CHICAGO — At its core, the advancement of Internet of Things for connected devices is a shift into a purely digital world.

Platforms designed for face-to-face or paper transactions may not be the best enabler of payments through connected devices, but a system born out of the digital payments world could fare better.

Financial institutions see a significant future for distributed ledger, or blockchain, technology — the system that enables bitcoin payments, but which has applications that extend far beyond the digital currency, said Dominic Venturo, executive vice president and chief innovation officer at U.S. Bank.

If businesses adopt distributed ledgers to monitor data and information from connected devices, "you could take the work we have done at the bank with distributed ledger technology and expand it to connected devices in this future world where the devices would constantly be transmitting data," Venturo said during a Nov. 9 presentation at the Internet of Things Summit.

Dominic Venturo, executive vice president and chief innovation officer at U.S. Bank.
Dominic Venturo, executive vice president and chief innovation officer at U.S. Bank.

Soon, the tokenization of payment transactions that the industry is currently seeing in mobile devices will find its way into IoT settings, Venturo said.

"At some point, you could give your washing machine permission to make a service request when it needed it, and facilitate the payment exchange with a linked payment credential when it happens," Venturo said.

That future is not that far away; already, GE has built a dishwasher with Amazon Dash technology, enabling it to reorder supplies when it senses it is running low.

A more open-loop payment scenario would be possible when connected devices operate through a distributed ledger that would provide information about every appliance or device in a home to a bank or insurance company.

It is getting easier to see why card networks and banks are interested in blockchain as a way to monitor secure transactions. Visa introduced Visa B2B Connect last month as a way to use the technology to help move and monitor high-value international payments between banks.

A group of global banks have also formed a Blockchain Standards Group to formulate policies to govern cross-border payments using blockchain.

Blockchain ledgers provide a universally accessible and cryptographically secure record of transactions and events. "Universally accessible" is a trait that makes it stand out from the current payments networks, which are beholden to silos of records at financial institutions, the clearinghouse, and private parties. Plus a single transaction can have different sets of data for batch processing, balancing, reconciliation, adjustments or corrections — with most taking place on legacy systems.

That data for devices with tokenized identification might include warranty information, performance measures, a log showing how much it is used and, of course, payments that might to be made for the devices.

Currently, banks are using the blockchain concept in tracking loans and other larger transactions, but also with connected devices that include payments.

"A vehicle with a tokenized identity can communicate with Bluetooth technology to make payments at a parking meter or a gas pump," Venturo said. "From a payments perspective, we are doing much to connect those devices together."

Software developers or vendors moving into the IoT space should also realize that distributed ledgers would operate differently from what they may have seen in the use of bitcoin, Venturo said.

"We have to separate bitcoin blockchain from the concept of distributed ledgers at a bank," Venturo added. "With bitcoin, that's sort of a trustless network in terms of the way it operates."

A bitcoin-free blockchain would operate primarily as a closed network for financial transactions and payments, with parts of it open for sharing digital documents and transaction ledgers.

"Think of it as open source software that folks can develop to API onramps and offramps for data," Venturo said. "But it would be managed by the financial institutions on the network. That's one model, but it is definitely not the only model."

Regardless of whether blockchain technology comes into play to power an IoT project, there is little doubt that the technological advancements are catching the eye of software vendors.

All technologies that make up the complexities of a digital transformation like IoT will get attention from an industry sector that has the potential to generate $11 trillion to $14 trillion in potential global impact over the next 10 years, said Link Simpson, practice leader for IoT at business technology provider CDW.

As many as 50 billion "smart objects" will be in place globally by 2020, and as many as 75% of enterprise researchers will someday launch an IoT project, Simpson said.

However, many companies remain unsure about connected devices.

"The first mistake we see out there is not jumping in and trying to move forward in a big way with IoT," Simpson said. "There is a tendency to wait it out, see if gets mature, and try to determine what it really is."

Another dangerous approach is the "if it is not broken, why fix it" attitude, Simpson added. "Early adopters are really on the reward side of the ledger."

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