While digital technologies continue to disrupt the status quo and redefine customer expectations, connected devices are making inroads into the mainstream.
From smart homes with connected appliances to wearables and connected cars, most consumer devices can interact with each other, share information, make decisions and improve the quality and productivity of life.
In fact, the discussion on the Internet of Things (IoT) has moved away from the number of connected devices to how these devices are disrupting the business value chain and transcending traditional product boundaries. Research suggests the global Machine to Machine (M2M) connections market will be worth USD $27.62 billion by 2023. IDC forecasts worldwide spending on IoT to reach nearly 1.4 trillion in 2021 as organizations continue to invest in the hardware, software, services, and connectivity that enable the IoT.
As IoT continues to accelerate, it is fueling a shift in the payments landscape with the evolution of "Internet of Payments" (IoP), where connected devices can be enabled to make purchases with very little human intervention. We have already seen early stage deployments in the form of payments enabled devices like the Amazon dash button and FitPay, which adds contactless payments capabilities to wearable devices. Financial institutions need to take notice of this phenomenon and ramp up their payments infrastructure to support these developments.
"Internet of Payments" is still an evolving protocol but holds the promise of being the next hyper-growth sector. IoP coupled with cloud, big data, analytics, artificial intelligence and biometrics, promises an incredibly exciting future. A future where money will exist but technology will redefine payments in a way that people will cease to experience it.
Let us envision a few scenarios in the context of "Internet of Payments:"
Consider a scenario where in a hyper connected world, a customer is driving by a brick and mortar store and his bank offers an attractive financing option on his wearable device to fund the purchase of a refrigerator that he was researching earlier. When the customer is alerted about the loan, he can authorize by simply saying yes, a voice recognition is done, payment made and refrigerator scheduled to deliver at his home.
Or another scenario, where an insurance company can derive insights about customers’ health and their physical activity with respect to their individual health goals. Insurance companies can notify the customer on his achievement and a reduced premium deduction or reward back at that very instant when a customer achieves his individual health goal. Or consider a car acting as a wallet which makes payments on the go. Telematics devices installed in cars can instantly authenticate the driver and authorize payment for refueling or service.
Or a printer running low on ink and the cartridge needing replacement. Now, the printer can place a direct order for a new cartridge by itself using the customer’s banking credentials linked to a retailer account.
In a world of "Internet of Payments," banks and financial services institutions can leverage the ecosystem to act as trusted advisors using information from the hyper networks built around the life of the customer to enrich his day to day experiences and execute payments on behalf of their customers in a completely secure manner ensuring that the customer never experiences a payment.
Many parts of the payments ecosystem will be disrupted. Banks are likely to start their origination process from failing washing machines, refrigerators and cars with empty fuel tanks, while enabling service centers and fuel pumps to receive fund transfers.
"Internet of Payments" in a hyper-connected world will drive a massive growth in transaction volumes and only those banks which are capable of scaling up to the demands of ‘Internet of Payments’ stand to win.
In this world of independent end-points dispersed across an all-pervasive network with automated connectivity, the business value chain will evolve into a matrix-based structure. The contemporary business models are likely to fade, making way for new contenders- the value enablers. These entities will create innovative, mutually beneficial partnerships and monetize the value chain of IoP, driven by consumer lifestyle choices. Decision making will be relegated to the world of technology, outside the purview of “human experience.”
Automated analytical decision making engines will choose the path of least friction in providing a seamless interaction and maximizing customer utility.
At a time when only the “recall” value of experience will be the sole differentiator, banks will have to re-invent their business models. Revenue will be driven by services, rather than product offerings. The measure of a banking institution will be the volume of transactions passing through. A new pricing model will emerge, one that is skewed towards transaction based charges and fees. Not customer data, but the data usage patterns, depicting concentration of data foot prints, the systemic highs and the lows and seasonal variances will be the new tender of value in banking system.
This high velocity, high volume transactional data will churn out inflection points driving service discovery. The unit of experience a bank contributes in this matrix value chain will be determined by the speed of a transaction from entry to exit and thereby a bank will claim its share in the revenue sharing model. Scalability will determine service revenue.
All of these will not be possible without the underlying scalable technology backbone. The Hyper-connected bank will be unable to operate without open API based extensibility hooks. Its ability to participate in this matrix value chain will be determined by its adoption of standardized messaging protocols and seamless interoperability. The open API based frameworks will weave the service delivery matrix value chain. The entire IoP will rest on this unit of interoperability.
Eventual winners will be those banks, who riding the crest of hyper-connectivity, successfully combine technological interoperability, high end scalability and reinvent a new paradigm of revenue model and pricing.