IBM AoT - IoT in Banking v1.0

Digital Business Transformation
IoT in Banking
IBM AoT Technology Theme Paper
IBM Corporation 2015 Digital Business Transformation Technology Theme Page 1 of 57

Table of Contents
1 Executive Summary .......................................................................................................4
2 IoT: Situation and Trends .............................................................................................5
3 IoT Scenarios in Banking...............................................................................................9

3.1 Customer Experience ...............................................................................................10
3.1.1 Who I am scenarios .......................................................................................10
3.1.2 Where I am ....................................................................................................12
3.1.3 More about me/us ..........................................................................................13
3.1.4 Wealth management ..........................................................................................16
3.2 Financial services in IoT ecosystems .......................................................................16
3.2.1 Customer Access (CA) ......................................................................................18
3.2.2 Customer Knowledge (CK) ...............................................................................18
3.2.3 Marketing (M)...................................................................................................19
3.2.4 Financial Advisory (FA)....................................................................................20
3.2.5 Customized Financing (CF)...............................................................................21
3.2.6 Payments (P) .....................................................................................................24
3.2.7 Fraud Management (FM) ..................................................................................25
3.2.8 Risk Management (RM) ....................................................................................26
4 Issues and Concerns .....................................................................................................27
5 Addressing The Challenges .........................................................................................29
6 Impact on the Banking Architectures .........................................................................31

6.1 Impact on Business Architecture ..............................................................................31
6.1.1 CBM for Banking framework ............................................................................31
6.1.2 IoT Business Impact General View ...................................................................31
6.1.3 IoT Business Impact Detailed Views .................................................................32
6.2 Impact on Information System Architecture .............................................................35
6.2.1 SoX Framework ................................................................................................35
6.2.2 IoT Technical Impact General View ..................................................................36
6.2.3 IoT Technical Impact Detailed Views ...............................................................38
7 Main Technologies Relevant for IoT in Banking ........................................................49
8 Conclusions and Recommendations ............................................................................53
9 References ....................................................................................................................54
10 Study Team ..................................................................................................................55

Table of Figures
Figure 1. Internet of Things: Diversity of standards in communication, protocols, operating
systems ............................................................................................................................6
Figure 2. Internet of Things Three Top Trends .......................................................................8
Figure 3. IoT in Banking Domains..........................................................................................9
Figure 4. Automatic customer identification in branch scenario ............................................12
Figure 5. Healthier is wealthier with wearables scenario .......................................................14
Figure 6. Bank capabilities for IoT ecosystems .....................................................................17
Figure 7. IoT Ecosystem (illustrative) ...................................................................................18
Figure 8. Letters of Credit scenario .......................................................................................22
Figure 9. IBM CBM for Retail Banking................................................................................31
Figure 10. IoT impact in business architecture ......................................................................32
Figure 11. IoT impact on Sales and Servicing CBM domain .................................................33
Figure 12. IoT impact on Offering CBM domain ..................................................................33
Figure 13. IoT impact on Processing CBM domain...............................................................34
Figure 14. IoT impact on other CBM domain .......................................................................35
Figure 15. SoX Architectural Framework .............................................................................36
Figure 16. IoT Impact on systems architecture ......................................................................37
Figure 17. SoE elements .......................................................................................................38
Figure 18. SoR elements .......................................................................................................42
Figure 19. Analytical Models Methodology ..........................................................................43
Figure 20. SoI data stores .....................................................................................................44
Figure 20. SoI Analytical capabilities ...................................................................................44
Figure 22. Data architecture elements ...................................................................................45
Figure 23. Integration elements.............................................................................................47
Figure 24. Smart Device / Sensors technology ......................................................................49
Figure 25. End to End technologies ......................................................................................50

1 EXECUTIVE SUMMARY
The Internet of Things (IoT) is defined as a way for sensors and machines to communicate
with each other by combining the capabilities of big data, analytics and artificial intelligence
to anticipate needs, solve problems, and increase efficiency.
The banking industry is being deeply impacted and transformed by technology and the
digitization processes that is changing the customer behaviour of hyper connected social users
that rely mainly on peers to make very informed financial decisions, and tearing down entry
barriers allowing the participation of new players, a new strong competition commoditizing a
formerly profitable business. These new entrants are creating completely new business
models, largely based on technological innovation, forcing banks to early explore new
technologies and the fintech space.
Currently, technology is promoting a completely new internet age. The internet platform, born
to connect people to enterprise systems, has evolved over the last decade to support much
more complex interactions, not just with people but with communities of people as social
networks. More recently it has evolved again to support the integration and interaction of
systems and enterprises through the API Economy platforms.
Now it is the time of the Things ecosystems resulting from the explosion of the Internet of
Things (IoT) where smart objects and devices can interact among themselves, with systems
and also with people. IoT is transforming all industries (automotive, healthcare, etc.) and will
surely impact and transform the financial services sector. IoT economy participants (such as
Smart Cars, Smart Homes, Smart Appliances, Smart Machines, Smart Shops, Smart
Healthcare, Smart Cities, etc.) will get connected to each other on platforms that will provide
the support for interactions and transactions that could include interchange of value with
financial impact. These IoT platforms will require not only payments capabilities but also
more sophisticated financial products and services, like lending or leasing that could be
adapted to the Internet of things economy. Additionally, banking customers using new
sophisticated devices like wristbands, smart phones, smart watches, glasses or smart clothes
can have a much better experience if their devices (wearables) are integrated into the banking
systems and physical spaces (like branch offices), providing a much friendlier and convenient
access to the banking services and also capturing contextual customer information crucial to
supporting a superb client experience.
The core of this study analyses IoT banking use cases around using IoT as a new element to
improve Customer Experience and use cases focused on the role of banking services in other
industries (or multi-industries) IoT Ecosystems. Additionally, it also analyses how IoT can
impact banking IT and business architecture.

2 IOT: SITUATION AND TRENDS
Internet of Things (IoT) includes anything and everything that is connected to the network
and able to communicate and exchange information with other things such as smart devices,
sensors, and electronic software. Sometimes this concept is referred to as M2Mmachine-
to-machine communication. There are also terms like: Internet of Everything, Internet of
Body (for wearable or embedded sensors on body not limited to human body) and Internet
of Value (economic benefit including revenue and / or cost savings).
Usually we look at IoT as a way for sensors and machines to communicate with each other by
combining the capabilities of big data, analytics and artificial intelligence to anticipate needs,
solve problems through actions, and increase efficiency / economic benefit.
There are many predictions that the Internet of Things will impact all industries and reshape
the worlds economy. Businesses from all industry verticals see IoT opportunities ahead of
them. As per Gartners prediction, the Internet of Things (IoT) will include ~26 billion
devices installed and exchanging information by 2020. By that time, IoT product and service
suppliers will generate incremental revenue exceeding $300 billion, mostly in services,
Gartner forecasts.
Big companies see IoT opportunities from different angles. Cisco Systems blends IoT with
more traditional IT devices (PCs, tablets, smartphones, etc.) to describe the Internet of
Everything. There will be more mobile devices and smartphones connected than the total
global population by 2015, according to Cisco. By 2020, more than 5 billion people will be
connected, not to mention 50 billion things, Cisco forecasts.
General Electric refers to the global network connecting people, data and machines as the
Industrial Internet. Moreover, the Industrial Internet has the potential to add $10 trillion to
$15 trillion USD to the GDP (global domestic product) from 2012 to 2032. GE is investing $1
billion USD to develop related Industrial Internet technologies and applications.
According to IBM, IoT is testing the limits of programmable computing. IBM Watson IoT
platform extends the power of cognitive computing to the billions of connected devices,
sensors and systems that comprise the IoT. Companies start to consider how to manage the
complexities of connecting to a seemingly unlimited number of devices and how to
effectively integrate IoT data with data from other sources, such as internal data stores.
Business value comes to those who improve their data capabilitiesintegration, automation
and analysis. Simply connecting the most devices to the network is not enough.
In 2015, General Motors announced that every one of its new vehicles in the United States
would ship with 4G-LTE embedded. This trend expands greatly and the majority of new
vehicles produced in the United States will be connected. Initial growth indicates that
connected cars will be the norm for all new vehicles produced worldwide within the next
couple of years.
A business has an opportunity to further automate capabilities by pre-defined rules and

actions as an example small business merchants sensors communicate directly with the
bank to inquire about cash flow in the merchants account and automatically authorizing Line
of Credit based on pre-approval limits / cognitive insights.

Standards are the keys
We live surrounded by WiFi, Smart Things, and other innovations designed to bring
incompatible technologies together. Everything we do, everywhere we go can be watched by
things: cameras, sensors, satellites, other people devices. There are some well-established
communications protocols like Bluetooth, ZigBee, and Z-Wave. There are many of devices,
protocols, processors, and systems.
Key IoT standards initiatives are underway at the IEEE Standards Association (IEEE-SA
https://standards.ieee.org/develop/project/2413.html). They have a project called Standard
for an Architectural Framework for the Internet of Things (IoT). This standard defines an
architectural framework for the Internet of Things, including descriptions of various IoT
domains, definitions of IoT domain abstractions, and identification of commonalities between
different IoT domains.
The Industrial Internet Consortium (IIC) is dedicated to accelerate the development, adoption,
and wide-spread use of the Industrial Internet. IIC did release its Industrial Internet Reference
Architecture (http://www.iiconsortium.org/IIRA.htm).
Figure 1. Internet of Things: Diversity of standards in communication,

protocols, operating systems
Enterprises looking to adopt IoT will need to embrace open standards that improve:
- Device monitoring, management and control;

- Big data information gathering and analytics sharing;

- Overall network communications between various devices
Enterprises will demand accuracy and accountability, resulting in clearer definitions from IoT
solution providers. Companies will need to articulate exactly what their IoT solution enables:
application enablement, service lifecycle management, analytics or another function and
clearly demonstrate how they make it easier for enterprises to launch, manage and monetize
from IoT.
The insights of things
Capturing and storing the data and understanding the information from devices are hot trends
at the moment and there is lot of work happening in these areas. The Internet of Things goes a
step beyond making information readily available and consumable from and by new types of
systems and networks protocols. We can treat the IoT as the first or last connection point
between the external world and Internet. But IoT can be much more. There is more and more
computation power in IoT devices. Gathering signals and data is not enough. There is the
need to analyse the gathered information, understand it and provide actionable insights. The
whole idea of the IoT is to boost efficiency, increase productivity, enable economic benefits
and drive customer experience. All of these goals require deep analytics capabilities and even
Artificial Intelligence through cognitive computing.
The security of things
Wider implications of billions of devices connected to the network and sharing information
has led to growing concerns about security of IoT. As adoption of IoT scales, building and
delivering connected services will be an important part of a business, but securing them is
even more important.
As the capabilities of devices and the information that these devices generate, transmit,
receive, process, and consume increase, the importance of having secure processing
capabilities embedded in the devices also increases. There is a need for devices to be able to
prove their unique identity and use that identity in setting up secure communications with
partners, whether those are peer devices or software enabled services. IoT devices must be
enabled to be secure by default mandating IoT development teams to embrace good security
coding guidelines to ensure that security is not compromised.
Information that is collected from devices might be used to identify who or what was in which
location, at which time, and doing what operation/task/act. This level of detail about what is
going on in the world is new. It raises valid concerns about how such data is handled, who has
access to this data, and what people and organizations might be allowed to do with this data.
As information flows from device to data collection system, the information must be
protected.
A wide variety of communication mechanisms are used including local area networking using
low-power, low-range methods. The mechanisms also include local area networking using
WiFi, to wide area networking using 2G, 3G, and 4G-LTE. IoT systems must still be able to
set up secure communications through this wide variety of networking mechanisms.
Key challenges related to IoT security are:

- Authentication (device, system/application, and user) & authorization

- Auditing
- Encryption/ decryption
- Data integrity
- Key management
- A wider range of computing device types
- Capabilities to operate in a less controlled, global environment
- Secure data transport and exchange
Figure 2. Internet of Things Three Top Trends
We should understand the Internet of Things as an integrated fabric of devices, data,

connections, processes, and people. The analyst predictions are quite wide ranging calling for
anywhere between 20 50 billion connected devices by 2020. We should treat IoT devices
not only like things. They become service and information providers.
The possibilities that lie in utilizing real-time data from billions of connected devices in the
future are limitless. However, with great possibilities come great complexity and uncertainty

3 IOT SCENARIOS IN BANKING
Is there any room for banks in the IoT world? will IoT be a new frontier for Financial
Services or will IoT provide a new way to improve operational efficiency and access.
Even though there is not an established view on the role of IoT in banks in the IoT economy,
we envision three areas depicted in the next figure:
Figure 3. IoT in Banking Domains
Customer Experience includes scenarios where IoT can improve the experience of banking
clients through using wearables running bank apps and sensoring spaces, like the branch
office and ATMs, gathering contextual information to create an advanced and superb
customer interaction.
Financial Services in IoT Ecosystems explores the role of banks to provide financial
services on other industries ecosystems, like smart cars, smart homes, smart cities, health
care, retail, energy and utilities, transports, industrial sector, etc.
Finally Location and Physical Asset Management is about using IoT for sensing,
controlling and manage space and assets (like branches, back office buildings, central offices,
DCs) to improve energy and water efficiency, physical security and space occupancy, comply
with environmental regulatory requirements and reduce costs. This area of IoT is cross-
industry and not specific to banking use cases so will not be analysed in this study.

3.1 Customer Experience
IoT devices such as sensors can be deployed to provide additional contextual information
about customers interacting with the bank. Such contextual information is used to enhance the
customer interactions with banks various channels. We have developed a number of business
scenarios in which the use of IoT improves the customer experience. These business scenarios
are grouped into three categories.
Who I am is for scenarios related to customer identification/authentication and
recognition.
Where I am is for scenarios related to customer location or position relative to
branches, ATMs, etc.
More about me/us is for scenarios based on additional data about individual
customers or customers as a group.
The scenarios listed here are by no means exhaustive. In fact, they are only a subset of all the
scenarios we initially developed.
3.1.1 Who I am scenarios
Customer identification and authentication are an essential part of customer interactions with
banks. Recently authentication using biometric traits such as voice, fingerprint, facial, eye
print, has been adopted in more and more banking apps, thanks to the microphones,
fingerprint sensors, or cameras, that are standard features of most smartphones. IoT devices
provide additional ways of identifying and authenticating customers.
3.1.1.1 Scenario: authentication wristband
An authentication wristband uses the wearers unique cardiac heartbeats to biometrically

verify the identity of the wearer, for payments and other financial transactions.
1. A customer who wears an authentication wristband performs a transaction with the
bank, such as transferring funds between accounts or withdrawing cash from an ATM.
The transaction can be performed at home, in a branch, or on the go, at the customers
convenience.
2. The wristband the customer wears captures the customers cardiac heartbeat and uses
the pattern to authenticate the customer. Note that everybody has a unique heartbeat
pattern. Also note that the wristband can communicate with the banks authentication
server via the customers smartphone.

3. The transaction proceeds successfully only if the customer is successfully identified
and authenticated.
3.1.1.2 Scenario: facial recognition
Facial recognition can be performed using the cameras attached to ATMs or installed in
branches. Facial recognition doesn't always try to identify who exactly the customer is.
Instead, it focuses on providing an estimate of a persons gender, age, race, emotion or mood,
based on what the face looks like.
Branch:
1. A customer walks into a branch. The branch surveillance system runs facial
recognition software to detect the incoming customers gender, age, and emotion,
which are used to profile the customer.
2. The branch concierge is alerted for the incoming customer with suggested actions
based on customer profile. For example, the concierge directs the customer to a self-
service kiosk or an ATM if the customer is profiled with a high propensity for self-
service, or approaches the customer and offer help if the customer is in a bad mood.
3. For customers with pictures collected for identification purpose, facial recognition
could be used to identify the individual customer. In this case, the concierge will be
able to provide personalized services.
It is not likely that every customer will receive a personal greeting in branches, particularly
the ones with heavy traffic. However, with the aid of facial recognition, it is possible for
branches to focus on customers in selected profiles that personal touch would make a big
difference.
ATM:
1. A customer arrives at a branch and enters the ATM area.
2. The facial recognition using the camera attached to the ATM provides an estimate of
the customers gender, age, and emotion. The ATM displays marketing messages that
are targeted for customers with similar profiles.
3. During the transaction, the camera detects that the customer is getting frustrated.
Customer could be asked if he/she needs help before alerting the branch employee.
The branch employee is alerted of the potential issue with either the customer or the
ATM.
4. A branch employee is dispatched to the ATM to offer assistance and is able to help the
customer complete the transaction.

3.1.2 Where I am
GPS based location based services (LBS), such as discovering the nearest branches and
ATMs, have been widely adopted in banking apps. Additional position sensing technology,
such as WiFi and Beacon, has enabled a new class of use cases. Both WiFi and Beacon can be
used indoor where GPS may not work well or at all. Combing multiple position sensors can
also enhance the positioning precision.
3.1.2.1 Scenario: automatic customer identification in branch
As a customer approaching the branch, the customers smartphone receives the signal from a
beacon deployed in the branch. That triggers the execution of a specific piece of code from
the banking app (the app does not have to be started at this time). That piece of code, while
executing in the background, could notify the branch by adding the customer into the branch
queue management system, or could simply launch the banking app to show personalized
messages and ask customer to provide the purpose of visiting the branch. The branch
representative who elects to or is assigned to work with the customer could start to prepare for
working with the customer by looking at the customer profile, previous interactions, and
products and services recommendations. The branch representative could approach to greet
the customer directly if the banks system of record has the customers picture in place.
Figure 4. Automatic customer identification in branch scenario

3.1.2.2 Scenario: personalized marketing in the branch
Marketing contents personalized for a customer can be pushed to a digital display in branch
when the customer is detected to be close and in front of the display. An array of beacons or a
beacon with multiple antennas can be used to detect the position of the devices (such as a
smartphone or smart watch) that customer wears or carries relative to the display.
1. The customer is notified on the smartphone to start the banking app as the customer
entering the branch.
2. Customer launches the app. The app constantly sends to the positioning server the
position sensing signals, which are used to derive the customers position relative to
objects in the branch.
3. When the customer is detected to be in front of a digital display, the branch marketing
system pushes contents personalized for the customer to the display.
Request for feedback about the marketing contents can be sent to the customers smartphone
at the time when the customer leaves the branch.
3.1.2.3 Scenario: cardless cash withdrawal from ATM
Customer prepares for a cash withdrawal from ATM using the mobile banking app and ATM
dispenses cash once the customer arrives.
1. Customer signs into the banking app and prepares for a cash withdrawal from ATM.
The app generates a one-time PIN to use at the ATM (the security PIN can be replaced
by a fingerprint check, but this requires the bank to collect the customer fingerprint).
2. Customer arrives at an ATM. Customers presence at the specific ATM triggers the
pending transaction to be routed to the ATM.
3. ATM displays a personalized message and informs the customer about the pending
transaction.
4. Money is dispensed from the ATM after the customer enters the correct one-time PIN.
In this scenario, the detection of the customer location relative to the ATM can be done using
various positioning technology such as GPS geo-location, WiFi, and Beacon.
3.1.3 More about me/us
Knowing more about the customer individually (in addition to who and where the customer
is), understanding customer behaviour as a group, and gathering contextual information allow
banks to provide additional capabilities that enrich customer experiences.

3.1.3.1 Scenario: healthier is wealthier with wearables
A customer allows the bank to access the physical activities data collected by wearables such
as wristbands and smart watches. A small amount of money is transferred to a special savings
account depending on how much the customer exercises compared with pre-defined goals.
The special savings account has high interest rate (like 5% annual in current low interest
environment), as an incentive for the bank's customers to exercise. The only way to put more
money into the high interest savings account is to exercise. Healthier literally means
wealthier.
Figure 5. Healthier is wealthier with wearables scenario
3.1.3.2 Scenario: Unexpected change in customer health data. Automatic re-

distribution of Wealth plan
1. Many folks use personal health monitors (e.g. Apple watch, Fit-bit) nowadays. Say,
that is connected to your main investment account held with a bank.
2. If there is a severe health condition, the bank (and the investment manager) gets an
alert and automatically the personal investment fund of the concerned person is
rebalanced to protect any downside. (Say moving from equity to debt etc.).
3. During personal health emergencies, people are much more focused on getting their
loved ones to the best available heath care facility and rarely think about finances at
that time. This feature ensures minimal downside and may be useful.
Other related scenarios using wearables:

Customers vital health and/or medical conditions such as heart rate, blood sugar, and
blood pressure, collected using wearables, are used as input for life insurance
premium. Customers driving behaviour has been used in calculating auto insurance
premium as well.
Wearables such as smart watches or rings can be used as additional authentication
factors, as well as payment devices.
3.1.3.3 Scenario: group behaviour (more about us)
Location data of customers in a branch can be aggregated to illustrate customer behaviour as a

group, such as the number of customers in a specific area in branch (waiting area, tellers,
ATMs) and average waiting time at a specific time of day. That insight can lead to more
efficient branch operations. For example, the branch manager can use that information for
scheduling staff, as well as allocating resources in real-time. It also provides estimates of
waiting time for customers planning to visit the branch.
Large queues at the bank lead to customer churn. In a typical queueing system, the average
wait time can be derived from three parameters average service time, average arrival time
and number of servers engaged in providing service to the customer. At the banks, they can
reuse their tellers for customer service or other bank operations. Ideally, they should
minimize average wait time as well as total number of tellers employed at the bank.
There are observations, which make it easy for the bank to predict the number of customers
arriving at the teller windows. Banks use beacons to count the number of customers entering
and leaving the bank. By analysing historical data by time-of-day and day-of-week, they are
able to predict the inter arrival time and service time. Using this prediction model applied in
real-time to the number of customers entering the bank, the bank predicts the number of
tellers needed in near future. This information can be displayed on the television screens near
teller counters, giving the employees an early warning on the number of tellers needed before
the customers arrive and start forming the queue. Thus tellers are only open when the
customers start lining up, and the employees can use the rest of their time to focus on other
operational tasks with minimal idle tellers waiting for customers.
ATM crowd detection is another case in point. When a large crowd near an ATM outside the
branch is detected (using the camera attached to the ATM or installed separately), the branch
manager can dispatch an employee to direct some customers to a special service area in
branch.
Weather can also influence on the customer behaviour on visiting branches or ATMs.
Historical data analytics and weather forecast can provide further accuracy on branch
customer visits prediction or about how much an ATM network will be used.
3.1.3.4 Scenario: contextual awareness, ecosystem, and smart credit cards

Imagine the things banks can do if they actually know what the customer is trying to
accomplish, such as shopping for sportswear in a retail store, or landing in an airport in a
foreign country, or waiting in a restaurant to be seated. The contextual information can be
used to provide relevant products and services by banks and their ecosystems of partners. One
example is that the banking app could prompt the customer to park in a nearby parking lot
with discount using banks mobile payment knowing that the customer is trying to find a
parking spot in city center.
This contextual information is derived from a variety of inputs, including, but not limited to,
location (both geo-location and indoor position), motion, duration, etc. Some inputs come
from the IoT devices and apps banks deployed, while others from partners in the ecosystems
(see section Financial services in IoT ecosystems for detailed information about banking
services in other industries IoT ecosystems).
A Smart Credit Card provides additional features such as storing many cards from which the
customer selects to use, acting as a Beacon that works with an accompanying app to alert the
customer when it is apart from the smartphone the customer carries, learning usage pattern
from information such as location and transaction history. Coin (http://onlycoin.com) and
Stratos Card (https://stratoscard.com) are two examples of such smart credit cards.
3.1.4 Wealth management

Many folks use personal health monitors nowadays. Say, that is connected to your main
investment account held with a bank. If there is a severe health condition, the bank (and the
investment manager) gets an alert and automatically the personal investment fund of the
concerned person is rebalanced to protect any downside. (Say moving from equity to debt
etc.). During personal health emergencies, people are much more focused on getting their
loved ones to the best available heath care facility and rarely think about finances at that time.
This feature ensures minimal downside and may be useful.
3.2 Financial services in IoT ecosystems
IoT adoption is quickly expanding in some industries like automotive, homes, transport, retail,
industrial, health care, etc. On all those industries, when there is an information interchange
among things and information systems or even among things and people, in many cases there
is also an interchange of value that in turn could trigger a financial service. Banks have be
ambitious to capture this new business area as IoT is expected to grow exponentially. If banks
dont assume the role of the financial services providers in these new IoT ecosystems other
new entrants such as fintechs, will do so.
In these new IoT ecosystems banks can offer traditional services, for instance payments
triggered by things instead of humans, new ways of traditional financial services, like loans
whose content and lifecycle change depending on real time events, or finally completely new
financial products and services specific for the IoT ecosystem. This is a completely new area
in development that will evolve very quickly during the next years.

The next figure shows some of the capabilities that a bank could provide in new IoT
Ecosystems:
Figure 6. Bank capabilities for IoT ecosystems
We could split the types of capabilities above between those that are more related to
improving the customer experience and servicing like Customer Access, Customer
Knowledge, Marketing and Financial Advisory, and those very connected the financial
services, like Payments, Customized Financing, Fraud Detection or Risk Management.
Those capabilities or services can be applied in any industry ecosystem where IoT is being
adopted, as it is shown in the next illustration that schematically represents examples of
financial services taking advantage of IoT

Figure 7. IoT Ecosystem (illustrative)
3.2.1 Customer Access (CA)

As already commented in previous sections, IoT is a new Customer Access (CA) channel
based on new self-service devices, devices than can interact on behalf of customers providing
contextual information and executing transactions, improve customer experience in physical
environments, provide enhanced security through biometrics or even act in social networks.
This type of scenarios has been already explored in the Customer Experience section,
basically for improving customer experience in the banking spaces, like branch offices or self-
services areas as ATMs.
3.2.2 Customer Knowledge (CK)

This contextual data and the attitudinal and behavioural information gathered by those devices
can be used to improve the Customer Knowledge (CK), enriching the single view of
customer that will be exploited by analytical tools (descriptive, predictive, prescriptive and
cognitive) to create an advanced customer insight. These data gathered by the wearables and
other IoT devices will complement all the information that a bank can capture on the
traditional channels (web channels, call centers, branch offices, etc) and from the transactions
running on the Systems of Record to achieve a real 360 view.
Some Customer Knowledge cases have been analysed also in section Customer Experience,
specifically in the scenario Scenario: contextual awareness, ecosystem, and smart credit
cards.
Other cases are more related to verify that the asset under any insurance or banking contract is
being used as agreed in order to manage risk appropriately, as defined in the following
scenarios:
3.2.2.1 Scenario: Car loan and insurance policy control
Customer is:

in process of purchasing new vehicle
looking to Bank to secure a loan for the vehicle
has indicated the vehicle will be used as a livery on weekends and for personal use
during the week
also insuring the vehicle accordingly with a combination of small business and
personal property and casualty insurance.
Insurer has calculated vehicle insurance premiums based on actual usage of vehicle
Insurer has also calculated additional small business liability coverage based on
vehicle usage
1. Bank extends loan offer based on information provided

2. Insurer insures vehicle and Insured for various types of coverage during various times
based on information provided
3. Vehicle sensor, geo fencing, and geo location, and shared smart phone data are captured
and analysed in real-time to insure vehicle is being used in context of what was agreed
upon
4. Banking transactions are also monitored for customer payment activity with activity
information provided to the Bank and Insurer
5. Bank contacts customer immediately if usage goes beyond an agreed upon range for
further resolution
Insurer adjust premiums and bills/provides credit based on actual usage on a monthly basis
3.2.2.2 Scenario: Home mortgage refinance

Bank is in the process of underwriting a refinance for a home mortgage loan for a customer
that has indicated rents his residence out to a third party for a two week period once a year.
1. Bank reviews financial transactions of customer for past three years to help verify
residence use.
2. Bank acquires aggregated home sensor information to identify varying security code
access to the residence (determine how long someone else may be accessing the
residence and on how many occasions)
3. Bank also acquires sensor information from appliances to assess anomalies in usage,
too little or too much to assist in overall residence usage.
4. Bank determines residence is being used in an acceptable agreed upon manner and
proceeds to approve the refinance.
3.2.3 Marketing (M)

All this insight can be used to execute a more efficient and effective Marketing (M) with
much more customized inbound and outbound campaigns and loyalty programs. Also banks
could use IoT channels as a marketing delivery platform injecting campaigns through
wearables or using intelligent sensorized ads panels or financial devices like ATMs, kiosks or

the branch (see some discussion on this topic in Scenario: personalized marketing in the
branch). Additionally, Marketing should be extended into the IoT ecosystems to offer
financial services associated to customer life events, like shopping, health related situations,
properties damage, trading issues etc, that could require financial support. This requires banks
to partner with players of those IoT Ecosystems to inject banking services ads and proposals
in the moment the life event happen.
3.2.3.1 Scenario: personalized marketing when shopping

Customer coming into a retail shop, coffee shop (like Starbucks), etc:
1. Customer carrying a phone with a retailer and/or bank app allowed to access to
customer positioning
2. Bank detects (thru its app or collaborating with the retailer and the in shop beacon
sensors) that the customer is in a specific shop area that sells expensive items
3. Bank Systems of Insight analyse contextual info with traditional transactional
historical data to detect possible customer financial needs
4. Bank actions:
a. Message to the customer through the app offering financing
b. Banking personalized ads (without identifying customer) in shop panels with
special financial offer
c. Message to the customer through the shop cash register or computer in the
moment of payment
This is scenario can be very related to the next one as marketing can lead to customer
financial advisory
3.2.4 Financial Advisory (FA)

Based on the info gathered from the IoT ecosystem it will be possible to detect customer life
events and also life events of things (for instance, expensive devices, appliances or
machines broken that need repair, replacement or replenishments) that will require Financial
Advisory (FA), like real time spending and saving activity, forecasting or budgeting, for
retail (Smart Home appliances, Smart Cars, etc) or enterprise clients (machinery, facilities,
commodities)
3.2.4.1 Scenario: customized budgeting and finance for car damage

This scenario can also be applied to other assets like houses, home appliances, machinery,
etc., that can be damaged and need repair or replacement.
1. Customer car sensorized to detect damages and accidents
2. Bank partnering with car vendor or insurer collecting car real time data
3. Car breaks down due to severe damage. Data is transferred in real time to insurance
company to provide assistance and to car dealer for preparing car repair.

4. Insurance and/or dealer provides info to the car owner bank (under partnership) to
inform about possible financial need.
5. Bank, based on context information (expected repair cost) and customer transactional
information and financial position (bank Systems of Record), provides financial
advisory to the customer on how to finance the repair (personalized loan for fixing or
buying a new car). Additionally, other contextual information like geo-location can be
used to provide additional services to the customer like replacement car, hotel to spend
the night, etc.
This is scenario can lead to customized financial products, as described in the next section.
3.2.5 Customized Financing (CF)

On the other hand, these new IoT ecosystems will require financial services like Payments
(P) or Customized Financing (CF), among others. In the IoT economy where things get
connected and will autonomously consume services or products, or in the interaction between
consumers (using wearables) and instrumented business (like automatic payments in retail),
payments will be a pervasive service that could be offered by banks (importantly, if banks do
not cover this space someone else, like new entrants, will provide this service).
As commented in the previous paragraph, the IoT ecosystem activity probably will require
additional financial support, like lending or leasing. But this is not about the use of traditional
products in the traditional way, it is about creating new products or adapting the old ones to
this new environment, like providing leasing with terms and conditions that could be
customized over the time, based on the use of the asset under the contract, as this assets (car
or machinery for instance) can be sensorized.
3.2.5.1 Scenario: Smart Leasing

The customer, an industrial enterprise requiring expensive machinery, acquires assets via
leasing using banking services (this scenario can be applied to other leased products like cars)
1. The customer (lessee) requires leasing to support expensive machinery acquisition

2. The asset is sensorized to know use conditions (working time, location, humidity,
temperature, etc) and possible failures in the machine.
3. The bank (leaser) create a leasing contract indicating use conditions under agreement
and the remain value. As the machine is sensorized the bank can calculate the
remaining value during the leasing contract life (instead of up-front condition)
4. Contract is implemented as a formal Smart Contract using a blockchain platform like
Hyperledger. This allows that the contract conditions are checked on live based on
real time events coming from the machine sensors. If contract conditions are violated
(machine not used as agreed) the bank can claim to the customer.
3.2.5.2 Scenario: Letters of Credit
Letters of Credit platform can be automated with IoT and Blockchain. Blockchain is deployed
to provide the LoC platform, identifying asset ownership and automating the contract
lifecycle. In turn this scenario can be improved if the assets under the LoC contract are
monitored with sensors that can provide contextual information like geo-location but also

environmental conditions (asset damage , thief, etc.) that can warn about events impacting on
contract conditions or even modifying the agreement itself.
Good Producers
Handling Firm & Customs Port Authority Handling Firm &
Container Firm Transport Firm B Bonded Warehouse Shipping Firm Bonded Warehouse Transport Firm C Container Firm
26
Transport Firm A Transport Firm D
Raw materials and Buyer, Seller of Goods

components manufacturer
Trade Lifecycle
Exporters Guarantees banking Transaction Guarantees banking arrangement & Importers

arrangement & provides credit provides funding to buyer
Bank to producers bank Bank Bank
Figure 8. Letters of Credit scenario
3.2.5.3 Scenario: Housing Loan / Mortgages
Many people take housing loans / mortgages globally. Using IoT, the bank can explore giving
an option to the new home buyers to install a sensor in their new homes, which will inform
them (and the bank) when there is a dampness in the wall above a certain percentage or there
is significant internal damage to the walls / roof due to say an earthquake? Presently, we come
to know about these issues only when its visible in the inside portion of the wall / roof, by
which time the damage to the walls has been done and this requires more exhaustive repairs,
but by putting in a sensor in the walls, large scale damage can be prevented.
How about an additional option, wherein the client is given an option to agree with the bank
initially itself that they will automatically issue a home improvement loan to cover the roof /
wall repair costs and issue a work order to affiliated repairmen when the sensors indicate the
roof / wall is leaking / damp above specific percentage?
The benefit for the client would be: discounted rates for these repairs (with enhanced
warranty), no additional paperwork for home improvement, insurance for any force majeure
or unforeseen incidents and pre-emptive/preventive repairs. The client can opt out of this
arrangement later too.
3.2.5.4 Scenario: Collateral and loan arrangement verification
Corporate borrowers from manufacturing industry usually have a line of credit with banks for
purchasing raw materials and to manage the production and regular expenses incurred. This is
usually given as a running credit line /overdraft / working capital loan and banks take raw
materials, WIP and finished goods as collateral.
Presently the bank must monitor the inventory levels, cost of materials, sales and more to
ensure that the loan agreement is being followed and that the borrower is not indulging in
fraudulent practices. This process takes up many man-hours between the highly paid loan

officer, the credit officer and loan administration staff to manually verify and document the
stocks and is still not fool proof as there is lot of manual involvement.
Using IoT, the bank can install sensors in its borrower's premises, in the assembly line, that
track the raw, in-process, and finished inventory. Those sensors update the raw materials,
produced stock numbers and can sync with the account balance and availability, and it can
verify that the loan is paid down appropriately when sales are made. The business owner can
upload any invoices or other required documentation with a picture snapped in the bank's
smart-phone app.
In this way, an expensive, burdensome process ripe with opportunities for mismanagement &
fraud is now an automated, auditable and reliable business process on auto-pilot.
3.2.5.5 Scenario: Auto Loans, Insurance Claim management
Many banks issue auto loans and many also have tie ups with insurance companies or have
insurance subsidiaries. In many countries vehicle thefts are prevalent and currently it is
mostly a manual tracking activity in conjunction with law enforcement agencies.
Auto loan & insurance companies can incentivize the installation of location & impact sensors
in the vehicle which cannot be tampered with. This will inform the respective companies as
soon as someone tries to remove these from the vehicle or whenever the vehicle has had an
impact above a certain level. This can go a long way in minimizing insurance frauds and
vehicle theft recovery and is a win-win proposition for both the law abiding consumer as well
as the financial companies.
3.2.5.6 Scenario: Customer has applied for loan to rent a commercial machinery
for 20 years
1. Customer has applied for loan to rent a commercial machinery in their plant
2. Equipment sensors report provides conditions on the commercial machinery
3. Sensors on building provides structural conditions on the building
4. Above data along with Customers financial viability will assist Bank to define rental
loan terms and conditions for the machinery.
3.2.5.7 Scenario: Customer has applied for loan to buy a commercial building
1. Customer has applied for loan to buy commercial real estate to build a plant
2. Sensors report provides conditions on the commercial real estate.
3. Above data along with Customers financial viability will assist Bank to define loan
terms and conditions for the real estate.
3.2.5.8 Scenario: Bank adjusts the rental loan terms on a commercial machinery
1. Customer has applied for loan to rent a commercial machinery in their plant
2. Equipment sensors report provides conditions on the commercial machinery

3. Sensors on building provides structural conditions on the building
4. Above data along with Customers financial viability will assist Bank to define rental
loan terms and conditions for the machinery.
5. On-going monitoring of sensor data on machinery will assist bank to re-negotiate
loans terms and conditions.
3.2.5.9 Scenario: Bank adjusts the loan terms on a commercial building

1. Customer has applied for loan to buy commercial real estate to build a plant
2. Sensors report provides conditions on the commercial real estate.
3. Above data along with Customers financial viability will assist Bank to define loan
terms and conditions for the real estate.
4. On-going monitoring of sensor data on real estate / building will assist bank to re-
negotiate loans terms and conditions.
3.2.5.10 Scenario: Customer applies for a vehicle loan

1. Bank leverages historical vehicle sensor information to determine risk profile:
a. vehicles past usage including mileage, where driven and where garaged
b. customers past usage of this vehicle and previous vehicles
2. Bank determines appetite to offer loan on vehicle based on customer data and vehicle
usage information
3. Bank determines interest rate to offer customer based on risk profile
4. Bank offers loan to customer
3.2.6 Payments (P)
An increase in the number of connected entities will radically change the way we transact, by
converting everyday objects such as wrist watches and a multitude of home appliances into
payment fulfilment devices. One could very well envisage a scenario where a GPS enabled
wrist watch advises the consumer with information such as bank locations, services offered,
related rates and fees, and is readily authenticated as the customer walks into the branch.
The IoT, therefore, has the potential to drive a shift from cash and plastic card payments to
payments through the most unlikely objects, and may well be the key to weaning customers
away from traditional payment mechanisms.

3.2.6.1 Scenario: system detects regularly consumed grocery items (milk, fruits)
and re-orders those from Grocery store
3.2.6.2 Scenario: system detects regularly consumed household items (filters,

laundry detergents) and re-orders those from Amazon.com
3.2.6.3 Scenario: automated check-out payment system

1. Bank partners with a retailer to process automated payments in shop
2. Retailer has all the products in shop with RFID tags that allow to retailer to identify
the items
3. The retailer provides to customers with high-tech shopping carts that can identify the
customer and the items it carries
4. The customer logging in the shopping cart using the retailer mobile app or the
retailer loyalty card.
5. The customer goes out of the shop thru a sensor zone that communicates with the cart
and automatically charges the customer for every item he passes thru the sensor zone
3.2.7 Fraud Management (FM)

Banks can leverage customer and physical asset location to search for fraudulent use. The
transaction location data provides the bank with the current location of a customer or asset
under financial contract. If this location is not typical for a customer, it may be due to a
compromised customer identity. Similarly, unexpected change in physical asset status or
properties could signal a theft or compromised identity of the physical asset. Additionally,
bank physical assets can be analysed for geo-clustering of fraudulent activities.
3.2.7.1 Scenario: Inconsistent customer location change
If the Counter Fraud system identifies a customer at two locations in a small duration, where
the customer can not physically travel from location 1 to location 2 in the time lapse between
the two transactions.
3.2.7.2 Scenario: Theft detection and notification

Asset location changes unexpectedly or not follows usual patterns. The owner is notified to
warn about possible theft situation.
3.2.7.3 Scenario: Misuse of asset under financial contract (leasing, loan, etc.)
Assets can be monitored to detect if they are being used under the clauses of a financial
contract, like in the case of a machinery or car leasing. Machinery leasing can require that the
asset is only used in a specific location (for instance a factory) into specific periods of time. If
the machinery is detected in a different location, that triggers bank fraud system warning.
Same for car under leasing for business purposes that should not be active on week ends or
bank holidays.

3.2.7.4 Scenario: Customers vehicle has had prior damage including water
damage and customer is now applying for a vehicle loan on this vehicle
1. Customer walks into bank and applies for a loan on vehicle

2. Bank access vehicle sensor data, location info from phone, and realizes that the sensors
and location information indicate a recent collision and water damage.
3. Bank rejects loan application
4. Bank moves incident/case into its Fraud unit for further investigation
3.2.8 Risk Management (RM)

Sensors can be used to detect context conditions that can rise risks impacting on financial
contracts like natural disasters due to weather adverse conditions, quakes, etc. Information
gathered by sensors, enriched with weather information and historic data can predict some
types of disasters and then open the opportunity of managing their financial impact.
Vulnerability reduction and mitigation measures are broadly accepted as the highest-impact
mechanisms to reduce losses from catastrophes, the ensuing reconstruction debt, and other
adverse consequences. Insurance does not, per se, neutralize damage; it is limited to providing
monetary compensation for damage. Regulatory measures seen as capable of encouraging
vulnerability reduction can be divided into two categories:
Non-Structural:
a. Identification of hazard-prone areas and limits on their use

b. Land-use allocation and control, including building-line distances
Structural:
a. Use of building codes and materials specifications

b. Retrofitting existing structures
c. Use of protective devices
Fully adopted and committed inspection and certification capability, national building codes,
with training, implementation, and enforcement of building standards coordinated among
town planners, builders, engineers, architects, mortgage banks, and insurance companies.
Determining recurrence probabilities (return periods) is hampered by the relatively limited

historical data available--about 100 years for hurricanes and 500 years for earthquakes.
3.2.8.1 Scenario: Customer experiences severe hail and wind damage to home
1. Sensors report wind and hail damage to the customers roof and siding as well as
home loss of power.

2. Immediate notification goes to customer as well as both the insurer and and bank
holding mortgage
3. A bank representative helps to coordinate with the insurer to ensure that the claim is
handled efficiently.
4. The bank receives insurer funds for repairs and issues payments as repairs are
completed.
3.2.8.2 Scenario: Customer vehicle damaged by hail

1. Vehicle sensors report hail damage to the customers vehicle
2. Immediate notification goes to customer as well as both the insurer and bank holding
lien on vehicle
3. A bank representative helps to coordinate with the insurer to ensure that the claim is
handled efficiently
4. Bank representative confirms repairs were made to vehicle
3.2.8.3 Scenario: Customers home in path of severe flooding

1. Customer and Bank, carries the mortgage, are notified of weather producing imminent
flooding risk
2. Immediate notification goes to customer and bank as in ground sensors begin to pick
up flood level/ground saturation information
3. Bank monitors situation based on weather and sensor data received during and
immediately after the storm.
4. Recognized that the customers residence was impacted by the storm and reaches out
to customer to ensure appropriate actions including contact with the insurer are taken
to prevent further loss.
4 ISSUES AND CONCERNS

Such path-breaking and transformative innovations come with their own risks. This deluge of
data can be quite challenging for financial organizations and they need to take a deep look at
data management, data security, privacy standards and safeguards. Few key concerns which
come to mind are:
Privacy: One of the concerns to deal with IoT is that all transactions are collected and
stored. So, there is no privacy. For example: Our smart phone, our smart watch all
which have a GPS, will send your location details to banks or other companies to
ensure organizations know your needs to perform focused sales.
Data Security risk: Companies will keep collecting huge amounts of information,
which includes even the smallest details and this makes it very important to ensure this
data is stored properly with proper safeguards. We are all well aware of how much

damage data hacking are loss of sensitive personal information can be for companies.
Incorporating latest data security technology, taking sufficient preventive measures to
ensure that information is secure will be key.
While the IoT has tremendous potential to fundamentally alter the payments
landscape, ensuring security and privacy, and managing identity across multiple
devices and locations will be considerably challenging. The rise of connected devices
will be accompanied by an increase in potential security threats and vulnerability.
Given the growing sophistication of attacks, and the expected spread of connected
objects, security strategies of existing systems are grossly inadequate. With each
connected device that stores financial information being a potential target for
cyberattacks, device security is an area that will need a lot of attention before IoT-
based payments can be introduced in full swing. With the advent of IoT-based
payments, the security perimeter will have to expand; current standalone security
solutions will not be adequate to counter attacks in the new environment, and will
therefore need to operate in a relatively more integrated model.
Interoperability: From a business perspective, the IoT offers tremendous

opportunities for growth. However, realizing the benefits demands interoperability that
can be achieved through adopting a standard framework. While certain measures have
been initiated toward this objective and some leading companies have made
significant investments in the IoT, the future roadmap is still unclear. The lack of a
common standards framework has resulted in companies introducing IoT-enabled
products based on proprietary standards. As a result, interoperability between service
providers has taken a hit, leading to adverse cost and growth implications. Therefore, a
key prerequisite for the success of the IoT revolution is for major players to work
together to establish a common standards framework that supports interoperability,
which in turn will facilitate easy adoption, faster growth, and reduced costs.
Absence of a strong business case: The benefits of the IoT are clearreduced costs,
increased automation leading to efficiency gains, improved processes, enhanced
customer experience through innovative payment options, and the potential for new
business models. Moreover, an increase in non-cash transactions will allow access to a
bigger customer base providing opportunities to create new revenue streams.
However, for these aspects to translate into tangible advantages, financial institutions
will need to sketch a compelling business case, which requires a deep-dive into the
nitty-gritty of the technology and how it will change things for the better.
Skill deficit: The IoT is a fairly new concept that requires the use of sophisticated
skills and technologies. Hiring people with the necessary knowledge will be a big
challenge and financial institutions need to merit due consideration to this aspect. In
addition, the change in operating models that the IoT promises to bring about, will
require massive reskilling of the existing workforce.
Business changes, new business models, and associated risks: With its ability to drive
transformational business changes, the IoT will create new business models and market
opportunities, while also introducing new risks into the ecosystem. Some of these risks
include workforce resistance and the entry of agile startups and niche players. The effort and

costs involved in the restructuring of underlying systems and processes can also be a
challenge, especially if the magnitude of investment is significantly high.
5 ADDRESSING THE CHALLENGES

For IoT-based payments to gain traction, banks and financial institutions will need to
effectively address these challenges. To take care of the security and privacy aspect,
organizations will need to adopt a platform-driven partnered approach, where all
infrastructure domains, devices, applications, and services will be integrated through APIs to
enable greater intelligence, automation, and efficacy of threat detection. This will
enable an agile security ecosystem with automated threat detection to detect and quarantine
cyber attacks before they inflict grave harm. Financial institutions will need to re-architect
their cyber-security strategies and examine how well existing identity and access management
(IAM) solutions work in an ecosystem of connected objects capable of executing financial
transactions. Banks will therefore need to identify customers based on the devices they use, as
opposed to a unique identifier like a customer ID or a passcode. This situation is further
complicated by the fact that the number and type of connected things in a customers
possession is ever changing. As each connected device acquires the ability to interact, the
IAM system will need to support its unique digital identity, irrespective of the type or form.
The scope of IAM systems will therefore need to be widened to include the Identity of
Things (IDoT) to manage multiple entities and a multitude of form factors that a customer
can use to communicate with banks, and capture the complex relationships between users and
these entities. Effective management of identities and access is crucial to a secure IoT-based
payments solution. This means that traditional IAM systems that mainly focus on people, will
be ineffective here. Successful application of the IoT therefore requires an IDoT-based IAM
strategy.
The entry of the IoT into the financial services industry is inevitable, especially with
technology companies making inroads by partnering with players in the payments industry, to
introduce wearables with transaction processing capabilities. This could pave the way for the
next revolution in banking and financial services by enabling the entry of non-traditional
players with an array of financial products that offer a greater degree of convenience to end
users. With the ability to drive customers away from the traditional banking model, this trend
does not bode well for conventional players market share. A key point to be noted is that the
rapid adoption of connected devices will open up new attack vectors for cyber-criminals, and
will therefore demand enhanced security systems and elaborate measures to counter threats.
We are seeing a classic convergence of mobile, IoT and big data analytics which will benefit
financial institutions by providing more customer insights and thus helping in designing new
business models and also creating new business opportunities. The way forward for financial
institutions is to identify IoT-driven use cases for business process improvement and customer
experience enhancement, and evaluate the associated operational impact and implementation
challenges. For most financial institutions, this will entail a significant overhaul of the people-
process-technology triad.

From an overall organizational change perspective, the IoT will require banks to adopt new
technologies, manage new risks, reinvent existing systems, processes, and practices, hire
technology specialists, and reskill personnel to cater to the millennial customer.
In addition, financial institutions will need to restructure their existing digital strategies that
may currently encompass only online and mobile channels, and make them channel-agnostic
to accommodate the advent of the IoT into the payments landscape.
Financial institutions will also need to focus on developing robust risk avoidance and
mitigation strategies that will apply to the entire ecosystem. We believe that IoT-enabled
payments are the next logical step for the industry, and financial institutions should gear up to
reap maximum benefits. However, realizing the potential of the IoT will require device
manufacturers, financial institutions, IT service providers, consumer service providers, and
data security firms to collaborate to define base standards, address security and privacy
concerns, and build the necessary technical know-how. In addition, given that there are
several payment channels in existence today, IoT-enabled payments should be introduced
after a thorough assessment of backend processing systems to check their viability in this
strategic area.

6 IMPACT ON THE BANKING ARCHITECTURES
6.1 Impact on Business Architecture

6.1.1 CBM for Banking framework
To analyse the impact of IoT in the banking business architecture it will used the IBM
Component Business Model, which describes the main functional areas and business
components of a retail bank.
Strategy & Insight Sales & Servicing Risk, Compliance

Management Delivery Support & Financial
Strategy & Management
Governance
Relationship Servi ce Interface Sales & Deal Structuri ng Sales &
Business Strategy Oversight & Key Account (Di alogue Handler) (Securitization / Servi ce
Servicing
& Resource Services Planning Syndi cation) Administration Risk
Management
Pl anning
Ri sk / Portfolio
Case & Management
Business & IT Service Credit Exception
Sales & Servicing Planning and Administration
Architecture Performance Management Routing & Tracking Handling
Credit Policy &
Acquisition & Planning
Alliance Planning
and Management Offering Asset / Liabi lity
Policy & Planning
Business
Model ling Marketing Development, Deployment & Delivery (Product Factory)
Product Development
Corporate Brand & & Deployment Product Catalogue Product Operations Finance
Relations Segment Campai gn Campaign & Servi ces
Management Execution Pl anning & Oversight
Management Channel Oversight, Financial Control,
Development & Operations Consol idation &
Market Insight Reporting
Processing
Finance Poli cies
Market Research
Common Transactions Specific
Application Statements & Collateral Cheque Inter-bank Card 3 rd Party Product Fixed Asset
Processing Correspondence Handl ing Processing Account Mgm. Processi ng & Processing Regi ster
Segment Analysis Fin. Capture
& Planning
Transaction Cash Transaction Sales Finance
Document Market Inventory Authorization Rewards Accounting
Management Capture (Factori ng)
Information Administration General Ledger
Services Transaction
Billing & Cash
Customer Insight Customer Collections & Inventory Payments Consolidation Treasury & Management
Accounting Recovery Securities
Management Bank Treasury
Customer Anal ysis Reconcil iation Fraud / AML Execution & Trade finance
& Models Detection Clearing spec.processing
Compliance
Customer Profile Support Services & Infrastructure
Audit / QA / Legal
/ Compliance
Systems Facilities
Contact / Event Development & Human Resource Operation &
Helpdesk Services Management Procurement
History Operations Maintenance Business Policies
& Procedures
Source: IBMs Component Business Model for Banking
Figure 9. IBM CBM for Retail Banking
6.1.2 IoT Business Impact General View

IoT will impact, with different strength, in all the banking functional areas:
Distribution as IoT creates new access channels for banking and new actors (things)
that will consume banking services in a different way that human customers.
Offering as the traditional banking products will be enhanced and enriched with
contextual information collected by wearables and IoT and will appear completely
new products specially designed for IoT ecosystems.
Processing as the banks core system will have to support and run those new IoT
products with new security and transactionality requirements.

Marketing and Customer Insight due to IoT will provide new contextual information
to complement the current 360 view of customer.
Risk as IoT can open breaches for new operational risks but, on the o0ther hand, it
will provide additional contextual information to improve the customer risk profile.
Figure 10. IoT impact in business architecture
Next sections highlight the main impacts in the CBM banking business areas.
6.1.3 IoT Business Impact Detailed Views
6.1.3.1 Sales & Servicing

The Sales and Servicing domain (also known as distribution) is one of the areas with high
impact as it manages the touch points with the actors (users, consumers, partners,
communities, B2B, etc.) interacting with the bank. Therefore, the IoT, as a new channel for
customers or devices communicating with the bank information systems, will require support
on this domain business functions. The Delivery area supports the external actors dialog
through the Service Interface that present the offerings, contact history and customer profile,
all of them clearly affected when the bank becomes part of an IoT ecosystem or support
customer wearable based access. The IoT interaction, both for ecosystems and customers, is
routed and managed by the Service Routing and Tracking component as any other channel in
the bank. The Sales and Servicing functionality should be also adapted to support IoT if this
channel is used for selling and servicing purposes. IoT also will need support for Case and
Exception Handling in case of long running interactions as disputes, suspected fraud or
complex problem resolution which require case execution tracking.

Figure 11. IoT impact on Sales and Servicing CBM domain
6.1.3.2 Offering
In the Offering area both Marketing and Product Factory will be also affected. As commented
in the previous section scenarios, IoT can become a marketing channel so it should be part of
the Campaigns Execution. As a banking additional channel or ecosystem IoT has to be
considered in the Product Development & Deployment and Operations lifecycle and specific
IoT products should be included into the Product Catalogue.
Figure 12. IoT impact on Offering CBM domain

6.1.3.3 Processing
The Processing dimension is also impacted as transactions originated on the IoT ecosystem
and devices has to be Authorized, Captured and Consolidated with those coming from the
other banking channels. As any channel it could be used for illegal purposes so it should be
also under the Fraud & AML control. Considering that the bank could provide payment
services into the IoT ecosystems or through new user wearables therefore the functionality
related to Billing & Payments should be also adapted accordingly. In case of IoT devices
owned by the bank they should be controlled by the Inventory Management functionality to
administer their supply, distribution and maintenance. Finally, if the bank is part of an IoT
ecosystem it could include in its offerings Third Party Products that should be managed and
processed.
Figure 13. IoT impact on Processing CBM domain
6.1.3.4 Strategy & Insight Risk, Compliance & Financial Management

Support Services and Infrastructure
IoT, and specifically wearables, can be used as a source for information gathering to create a
complete 360 degree view of the customer as it can provide contextual information that
complements and enriches the interactional, descriptive, attitudinal and behavioural customer
data and, therefore, a new source for Segment Analysis and Planning, a component of Market
Insight.
As it has been already suggested IoT devices, mainly wearables but also any other
instrumented element, like a Smart Car or a Smart Home, can provide further contextual
information and events that would improve the traditional Customer Insight with new massive
structured and unstructured data.

This information gathered with sensors and personal devices that would enrich the customer
view could also be used in Risk management as it could provide further insight to detect
situations impacting on the customer risk level (for instance machinery monitoring in leasing
contracts or driving behaviour for insurance products)
If in some point IoT in banking gets mature and progresses as a new touch point with
customers or new business models in cross-industry ecosystems, for sure financial regulators
will define and develop new regulatory policies that should be fulfilled by the bank
Compliance functions.
Finally, most of the Support Services & Infrastructure functions will be affected by the IoT,
being especially interesting for the purpose of this document the impact on the Systems,
which will be analysed in detail in the next section.
Figure 14. IoT impact on other CBM domain
6.2 Impact on Information System Architecture
6.2.1 SoX Framework
Unquestionably IoT, in its different approaches customer experience and IoT ecosystems
will have some level of impact on all the dimensions of banks Information Systems. Clearly
on the Systems of Engagement (SoE), as a new access channel for instrumented customers,
devices and spaces (like the branch office), and in the Systems of Integration, as this new type
of ecosystem will require new connectivity capabilities and protocols. These new devices and
ecosystems will generate a vast amount of data and events that should be processed in the
bank Systems of Insight (SoI) to convert them in information and knowledge (actionable
insight). Finally, this pervasive and always on IoT, generator of massive amount of data will

create an additional pressure (similar to the one already caused by mobile) on the banks
System of Record (SoR).
To analyse these IoT impacts on the banks Information Systems the SoX Architectural
Framework will be used as the pattern for the future banks systems.
A complete SoX description can be found in the next link: https://ibm.biz/BdECLh
Partner Access SYSTEMS OF ENGAGEMENT INTEGRATION SYSTEMS OF RECORD
Self-Service
Channels Advanced User Advanced
Experience Collaboration Business Core Business
Internet Processes Logic
Mobile
Personalized
Kiosk
Advanced Customer Other Business
Interaction Context Business Rules Logic
IVR
Assisted Business Business

Channels Ecosystem Business Events Integration
Support Logic
Branch Office
Contact Center
Engagement Operational Enterprise
Data Data Content
Management
Other Staff
Access
Data
New channels
and sources of Intelligent Informational
SYSTEMS OF INSIGHT Data
information Systems
(DW+ DM)
Advanced Big Data Business
Analytics (At rest + In Intelligence
motion)
Figure 15. SoX Architectural Framework
6.2.2 IoT Technical Impact General View
The IoT impact on the different architectural dimensions is depicted in the next figure and
explained in the following paragraphs.

Figure 16. IoT Impact on systems architecture
The SoE domain will support the new access channels for wearable devices deployed on the
bank omnichannel (integrated multiple channel with smooth process transition) platform,
prepared to capture massive amount of data and events and manage an extended customer
context. Advanced interaction mechanisms will be necessary not only for instrumented human
beings but also for the devices and systems (intelligent ATMs and kiosks, cameras, ads
panels, the branch office itself or even other industries ecosystems) that, as external actors,
will interact the with bank in a very complex way.
The Integration domain will have to incorporate new connectivity protocols for the IoT and
provide APIs to get the bank system connected to the IoT ecosystems in a hybrid cloud
delivery model.
All this massive information -structured, semi-structured and unstructured- have to be

captured, ingested and processed in the SoI to convert it in actionable insight, using data
reservoir models and advanced analytics techniques to enrich the current customer view and
also to understand the ecosystems dynamics. One important dimension of this problem is the
real-time analytics factor as in many cases the informations value will be extremely
perishable at least processed extremely fast, which will require not only advanced ETL and
in-motion analytics techniques but also intelligence decision systems, like cognitive
computing or prescriptive systems, to replace or support humans on the IoT ecosystem
management. The current analytic techniques oriented to analyse human or social networks
will have to be extended to analyse the ecosystems behaviour and understand, as commented,
the ecosystems actors activity and its dynamics.
These new requirements raised by IoT will have a big impact on the SoR. Much stronger non-
functional requirements, as already happened with the mobile and social channels, like

performance, high-availability and continuity or scalability, but also in terms of flexibility and
agility to follow the SoE evolution pace, will create additional pressure on the legacy systems
that will have to evolve accordingly to be more flexible and adaptable (using
componentisation and modularization techniques and business rules and business process
externalization engines).
Finally mention that these IoT channels will create new security threats as attackers will use
them to find breaches and gain access to the corporate data and systems. Also to highlight the
importance of a hybrid cloud platform and a secure, flexible, scalable and reliable
infrastructure to keep the IoT systems working with the required levels of service, being the
as-a-Service delivery models crucial to support the pace of evolution of the IoT applications
and its scalability requirements.
6.2.3 IoT Technical Impact Detailed Views
6.2.3.1 Systems of Engagement
SoE is one of the areas with highest impact of an IoT adoption as it can be considered a new
access channel for users, requires new user experience and will generate new type of data and
interactions that is necessary to capture and move to the Systems of Insights domain to be
processed and analysed to create actionable insight.
Figure 17. SoE elements
IoT creates these new challenges for SoE:

New devices carried by users, like wearables, will required new ways of interaction, in
addition to the traditional touch screens, that will take advantage of the devices

capabilities (like movement sensors to capture user interaction based on shaking the
device) and ways to use the wearable based on its nature or context.
Things can originate and drive the interaction with other devices or the banking
systems without any user request. So in this sense wearables are not just self-service
channels where the customer drives the interaction, but autonomous agents that can
start an interaction based on environmental events and contextual data (for instance
mobile phone app starting a conversation with branch offices systems). In general
Things (presence sensors, surveillances cameras, etc.) deployed on banking assets and
facilities, like ATMs or branches, are capable of launching front office processes on
their own without the control of any user.
Things are completely new channels for banks as new touch points for customers or
new actors of the banking system context. For instance, branch office video
surveillance systems detecting customers (identification or demographic profile
detection) triggering transactions on the banking systems (SoR), invoking analytics
services on the SoI domain or communicating with other channel devices like ad
panels to provide specific commercial messages to users nearby.
This complex interaction in the banking front ends, driven by users through new
wearables or autonomous agents or things, will bring closer to SoE the domain
intelligence that traditionally only had been deployed on the core systems of the bank.
Decision capabilities on SoE to decide how best serve the customer based on his/her
interactions and contextual information (for instance wearable apps and other
deployed sensors detecting customer location to inform ATMs of branch office
applications about customer proximity; presence sensors detecting people movements
to inform queue management systems, banking staff thru mobile apps and ads branch
systems).
Capturing the full multichannel customer context to make informed decisions. This
contextual information should be available to all the channels to provide improved
customer, to the SoI domain to improve analytics and intelligent decisions and even to
the SoR domain to enrich the core banking processes and functions.
IoT means also a new pressure on real time 24x7 requirements as it already happened
in the recent past with the mobile channels. Wearables means users will access to
banking systems even more continuously that with mobiles. Autonomous devices like
those that are part of Smart Homes, Smart Cars, Health Care, have interaction profiles
very different to the human interaction model for which the bank core systems were
created.
Those impacts require new capabilities on SoE like:

New UIs for new types of wearables, like smart watches, wristbands, glasses, etc. with
specific usability adapted to the use and the context, with new interaction models
different to the traditional visual interaction through a touch screen, like shaking the
device.
Data capture on the edge of the system. Identification of data types that should be
processed immediately to avoid losing their value (data perishability). Data

aggregation and composition. Data should be collected and provided to the SoI to run
the analytical processes that take advantage of this information.
Data generated by the IoT should be aggregated and added to the rest of the data and
interactions captured in the touch points to create an enhanced customer 360 view
context.
Support for engagement processes. Processes that manage complex interactions on the
front end like those required to prepare for cash withdrawal on ATMs after preparation
by the user on his/her mobile or wearable devices.
New device handlers to manage interaction with non-traditional channels like video.
These handlers or controllers should interact closely with the SoI domain to analyse
information, frequently in real time, and make intelligent decisions like greeting a
customer in a branch office and notifying the branch staff.
Cross-channel cooperation. Channels no longer are isolated domains but have to
cooperate intelligently to provide a superb customer experience, like in the previous
point where events detected in a video channel could trigger actions on the branch
office staff application (warning about VIP customer coming into the office) or in the
customer mobile or wearable (welcome message with advise on how to proceed to be
attended in the branch)
Intelligent interaction support to manage the device driven channels (autonomous
devices driven the interaction with the systems). This types of interactions not led by
humans should be much more controlled and supervised by the systems using advance
analytics, intelligent decision support and cognitive computing capabilities hosted in
the SoI domain.
Device management
Device security
6.2.3.2 Systems of Record

IoT will create new workloads for the Systems of Record (core banking systems) that will
have to process requests coming for devices participating in the IoT ecosystems. Those
devices range from personal wearable devices providing information of customer situation
and context, sensors deployed on banking locations, as branch offices, and devices that are
part of the non banking IoT ecosystems, as smart cars, home appliances or
sensorized/instrumented machinery that could trigger banking transactions, like payments.
All those devices will invoke transactions to the bank Information Systems that eventually
could reach the SoR domain.
The impacts of those new types of requests originated on IoT devices are:
New types of functionality on SoRs. The interaction with IoT devices could required
the development of new functionality not covered by the current core banking
systems, specific to support the IoT business models, like for instance, new leasing
contracts adapted to the lifecycle context of the asset.

Changes on current functionality. SoR functionality, that is coded in programs (for
instance in Cobol transactions) or already externalized on engines like BPM, rules or
event engines, should be adapted to take advantage and use the new context and
situational information captured in the SoE domain through devices like wearables.
This information can have impact on the banking product engines (for instance loans
processors that could adapt the product lifecycle, interest and commission calculations
to the use of the asset under the loan agreement), product factories (product design and
product bundling considering information gathered by IoT as an element to define the
product general terms and conditions) or marketing campaigns (again, taking
advantage of information provided by IoT devices or IoT ecosystems)
New workload profiles on current SoR functionality. In most of the cases IoT would
have impact on SoR generating new workload for the current business logic but with
an interaction pattern completely different to the current one very adapted to the
human actors, in volume, time distribution and frequency. So systems that have been
designed to support human interaction should now be ready to support machine-to-
machine interactions.
Those impacts will require changes on the SoR architecture (see figure below):
Identify changes on Non Functional Requirements (NFR) due to the IoT workloads
(concurrent requests, peak transactions, response times, availability, etc)
Re-design the SoR architectural principles, component models, operational models
and deployment models to cope with those new NFR. As already happened with the
mobile workloads would be necessary techniques like caching to protect the legacy
systems from the new workload profiles.
SoR should evolve to follow the pace of evolution of the new SoE that will support the
IoT devices. The system structure should be re-designed to be more modular and
componentized, extracting business logic to be deployed on engines (processes, rules
and events). New techniques like those part of Self-Contained Systems and
Microservices models could be adopted to create more modular, flexible, robust and
resilient SoR.
New architectural models that fit better in the distributed nature of the IoT systems,
like blockchain fabrics, should be considered to create new distributed SoR
subsystems.

Figure 18. SoR elements
6.2.3.3 Systems of Insight
SoI provides the technology block required to make data useful in the changing and
constantly evolving paradigm in Banking Information Systems. Data is becoming the new
raw material for business, almost on a par with capital and labour. Every day I wake up and
ask, how can I flow data better, manage data better, analyse data better? says Rollin Ford,
the CIO of Wal-Mart
IoT devices used in Banking will create a lot of data, deliver unprecedented level of data and
consequently data driven customer Insight. This allows banks provide true personalized
experience.
To be competitive it is critical that banks factor in how IoT affect them and how to harness its
potentials with the right infrastructure.
There are several questions that need to be answered:
Where is the data going to be stored?
How is it utilised and interrogated to gain insight?
How will data from various IoT devices/sources be unified, verified and aligned to
business needs.
Where will the analysis be done?
The System of Insight domain is equal parts people, process, and technology. Consequently,
the solution to the impact described above will be outlined under three areas, namely:
1. Methodology

2. Technology
3. Architecture Paradigms
Methodology
As SoI capabilities become dominant, it is important to have a methodology that allows

professionals make effective use of the deployed platform.
1. Use the standard methodology for Analytics Models.
Figure 19. Analytical Models Methodology

2. Use small cross-functional insights teams with a sponsored leader with a focused
accountability to a business outcome. The teams should have a combination of
business domain expertise, data science skills and software development knowledge to
be able to find and implement insights.
3. A repeatable insight to execution process.
Data is a crucial factor in the disruption in several industries, including Banking, forcing
companies to become data-centric business. Banks realise the centrality of data in all the
business operations and particularly that the business has to be ready to effectively leverage
data applying insight and intelligence to the relationships with customers, partners,
institutions and regulators. In turn, in terms of the IT systems, that really translates into the
requirement of appropriately architecting the key data related processes, such as data
gathering, data curation, data organization, data processing and data provisioning.
Technology
For Banks to be able to make use of the new data made available to them through IoT, data
needs to be easily, frequently and quickly available in other layers of the traditional business
domains in order to provide a rich and real time customer experience. This is about bringing
together the traditional structured data stored in the transactional system (SoR operational
data) and the new types of IoT massive unstructured or semi-structured data captured in real-

time (SoE - engagement - operational data) to build the insight required for building a
complete and holistic client and ecosystems view as the foundation for an advanced customer
experience, as it is shown in the next figure. Both types of data will be merged in data
reservoirs to discover new patterns through deep analytics and cognitive systems.
Figure 20. SoI data stores
IoT will require:

1. Utilise ELT instead of ETL. Analytic subsystems, both the more traditional (reporting
and descriptive analytics) and the more advanced (predictive and prescriptive
analytics, intelligent and cognitive computing), must be incorporated into the
Information Systems to provide real advanced customer experiences, optimized
marketing, personalized selling and servicing processes and also to achieve the highest
levels of efficiency. Together with the data analytics is also escaping from the back-
end systems to be embedded in real time Multichannel operations, to provide an
extremely personalized experience (offers, servicing, etc.) through all the enterprise
channels. Finally, it is worth emphasizing that analytics will be also essential to
discover patterns and insight in networks of people (social communities), things
(Internet of Things) and disruptive business ecosystems.
Figure 21. SoI Analytical capabilities

2. Common connectivity, unified metadata, common services and parallel processing.
3. Analysing large amount of data fast enough for resulting insights to still be relevant.
Companies that inject big data and analytics into their operations show productivity
rates and profitability that are 5% to 6% higher than those of their peers (MIT).
4. Analytic logic inside data sources and data lakes for faster results on ever-larger data
sets resulting from IoT devices. Embedding of analytics inside the database so that the
computation processing occurs as close to the data as possible
Architecture Paradigms
Considering the potential benefits of IoT in Banking, the question arises as to what kind of
architecture is required. From a system of insight perspective, there are multiple architecture
approaches to consider. These will be impacted by IoT data.
Figure 22. Data architecture elements

Aggregation
Aggregate data in multiple distributed mini-data centers where initial processing
occurs and the key data is transferred to the central location for further processing.
Access Layer/Edges
Connectivity is at the edge with local traffic between devices using other mechanisms
such as bluetooth, radio frequency and near field communication (instead of WiFi)
operating over non-dedicated, pre-existing networks, so sensors should be engineered
to treat their supporting networks as "best effort. The sensors should be able to buffer
non-deliverable data until a later time, and have flexible retry or be able to discover
alternate data delivery channels.
Complex Event Processing/ Event Stream Processing: enables the application of real-
time analytics to IoT data in real time. Finally, all the interactions and fulfilment
processes related to individual users, communities and / or ecosystems are requiring
much more real time support, raising new and much harder non-functional
requirements for the current Information Systems, which means a strong impact

particularly on the traditional core business logic and information domains, many of
which have been designed to run on asynchronous batch mode.
Context based architecture data finds data, and the relevant data finds you. more
data better predictions, big data in context. This is faster to compute as the big data
increased.
A digital insights architecture that will be built off of the big data management and
agile BI work you have done. It will add insights delivery engines and data feed
management capabilities and provide a pluggable fabric for insight discovery,
collaboration, and governance tools.
Privacy and Data Security (Focus areas Authentication, Encryption and Permissions).
o Create data controls as close to the data as possible, keep the security as close
to the data as possible and do not rely on firewalls, IPS, DLP or other systems
to protect the data.
o After you have made the move to encrypt data, the next logical step is to
concern yourself with key management. There are a few new ways to perform
key management, including creating keys on an as-needed basis so you do not
have to store them.
6.2.3.4 Systems of Integration
Systems of Integration are systems that enable the connectedness and management of highly
scalable scalable and heterogeneous Internet of Things.
The Internet of Things is going to be the biggest driver for Systems of Integration. Gartner
Group says by 2020 there will be 25 billion connected things1. Integration is crucial to the
success of IoT and its value is directly proportional to the number of systems integrated. The
Internet of Things changes the nature of the Systems of Integration.
There are crucial characteristics that Systems of Integration need to cater for:
1. The need to support billions of interdependent processing events per year from
millions of products, devices and applications.
2. IoT devices are always on. Systems of Integration must be able to react to customer
and systems requests in real-time.
3. Seamlessly connectivity across traditionally siloed domains. Securely and efficiently
movement of data.
4. The heart of making IoT work lies in Systems of Integration. This means a different
set of requirements; you need technology that can handle high-frequency data from
chatty Things, collect and funnel this data and ultimately communicate to a users
logistics, customer services and maintenance systems.
1 http://www.gartner.com/newsroom/id/2636073

The diagram below details the Systems of Integration ecosystem from an IoT
perspective:
Figure 23. Integration elements
1. Application Integration Services: This building block outlines the integration methods
and patterns for IoT. This block is closely related to the Integration Hub which
provides abstracted mechanisms and services.
2. Information Integration Services: This building block provides the mechanisms to
support the practice and process of connecting data from disparate systems, where
timely and real-time information is made available to improve business processes,
decision-making and total business performance.
3. Ecosystem Integration Services: This building block provides the mechanisms for
building platforms and collaborating with partners and consumers. As new business
models are developed these services become critical for business growth.
4. Integration Hub: This building block provides the mechanism to publish data and
services, so that other users can easily subscribe to that data and bring it into their
applications with minimal involvement from IT. The Integration Hub makes data
published to be reusable as possible when subscribed to, it decouples data sources
from destinations, transforms data as it is accessed and manages any data latency from
batch to real-time.
5. Cloud Integration Services: This building block caters for the extensive landscape that
is particularly crucial in the era of Cloud Computing. IoT solutions will be open by
design and will include multiple cloud providers. The ability to integrate the various

solution components residing in various cloud platforms is a critical component of
System of Integration.
6. Security Integration Services: This building block addresses the security architectural
challenges that IoT integration presents. These services allow IoT integration to have
robust security defense, control who and what enters the network, secure the IoT
infrastructure and landscape. Uncover security risk, protect the organizational assets,
provide detailed security analysis, stay ahead of risk and compliance issues.
7. Infrastructure Integration Services: This refers to the hardware and network
components and the virtualization mechanisms required by Systems of Integration.
8. Hybrid Management Integration Services: This building block outlines the wrap
around services that ensures a viable operating model for Systems of Integration.
Systems of Integration should not be constrained only to technologies but also require
efficient processes and the right human resources.
In conclusion there are attributes of the IoT Architecture landscape that Systems of
Integration need to take into consideration:
1. Chatty nature of the IoT devices. Rapid increase of the number of IoT devices.
2. Nature of data: volume, variety and velocity of data (increasing rapidly).
3. Thing to the underlying system, but going forward, that communication will need to
be two-way. For example, data coming from Things like implanted medical devices,
for example, will be fed into systems that can predict health issues with a patient. The
systems then have to feed instructions back to the medical devices to adjust them to
the patients needs.
4. New usage patterns such as the ability to handle streaming real-time data, bursty
traffic and high-frequency bi-directional updates.

7 MAIN TECHNOLOGIES RELEVANT FOR IOT IN BANKING
Disruptive technologies and transformative innovations such as IoT do impact the banking
industry with their own specific risks. This deluge of data can be quite challenging for
financial organizations and they need to take a deep look at data management, data security,
privacy standards, and bandwidth.
There are also issues with network & cloud infrastructure but it will be a matter of time these
are ironed out. Usage of IoT will push banks to cloud and they will move their workload
much faster to cloud providers.
Internet of Things from technology perspective can be seen from 2 angles:
1. Smart things and sensors and technology used to build them and allow them to
communicate with external world or Internet.
2. End-to-end architecture of the whole IoT supply chain from smart devices to end users
Option 1 includes the following components:

- Hardware: wireless systems on chips, boards, smart dust, platforms, in device storage,
etc - physical device with all components
- Software: embedded operating system, protocol, network communication, backbone
Figure 24. Smart Device / Sensors technology
Wireless system on chip (SoC) is manufactured for example by Gainspan, Wiznet, Nordic
Semiconductor, Texas Instrument. They are self-contained, RF-certified module solutions that
have TCP, UDP and IP on a chip. These solutions include in most cases built-in security
features. By using them in smart devices, companies can easily add communication to any
microcontroller-based (MCU-based) product.
Boards and platforms like Arduino, the Raspberry Pi, and BeagleBone Black, foster
prototyping and do it yourself approach. They help people and companies to experiment
with IoT .
IoT main applications protocols are Restful HTTP, CoAP, XMPP, MQTT, LWM2M, DDS.

The most popular Data Brokers and Cloud Platforms for Internet of Things are AMEE,
Arkessa, Arrayent, GroveStreams, ThingWorx, EVRYTHNG, Sense, Kaa, Zatar, Yaler, IBM
BlueMix.
Manufactures focus on user experience while using a device, amount of data gathered, and
internal device design.
Option 2 covers the whole ecosystem including the option 1, plus network communication
used, application protocol, cloud platform, apps and applications, BigData based on device
and use cases related information, end users. From banking industry perspective we talk about
the second option. Banks do not design and manufacture smart devices. Financial institutions
can benefit from IoT devices and data gathered by them. And they can also provide new use
cases and requirements for devices manufactures.
Figure 25. End to End technologies
Looking at the big picture above we find the following five areas relevant and critical for
Banking: Security, Consumer Privacy, Data Management, Bandwidth, Cognitive.
Security
The increasing digitization and automation of connected devices deployed across different
areas of modern environments are set to create security challenges for many industries. For
banking which is highly regulated industry, it is extremely important. Significant security
challenges will remain as the IoT will drastically increase security complexity for banks.
Banks need to open up for new opportunities generated by IoT, but on the other hand they
need to manage risks. Banks will keep collecting large amounts of information and this makes
it important to ensure this data is stored properly. Data hacking damages are resulting in loss
of sensitive personal information. Incorporating latest data security technology, taking
sufficient preventive measures to ensure that information is secure will be a key in the future.

As the whole IoT ecosystem is very much defragmented, and there are many players from
hardware and software perspectives, addressing cyber-threats become more difficult for banks
then it is in case of e-banking solutions. Availability requirements are expected to increase,
putting real-time business processes and personal safety at risk.
Consumer Privacy
As seen with the smart metering equipment and increasingly digitized automobiles, there will
be a vast amount of data providing information on users' personal use of devices that, if not
secured, can give rise to breaches of privacy. All IoT transactions are collected and stored.
The more the bank knows about clients, the better it can tailor its products and services. The
more information consumers provide to banks (or generally available on the Internet), the
more they are exposed to attacks and data leakage. And banks often deal with sensitive data.
Data Management
The impact of the IoT on storage is two-pronged in types of data to be stored: personal data
(consumer-driven) and big data (enterprise-driven). As apps and devices continue to learn
about the user, significant data will be generated and gathered. Big Data growth from IoT is
one of the biggest comparing with other sources. Banks can learn about customer behaviours
and habits and use this information for building stronger relationship with clients, enhancing
customer experience, and design financial and non-financial products to better meet
expectations. Bank data architecture continues to change. IoT brings into it new data
sources, new interaction points and new channels. A scope of gathered data changes too.
Banks need to address a data management aspect on devices and sensors as well as on internal
systems.
Bandwidth
Data center WAN links are prepared for bandwidth requirements generated by human
interactions with applications. IoT promises to change these patterns by transferring massive
amounts of small message data for processing, dramatically increasing both inbound and
outbound banks data center bandwidth requirements. Bandwidth requirements can be one of
reasons to move IT systems integrated with IoT end points to cloud providers.
Cognitive
Data is already being gathered in many instances. It's all about analyzing it in smarter ways;
understand them and automatically taking proactive action at the right moment for both
clients and banks, based on predictive analytics. [Analytics so far, need to add Cognitive]
Summary
The best part about the Internet of Things (IoT) is that the scope of applications and use cases
are limitless. Even banks can reshape their business models based on IoT possibilities. There
can be hundreds of use cases that can improve the customer experience, provide more cross
sell possibilities for banks, reduce risk and increase operational efficiency which finally can
improve the banks financial performance in the long-term.
Banks are increasingly turning to IoT to improve the customer experience, improve client
stickiness and loyalty, gain market share, increase revenue and open up for new business

models -- improvements in overall network infrastructure, big data , analytics, cognitive,
cloud infrastructure & accessibility must mature before IoT can be implemented on a massive
scale among banking industry.
Those banks that continue to push the innovative technology adoption and enter to the IoT
opportunity will be tomorrows market leaders.

8 CONCLUSIONS AND RECOMMENDATIONS
It is a fact that IoT is already transforming other industries, more mature using these
technologies, like insurance, smart cities, health care, energy and utilities, connected cars,
smart homes, retail, transports, security or the industrial sector. But so far it has not been clear
the role of IoT in banking, as this is an industry with, apparently, a low level of connection
with the physical world, the world of things.
Even this is true, after analysing in this AoT Study, in detail, the role of IoT in banking, we
have found that there is a lot of space for using IoT to improve the Customer Experience.
Customer centricity is the key strategy of retail banking and lot of efforts of banks are
oriented to capture all the customer activities that identify what are their life events, a key
element to provide a better service and increase cross and up selling. This is even more
important in the current situation where many banking customers (quite frequently the most
profitable clients) are very digitized, fully connected and socialized using smart phones and
new wearable devices.
Although Customer Experience is an important area for applying IoT in banking probably the
most interesting, innovative and disruptive IoT area will be the integration of banking services
and products in the IoT Ecosystems created by other industries likes those aforementioned.
These ecosystems, that integrates things, with people and business (API economy) will
require financial support for processing payments and other financial transactions (among
new actors like things), adapt traditional products and services to the IoT space, but also
create completely new offerings and also to provide financial advisory based on information
gathered in the real world, in real time, by the ecosystems of Thigs.
Banks should analyse this new IoT environment to identify new products and services,
business models and ways to be relevant for their customers. If they do not do it others (new
entrants) will do.
Finally, IBM should also analyse these scenarios in detail and propose relevant and
meaningful IoT banking business models and use cases for advance user experience and IoT
financial services that can guide our customers in their IoT adoption. IBM should also define
what is the banking architecture and information systems that banks should deploy to support
the IoT and develop products and service offerings specific for the banking industry.

9 REFERENCES
IoT in Banking study. Jesus Freire Costas, July 2015. Link
SoX Architectural Framework. White paper Link. Community Link

10 STUDY TEAM
(alphabetically)
Name Role Business Unit Study Role
Elizabeth Ackerman Executive Architect - IBM Analytics Member

Insurance Industry
Asaf Adi Senior Manager, IoT and IBM Research Member

Wearables
Abhimanyu Agarwal Senior Managing Consultant - IBM GBS Member

Banking Transformations,
Program Head
Montserrat Batalla Foix IT Specialist IBM S&D, Barcelona Track Leader

Banking Center
Tommy Eunice Data Scientist and Big Data IBM Analytics Member
Architect
Jess Freire Costas Banking & FM Technical IBM S&D Study Leader
Leader, Europe. Distinguished
Engineer
Elisabet Gassiot Pintori IT Specialist - Business IBM S&D, Barcelona Track Leader
Analyst, Web 2.0 and Mobile Banking Center
specialist
Margaret F. (Maggie) Associate Partner, Cognitive IBM Cognitive Solutions Member

Gray Solutions Financial Services Sales
Biao Hao Executive Architect IBM S&D, Dallas Track Leader

Global Client Center
Yu Kit Lee Client Technical Advisor IBM S&D Member
Karolina Marzantowicz IBM Distinguished Engineer, IBM S&D Study Leader

CTO for Banking
David R. Millen Research scientist IBM Watson Health Member
Sajal B. Mukherjee Global Banking IBM S&D Member

Transformation Leader
Osai (Osakpamwan) Cloud Advisor IBM Cloud Member

Osaigbovo
Swarnalata Patel Technical Solution Architect GBS Member
Krishnan Ramachandran Distinguished Engineer & GBS Reviewer

CTO Global Banking & FM
CoC
Barry Rosen Senior Certified Global IBM Analytics Member

Executive Architect / Chief
Field Advocate

Arvind Sathi Cognitive Architect - CVA IBM Cognitive Solutions Track Leader
Team
Neena Sathi Executive IT Architect - IBM GBS Track Leader

Watson Solutions
John Smart Program Director, Internet of IBM Internet of Things Member

Things - Facilities & Real
Estate Offerings

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IBM AoT Technology Theme Paper

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1 Executive Summary .......................................................................................................4

2 IoT: Situation and Trends .............................................................................................5

3 IoT Scenarios in Banking...............................................................................................9

4 Issues and Concerns .....................................................................................................27

5 Addressing The Challenges .........................................................................................29

6 Impact on the Banking Architectures .........................................................................31

7 Main Technologies Relevant for IoT in Banking ........................................................49

8 Conclusions and Recommendations ............................................................................53

10 Study Team ..................................................................................................................55

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A business has an opportunity to further automate capabilities by pre-defined rules and

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Figure 1. Internet of Things: Diversity of standards in communication,

- Device monitoring, management and control;

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The insights of things

The security of things

Key challenges related to IoT security are:

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Figure 2. Internet of Things Three Top Trends

We should understand the Internet of Things as an integrated fabric of devices, data,

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Figure 3. IoT in Banking Domains

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3.1.1 Who I am scenarios

3.1.1.1 Scenario: authentication wristband

An authentication wristband uses the wearers unique cardiac heartbeats to biometrically

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3.1.1.2 Scenario: facial recognition

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3.1.2.1 Scenario: automatic customer identification in branch

Figure 4. Automatic customer identification in branch scenario

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3.1.2.3 Scenario: cardless cash withdrawal from ATM

3.1.3 More about me/us

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Figure 5. Healthier is wealthier with wearables scenario

3.1.3.2 Scenario: Unexpected change in customer health data. Automatic re-

Other related scenarios using wearables:

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3.1.3.3 Scenario: group behaviour (more about us)

Location data of customers in a branch can be aggregated to illustrate customer behaviour as a

3.1.3.4 Scenario: contextual awareness, ecosystem, and smart credit cards

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3.1.4 Wealth management

3.2 Financial services in IoT ecosystems

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Figure 6. Bank capabilities for IoT ecosystems

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3.2.1 Customer Access (CA)

3.2.2 Customer Knowledge (CK)

3.2.2.1 Scenario: Car loan and insurance policy control

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1. Bank extends loan offer based on information provided

3.2.2.2 Scenario: Home mortgage refinance

3.2.3 Marketing (M)

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3.2.3.1 Scenario: personalized marketing when shopping

3.2.4 Financial Advisory (FA)