Living on the EDGE
Connected devices will alter customer experiences and expectations. Banking executives should act now in shaping the future that will straddle the cloud and the edge.
I have written previously about the irrepressible march of technology and how, on a personal level, it has taken over the Aiyar household. My wife, kids and I have sky-high expectations of any and every service provider — water, gas, electricity, broadband, our local grocer, curry take-out and yes, our banks too. With the proliferation of mobile telephones and smart devices, customers are already expecting the same level of seamless experience from their banks as they do from the providers of social media and other digital native services.
Bank Chief Information Officers (CIOs) ponder what these customer and technology trends mean for the industry. There is near-universal consensus that cloud is a key strategic driver for business success now and in the future. Concerns around resilience and security have been largely allayed. Issues around data privacy and jurisdictions have been broadly addressed. The division of responsibilities between public cloud providers and clients has been articulated and continues to be expounded upon. With more wide-spread experience, expansion of products, refinement of services and adoption of new ways of working, the roadmaps for cloud migration and native application development are gaining more clarity. Sure, in charting out what course is best suited for their organisations, executives find themselves mulling over several options: hybrid or public cloud; application migration priority; refactor or rebuild; SAAS, PAAS, IAAS. But the business case for adopting the cloud on cost efficiency, revenue enhancement, innovation and customer experience is significantly in favour of investment.
With their plates full of myriad priorities and their sights trained on a future in the cloud, banking executives might be excused if they do not pay much heed to how connected devices and edge computing will impact and shape their business in the near future.
It is estimated that there are upwards of 22 billion Internet of Things (IoT) connected devices globally. This figure is expected to grow to 50 billion by 2030. Edge computing, which decentralises a degree of compute power and storage closer to where customer interactions and events happen, is central to the wide-spread transformation that IoT is expected to deliver to the convenience and quality of our lives. The decentralisation of computing away from big hubs and data centres is not new and arguably has been the predominant trend since the first commercial mainframe came into being. The personal computer and mobile phone are both examples of outsourcing tasks of increasing complexity to the periphery.
The principles that propelled the selective devolution of computing in this manner hold true even today: Enhanced customer experience, optimisation of the computing burdens on the hub and reduction in the data traversing the network. Ever greater concentration of processing power and data storage on ever shrinking real estate (Moore’s Law!) has brought us to the juncture at which we find ourselves today, where tiny devices too can be programmed to sense, learn from, and react to the environments in which they operate. This has already led to a plethora of innovative products and services such as self-driving cars, health monitors, wearable technology and so on.
Banks product managers and IT heads have largely viewed this evolution with passing curiosity. They regard the surge in IoT much like they did the proliferation of mobile banking and e-commerce: Societal and customer behavioural changes that will impact but not fundamentally reshape banking. There is some truth to this as banking products such as current/savings accounts, mortgages and loans haven’t fundamentally changed in decades.
But when looked in their entirety, from customer interaction to risk underwriting and product distribution, banking has changed beyond recognition. It could be argued that banks have been historically slow to embrace emerging technology trends given their aversion to risk and disposition to regulatory scrutiny. Following tried-and-tested trends is the prudent thing to do but being behind the curve comes at a degree of avoidable cost and rework.
Given the centrality of banking and finance to the functioning of societies, besides optimisation of technology cost and investment efficiency, banks should take a lead role in shaping how edge computing and IoT will impact customer lives and ensure it is done to drive greater convenience while being safe and secure. As seen in the past with similar secular trends such as the move to personal computing or mobile banking, if banks don’t take proactive measures of their own accord, it is likely that customer behaviour will drive them to the edge anyway (pun intended!).
The ever-expanding application of IoT devices is already resulting in customer activities and behaviours that are impacting banks. These use-cases will only increase over time.
· Automated payment with things is already a thing. The act of fishing out a card to make a payment will soon recede into the background and possibly, into irrelevance. The mechanism of making a payment will be integrated into the overall transaction or experience that it is enabling. Tapping a wearable device like a phone or a tag is commonplace in societies where the infrastructure to accept contactless payments is widespread. The application of automated payments will only propagate further. Sensors installed in home appliances such as washing machines will track flagging reserves of washing powder and order and pay for further supplies as needed. Automobiles already alert their owners when matters need looking into — this will be extended to them paying for parking, petrol and maintenance activity on a need’s basis.
· Better informed customer and credit risk profiling will result in win-win outcomes for banks and their clients. Customers’ digital footprints will inevitably be expanded as IoT devices become more enmeshed in our lives. Banks will be remiss in not tapping into this wealth of data to drive better credit scoring and underwriting models while on-boarding new or expanding their wallet share with existing customers.
· Being attuned to their digital whereabouts will also help banks protect customers and themselves against fraud. The glut of IoT devices will increase the exposure to fraudulent and criminal activity. With express permission of course, banks that are cognizant of the extended digital footprints and historical behaviours of their customers will have the access and means to detect and prevent malicious activities.
· Real time intelligence can help insurers provide more nuanced outcomes for customers Insurance firms can transform their offerings by tapping into the wealth of data that IoT devices are expected to generate on the state of the insured asset and its use. Firms offering health and life insurance can tailor their packages based on lifestyles that health-tracking devices provide insights into and in turn incentivise healthier behaviours.
· Likewise, banks that have helped with the financing of big-ticket purchases or provided secured lending, can take a real-time view of their credit exposure with access to data about the condition of the underlying asset or collateral. Trade banks are looking to tap into data of the status, whereabouts, and condition of goods in the supply chain to enable them to make more nuanced decisions on supply chain finance and extend this into the execution of event-triggered smart-contracts.
With the fintech wave about a decade old, banks have gotten much better at curating ideas and taking them through a structured innovation pipeline from incubation through to commercialisation. Banks and industry participants will benefit by taking a more proactive interest now in how edge computing and IoT will impact their industry in the not-too-distant future.
Setting the tone on security: Decentralisation of computing and banking transactions come with their own considerations around security and malicious activity. With the exponential increase in the number of end points that participate in the generation and consumption of data and services, comes a significant increase in the risk exposure that banks will have to contend with. Customers will ultimately look to their banks as guardians of their financial trust. Banks should therefore take a leadership role in working with the ecosystem of industry participants to not just define the technical standards and principles needed as prerequisites for the wide-spread adoption of ‘financial services on the edge’ but also the levels of accountability and liability. Frameworks around this are emerging in the adoption of cloud and could be used as a foundation to expand further.
Lead, don’t follow: It is not hard to imagine a future where banks are relegated to the status of utility providers and a significant chunk of their products and services will lose any semblance of branding. It is already happening. The broker channel (mortgages) and the advent of mobile wallets and payment service providers are already contributing to the anonymisation of banks. The onslaught of IoT devices and automation will only contribute further to the blurring of lines between experience providers and their underlying enablers. The opportunity exists to shape the customer experience and future of banking products and services. It might well be that for a subset of its wares, banks do recede into the background. But by leading the debate, banks can ensure that this is done on their terms. Financial security is one of the foremost considerations for most people and banks are custodians of this hard-earned trust. Like customers resting easy in the knowledge that their computers were powered by ‘Intel Inside’, for those services that are at risk of being made utilitarian, banks might look at strengthening their security and branding posture.
Optimise costs now with a hybrid cloud and edge strategy: Having just secured tranches of funding for the cloud strategies, banking executives will be wary of introducing further demands on their investment budgets. However, the journey to cloud followed by the edge need not be sequential. Unlike previous such revolutions, there is enough known about the potency of this technology and customer behavioural trends to shape policy and budgetary discussions. In addition, there is precedent in the challenges and opportunities that similar such technological advances surfaced in the past that banks can learn from to shape their current approach. Banks that look at a consolidated strategy will optimise their operating model and current investment on cloud. In the long run, these banks will also benefit from not having to write off technical debt as some of their investments in cloud will be rendered redundant with the advent of edge computing.
Yes, this will require courage and it will require banking executives to subdue their inherent aversion to lead on technology trends. But I submit that banks, with their historical predilection to follow and aversion to risk, should give due attention now to shaping a future where we will collectively co-exist in the cloud and on the edge.
