches the set location, the customer is then able to make deposits or withdrawals as they would with a stationary ATM.
  • At the start, Ideabank started the project with a car capable of accepting a maximum number of 50 notes. As of 2017, the service had been developed to accept up to 150 notes, but that was still insufficient to cater for the needs of customers.
  • In addition, customers are able to use a special envelope and a payment card linked to their account to deposit money instantly, and the entire operation takes a maximum turnaround time of four hours.
  • Ideabank has been applying the trend since April 2015.
  • Success metric: According to data from Ideabank, the average deposit amount made through the cars is three times higher than that made at a bank branch. The total amount of monthly deposits as of 2016, exceeded €630,000. The service won the Innovation in Payments recognition award at the BAI-Finacle Global Banking innovation gala.

Blueshore Case Study

  • Name of the financial institution: Blueshore Credit Union
  • Blueshore, a Canadian financial institution, designed an interface that works specifically on the windscreens of connected vehicles. The windscreens enable passengers to access their financial portfolios and interact with them. This helps to enhance the productivity and satisfaction derived from rides.

Research Strategy

To find recent and well detailed case studies of the connected vehicles trend, we began by consulting reports from industry and market research companies, and consultancies. We searched through reports from PWC, Infosys, ABA Banking Journal, Finextra, and others to find reports of banks that leveraged the trend in its services and offerings, which we could use as case studies. We were able to find in this way, case studies of the connected vehicles trend from 2016, adopted by Blueshore Credit Union and Ideabank. Our search using this approach was unable to yield more recent case studies of the trend.
We changed tactics and went on to search for users and customers surveys that were done recently and could provide enough information for us to create detailed case studies that could provide all the required information regarding the adoption of the trend. Our search led us to a KPMG survey that detailed the expectations of banking customers from the adoption of various technologies, including IoT and blockchain. Unfortunately, we were unable to find any specific information about Blueshore's adoption of IoT, especially success metrics that could prove that its adoption was a success.
Lastly, we sought to find recent success stories and metrics that have been shared by Blueshore Credit Union. This effort led us to a report from the World Bank on the use cases of IoT. However, these use cases were more focused on government use cases, with very little information specific to the adoption of connected cars by Blueshore.

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IoT in Banking - Case Studies 2

JP Morgan Chase and Bank of America are two financial institutions that are using block chain smart contracts to streamline processes such as trade finance that normally take weeks and many parties into much shorter and efficient executions of contracts. Information regarding JP Morgan Chase and Bank of America and smart contracts is provided below.

JP Morgan Chase

Application

  • JP Morgan Chase started a new division called Quorum that is dedicated to research and implementation of blockchain technology. Quorum is a ledger and smart contract platform that is used to support more efficient financial transactions.
  • Institutional clients with JPM Coin Reserve accounts use JPM Coin to have the ability to offer and execute smart contracts. The smart contracts do not require the presence of a third party to execute the agreement or transfer funds and the immediate transfer of funds allows for immediate execution.
  • Two parties can create a contract that closes at a specific time and so long as the conditions have been met the funds are automatically transferred from the buyer's account to the seller's account.
  • JP Morgan has also created Zether to increase the privacy of the smart contract platforms.

Length Of Time

  • JP Morgan Chase and some competitors began secretly testing smart contracts and sending payments using blockchain in 2016. JP Morgan launched Quorum in 2017.

Success

  • Within 11 months, participants in the Interbank Information Network had 76 members including the Royal Bank of Canada and international banks like Banco Santander.
  • JP Morgan is the first major bank to create its own digital currency, JPM Coin, which allows for the immediate execution of smart contracts. Unlike other digital currencies it is considered a "stablecoin" as one JPM Coin is equal to one US dollar and therefore is not subject to instability.
  • JP Morgan Chase is one of 30 large corporations that make up the Enterprise Ethereum Alliance (EEA) that is building the technology and decentralized applications for Ethereum blockchain for smart contracts and open source code.
  • The company has 220 banks in its Quorum-based Interbank Information Network and the JPM Coin is expected to be launched to the public soon.
  • JP Morgan is given by Forbes to be one of the biggest financial firms dominating with the blockchain technology. The success they have had with blockchain led to them being one of the founders of Hyperledger, which is considered to be the gold standard for corporate blockchains.

Bank Of America

Application

  • Microsoft created a smart contract for Bank of America to use as standby letters of credit, streamlining a process that normally takes up to 20 people and 14 working days into a 4-step process that only takes a few hours. The presence of tokens serves as a commitment of payment.
  • Standby letters of credit are given to be a major pain point for banks because they typically involve 2 banks ensuring payment between entities that do not trust each other. Smart contracts make this process much more efficient and involve fewer parties.
  • BoA has applied smart contracts to trade finance in which the application takes the place of paper Letters of Credit by sharing information between "exporters, importers and their banks on a private distributed ledger" and deals are automatically executed through digital smart contracts.

Length Of Time

  • Microsoft's Azure’s Blockchain-as-a-Service solution was presented at the 2019 Sibos Conference in London as part of a private Ethereum network and was stated to be one of the most noteworthy announcements.
  • Bank of America started using the smart contracts in 2016.

Success

  • The smart contracts as standby letters of credit streamlined a process that previously took up to 20 people and 14 working days into a process that involves just four steps and "a matter of hours".
  • Trade finance normally involves numerous documents being sent between the parties, "importers, exporters, banks and financiers, insurers and export credit agencies, and other service providers". Smart contracts have narrowed the process down to 7 steps. The World Economic Forum acknowledged the benefit of distributed ledger technology or smart contracts would have on the trade finance industry.
  • Testing of smart contracts and blockchain was successful in managing post-trade life cycles for "standard North American single name credit default swaps" and proved that complex events could be managed with blockchain with real-time transparency. The testing achieved 100% success in all 85 structured test cases for life cycle functionality, integration with systems, network resiliency, and data privacy.
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IoT in Banking - Case Studies 3

Two case studies of financial institutions that are applying the personalisation with beacons trend are Barclays and Citibank. The details of the use cases are below.

Citibank Case Study

How they are Applying the Trend

  • Citibank, in collaboration with Gimbal, a beacon manufacturer, introduced beacon technology to many of its Manhattan Smart Banking branches. The pilot program was targeted at customising banking options.
  • When customers enable the Bluetooth on their mobiles, they are able to have a cardless access to ATM lobbies after banking hours.
  • The beacons transform customers’ Apple Watches or iPhones into virtual keys that they can use to unlock the lobby’s door.
  • The beacons send a push notification to customers’ device asking if they wish to open the ATM lobby door. Customers then tap on the notifications to open the door.

Barclays Case Study

How they are Applying the Trend

  • Barclays launched its use of beacon technology to mark the International Day of Persons with Disabilities (IDPD). They were the first bank in the UK to use beacon technology to enhance customer experience.
  • The service allowed customers with disabilities to use smartphone applications to pre-log details about their disabilities, as well as any expectations they may have when visiting a bank branch.
  • The application allows customers to upload their photos so that employees at the bank can recognise them when they visit the bank.
  • When a disabled customer enters a branch, the beacons discreetly alert staff via Bluetooth connection. The staff are then aware of the special needs of the customer and addressed them accordingly.
  • Barclays ran the pilot program for six months between 2014 and 2015.
  • Barclays have yet to release any success metric or performance information about the use of the technology. They have put the program on hold to review the feedback and data gathered.

Research Strategy

To find recent and well detailed case studies of the personalisation with beacons trend, we began by consulting reports from industry and market research companies and consultancies. We searched through reports from PwC, Infosys, ABA Banking Journal, Finextra, and others to find reports of banks that leveraged the trend in its services and offerings, which we could use as case studies. Through this we were able to find case studies of Barclays and Citibank on the personalisation with beacons trend, albeit from 2016 and 2015. Our search using this approach was unable to yield more recent case studies of the trend.
We changed tactics and went on to search for users and customers surveys that were done recently and could provide enough information for us to create detailed case studies that could provide all the required information regarding the adoption of the trend. Our search led us to a KPMG survey that detailed the expectations of banking customers from the adoption of various technologies, including IoT and blockchain. Unfortunately, we were unable to find any recent surveys of consumers regarding banks' adoption and use cases of the trend in particular.
Lastly, we sought to find recent success stories and metrics that have been shared by banks that have specifically adopted the trend. With these, we could have been able to provide specific examples that would contain enough details to be used as case studies. This effort led us to a report from the World Bank on the use cases of IoT. However, these use cases were more focused on government use cases and the information provided was not enough to create a case study with the required details. In 2015, about 4 million beacons were shipped by manufacturers. It is projected that by 2020, over 400 million Bluetooth Low Energy (BLE) beacons will be shipped. This show that the adoption of this trend is actively growing. Due to the seeming unavailability of recent case study data, we went ahead to present the case study from 2015 and 2016. Throughout our search, there could not be found any success metrics from Citibank regarding its use of the beacon technology.

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IoT in Banking - Case Studies 4

Two banks in the financial sector have been adapting to the trend of using wearables. Westpac uses 'PayWest' and Bankwest 'Halo'. These are just two of several banks that are changing with the times.

Case # 1: Westpac's 'PayWear'


Case # 2: Bankwest's 'Halo'


Research Strategy

Using press releases, articles from experts in the IT industry and the websites of Westpac and Bankwest, we were able to provide details on two financial institutions using wearables. Our search started with a review of the article on 'IoT in Banking — Trends.' From there we explored the examples mentioned in that document but decided to only use the example of Westpac. We were then able to find another Australian bank that has already started using wearables since many of the cases we found were not yet launched or had just done so. Our findings have been outlined above.
Sources
Sources