The Internet of Things (IoT) is one of the most ubiquitous forces of the day. If a ‘thing’ can support an IP address – and most products you will ever buy can be embedded with a chip to enable internet connectivity – then IoT is probably on its way. An estimated 50 billion IoT devices will be connected by 2020.
Christophe Zehnacker, head of strategic digital partnerships at global payments company Mastercard believes that the next big wave in what he calls “friction-free commerce” will see consumers making payments through connected devices.
The card firm’s ‘Commerce for Every Device’ programme is all about turning almost every wearable device, car, home appliance and smart ‘thing’ into an instrument of shopping.
Mastercard is working on smart homes, smart cars, and other wearable devices for its customers. It already has a partnership with Samsung that has seen the development of the ‘smart fridge’ come to fruition. This will enable consumers in the US to order items from FreshDirect and ShopRite supermarkets, via Samsung’s Family Hub refrigerator.
Not to be outdone, Visa’s global payment services is linking with IBM’s Watson IoT cloud-based platform so that payments can be made from a watch, a ring, an appliance or even a car.
On the subject of cars, the Consumer Telematics Show in Las Vegas in January witnessed Toyota’s Sandy Lobenstein, VP of connected strategy & product planning (the title says it all), talk effusively about how automotive ‘voice assistants’ and in-car voice payments are set to become the norm.
Toyota is not alone. Nissan and BMW have climbed on board with Microsoft’s Cortana (Ford may have an opportunity to revive an old favourite here …). Hyundai has teamed up with Google Home. Mastercard, keen not to miss a trick in this space, has been working with IBM and General Motors on how to embed Mastercard payments into future GM models, as part of the car firm’s OnStar Go in-car system.
By 2020, research firm Gartner predicts that the number of connected cars produced annually will reach 61 million. Today it is around 13 million (most connecting via in-car ‘infotainment’ screens).
Some 76% of respondents to KPMG’s 2017 Global Automotive Executive Study believe that one connected car can generate more revenue streams than 10 conventional cars, largely thanks to the data they provide. The survey further noted that 80% of motor executives see data as a key driver of future business models, with 83% anticipating securing profitability from that data.
Collaboration is key
For IoT commerce to truly become mainstream, it requires collaboration between retailers, the smart device manufacturers, technology companies and, of course, the payment providers.
Banks can and should be a key part of this development. If they aren’t, they have much to lose.
McKinsey claims that the average consumer banking relationship is dominated by making payments. With one in three people in developed markets now owning a smartphone, the global management consulting firm says banks will rely increasingly on digital channels to serve this device-reliant market.
With one in three US consumers using phones to make payments, and many of these payments transacted through mobile apps controlled by online-payments specialists and digital merchants, banks are potentially missing out on cross-selling of other financial services.
McKinsey’s report on global banking indicates that banks in Europe and the UK have $35 billion, or 31%, of profits at risk of general digital disruption. This could lead to cuts in their profits from $110 billion today to $50 billion in 2020.
Time to act
It is obvious that banks need to connect into the full range of e-commerce tools, especially payments, and be able to capture and understand customer digital transactions. Many are displaying a willingness to partner with non-traditional banking service providers (Bank of America, for example, has a partnership with Microsoft) and fintechs.
But banks can’t just create a payments solution and hope for the best. With the strength of relationship that the likes of Amazon and Alibaba have with their millions of customers worldwide, profits from IoT commerce could bypass the banks quite easily. Indeed, there has long been a threat that banks will become nothing more than a ‘dumb pipe’ as e-commerce grows.
Build relationships not barriers
The key now for banks is to keep building digital relationships with customers. It is unlikely they will be seen in the same favourable light as some of the retail giants anytime soon.
But what banks have over these firms is deep financial services knowledge, a far wider set of financial products, unparalleled security processes, data management integrity, and strong regulatory oversight.
The large retailers do have strong consumer relationships in their favour. They build this through communication: there is no other way. Of course, there are many ways to communicate. But if banks do it well – and they should be thinking in terms of channel, content and appropriate frequency – customer trust can be built and maintained. Ally trust with a strong financial product set and IoT, as it rolls out, should become a welcome opportunity for banks.
To learn more about how to create a customer journey that builds trust and positions your brand as an authoritative thought leader, contact Editions Financial today.