There is little doubt that Internet of Things (IoT) is transforming many industries, from manufacturing to insurance. Celent's Insurance practice has been at the forefront of IoT research since 2014 and has published many insightful reports. At first glance, IoT’s impact on banking is less obvious. And yet, in a new research report published this week, Payments and the Internet of Things: Opportunities and Challenges, we assert our belief that IoT also matters for banking, and especially for the payments industry.
At Celent, we have been writing about “contextual commerce” — taking shopping to customers wherever they are (e.g., ordering something directly from a social media platform rather than a merchant’s site). IoT takes contextual commerce to an entirely new level.
We believe it is helpful to think about the IoT evolution in terms of three large stages of development - see the figure below. Each of these stages represents a qualitative step up in the complexity of how transactions are conducted and what is required of payments.
Wearables and objects with user interface (e.g. a fridge with a screen or an Amazon Dash button) allow customers to place orders and pay in ways other than a plastic card or a computer screen. But the customers are still in control - they decide what they want to buy, find the goods and services that are right for them, and initiate a purchase transaction. Going forward, we expect connected devices to play an active role in orchestrating a commerce transaction — realising that the user needs something, suggesting where and how those needs can be fulfilled, preparing a transaction, and potentially executing it. Think of a car keeping a parking meter topped up until you finish your meeting. Ultimately, we will see the emergence of semi-autonomous economic agents capable of acting independently, including making and accepting payments, to optimise their own, their owners’, and their clients’ objectives. Think of a self driving car paying other cars to get out of the way if it's passenger is in a hurry.
For the payments industry, IOT poses a number of challenges, but also represents a big opportunity. For Banking more broadly, IOT can also help achieve better customer engagement and improve cross-selling as well risk and collateral management. That is, of course, unless we have a major consumer backlash against technology’s intrusion into their privacy. As always, creating genuine value for customers, rather than doing something just because technology is available, will be what differentiates successful banking IoT propositions from expensive failures.
Celent Banking research clients can download the report here. If you are not a client, but interested in the report, please drop us a line at firstname.lastname@example.org.