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Can IoT recapture customer relationships?

“Internet of Things” could put banks back at center stage

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  • Written by  Manish Grover
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  • Comments:   DISQUS_COMMENTS
Can IoT recapture customer relationships? UNconventional Wisdom is a periodic guest blog where the conventional wisdom is held up for fresh inspection, often with divergent recommendations. If you have some "UNconventional Wisdom" to share, email [email protected]

Recently, we have been witnessing tremendous innovations that are causing banks to increasingly lose control of the customer conversation.

New players have been leveraging the underlying banking backbone to provide innovative new services to customers, with the banking relationship as a secondary line of support, rather than an active participant in the dialog. This is being seen in P2P lending, in prepaid cards, in mobile payments, and even in such areas as long-term investment planning.

The potential full impact of this development has not been felt so far because of the miniscule scale—to date—of these activities. Clearly, though, it’s just a matter of time before the digital disruption really starts to assert itself.

However, with these developments also comes the enormous issue of fragmentation of the customer’s identity. While every organization—including banks—is trying to build a 360 degree customer, each such identity is only partial, simply because customer data exists in so many different silos. 

Internet of Things could turn this around

The Internet of Things (IoT) revolution, combined with digital and analytics technology, has the potential to bring banking back to the forefront of the customer experience.

However, this can only happen if banks can step forward aggressively and take control of the conversation before an intermediary does. Here are three categories that are leading the way:

1. Risk and financial management

The IoT era allows the bank to be connected in real time to a customer’s environment, and through that to the broader industry ecosystem. Information on assets, their current state, and the causes of change provide immense information on a client’s financial situation and risk. And that implies that scoring models can be updated dynamically.

By itself, this capability may not seem groundbreaking. But once banks combine it with giving the power to the customers it changes the equation. Imagine if an enterprise could see the drivers of their risk, and be advised on actions they could take to reduce or alter it. By combining in real time the physical assets information with people and behavioral data—which are part of a risk model anyway—banks could underwrite and price more effectively. In addition, this could help business customers make decisions in real time.

Similar shifts could be made in the personal lending, savings, insurance, and investments spaces. Suddenly, the bank is a partner, rather than just a provider. And the bank, again the central player, would have the information necessary to orchestrate conversations with other players.

2. Customer engagement

When bankers think of customer engagement, they envision reaching customers in real time with promotions and discounts. But customer engagement is also about creating a trusted partnership. How do banks get plugged into a customer ecosystem to drive two-way value?

IoT allows banks to play a central role, limited only by imagination. For example, Alfa-Bank in Moscow opened a facility where fitness enthusiasts earn rewards based on their fitness activity. With every predefined measure of fitness activity accomplished, a certain amount is transferred to their savings accounts. Can this concept be extended to drive savings, enable social consciousness, encourage charity, incent better driving, and more? You bet.

The power of this network is up to how banks design it. With advances in mobile payments, most notably Apple Pay, banks can transform their image as passive providers to that of a dynamic partner, making sure promotions are available at the point of sale, in context, and perhaps taking into account customers’ financial goals and status.

3. Broker of services

A bank is at the center of its customers’ lives. Due to various regulatory and compliance issues, banks have been unable to create deep relationships with customers. The IoT revolution can be the trigger that forces reconsideration of banks’ place in the grand scheme of things.

In other words, IoT can help banks move from being a facilitator of activities— through payments and money movement—to being an orchestrator of activities. Small businesses are looking for a platform that ties their community together.

The connected world provides the ability to interconnect local businesses such as mechanics, insurers, restaurants, retailers, service providers, charity organizations into a network of collaborating parties. They already do so. Why not formalize the collaboration? 

Our cars can trigger alerts that notify our mechanic, or get quotes from nearby mechanics. Our homes can trigger a need for local service. Our needs for loans and investments can be channeled more easily. And all businesses can be linked through a platform that also keeps a history of transactions and provides various promotions depending on how each party wishes to design it.

Isn’t that what community and local-close-to-the-customer-banking is supposed to be all about?

There is no doubt that tapping into such possibilities will require designing of capabilities that are required. Some of these are:

Creation of a network of participating entities.

This is as much a technology play as it is a business model design and partnerships play. This will in turn require a restructuring of product and pricing models so they can be customized based on revamped risk management models.

Processing and analyzing available data in the right way.

This includes creating customer information stores that can cater to enhanced privacy needs, and can cater to multiple industry players.

Creating new interfaces for customers to interact with the bank.

These interfaces may or may not be completely owned by the bank.

At the same time, while physical interaction avenues are created, banks will also need to build a marketing program that secures buy-in at emotional levels. Customer adoption is never easy, especially when it comes to changing established habits. It will never be as simple as launching a new feature and expecting customers to use it.

Putting the IoT shift into context

The possibilities of IoT are tremendous. This strategy is not a technology play alone, but also a review of bank business processes—ultimately, a rethinking of how banks evolve to address emerging customer needs.

New players often seem able to adopt such strategies faster because they are not saddled with tradition, pre-conceived customer notions, and regulatorily bounded way of life and thinking.

However, as with all new trends and innovations, what really matters now is how banks decide to address this important trend, and begin to design the approach to fulfill our vision.

Not everyone can be a leader and not every bank needs to be. But sizing up the risk and the opportunities associated with this trend will be an important first step towards getting ready to play.

About the author

Manish Grover wrote the book Dancing The Digital Tune: The 5 Principles of Competing in a Digital World. He focuses on strategies to meet new digital business and marketing paradigms, leveraging analytics and functional integration to improve customer engagement, profitability, and brand positioning. Learn more about his book at

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