Financial services firms should begin planning for the avalanche of new data that will hit them through the rise of the Internet of Things (IoT), which, if used correctly, could bring huge benefits to the industry, according to a Deloitte University Press report.
By enabling the collection and exchange of information from objects, the IoT has the potential to "be as broadly transformational to the financial services industry as the Internet itself," argues Jim Eckenrode, executive director of the Deloitte Center for Financial Services and the report's author.
The technology is already used in some areas, such as auto insurance telematics and 'smart' commercial real estate building-management systems, but this barely scratches the surface of IoT's potential.
By the end of the decade, the report estimates that there will be billions of IoT sensors deployed around the world by various companies that will provide data of interest to financial firms.
For example, lenders could use sensors in homes to better understand their condition and thus value during the mortgage origination process, while insurers could improve risk management and provide more accurate pricing.
On the commercial side, connected field devices in manufacturing or agricultural sensors that monitor livestock could provide data that would enable capital market firms and commercial lenders to make judgements on lending activities.
Sensors attached to goods in transit—from manufacturing plant to retail outlet—could offer opportunities to banks’ cash management and trade services businesses, better matching flows of payments and goods between seller and buyer.
Deloitte brought together academics, analysts and entrepreneurs to workshop potential uses of IoT data. The group came up with numerous possibilities in banking, capital markets, insurance, wealth management and real estate.
However, they also identified challenges, such as data privacy and security and the emergence of "radical transparency", which may undermine advantages that come today from information asymmetry.
Eckenrode says that financial services firms should be looking into the potential of the IoT technologies, teaming up with specialists and experimenting, working on the "assumption that every single object in the day-to-day lives of both customers and employees will soon be able to share data".
The report warns that process will not be cheap. An avalanche of IoT-generated data will dwarf firms’ current data volumes, threatening to overwhelm already-inadequate strategies and technologies.
However, says Eckenrode: "Firms that get ahead of this trend will likely be at an information advantage, where faster, better, and cheaper insight can create opportunities for improved customer experience and operational performance."