by Matthew Griffin

How my fridge can disrupt your bank

Oct 23, 2015
Internet of ThingsIT Strategy

The Internet of Things is beginning to take off and it presents organizations with both great opportunity and great dangers. In tomorrow's world even the most mundane appliances will be able to turn trillion-dollar industries on their heads.

The Internet of Things (IoT), an emerging multitrillion-dollar trend that evokes a world where everything is connected to everything else, isn’t ordinarily associated with the financial services industry. Today the most connected financial services product is arguably contactless credit or debit cards that use near field communications.

If you and I sat down to have a drink and I asked you to describe your customers to me I’d be surprised if you didn’t describe a flesh and blood person. Consequently, when your organization is drawing up its five-year strategic plan we could say your limiting growth factor is the total number of people in any given market and your ability to get them to adopt your organization’s products and services.

But what if a new customer segment was brewing, one that could double the size of your existing client base and it was sitting in your own back yard? Would that be interesting?

When your customer is a what, not a who

IoT is what I call a mega-trend. That is to say it is an overarching trend that includes nine smaller, albeit still multitrillion-dollar trends like connected home, connected vehicles and connected cities. While financial services firms have multiple opportunities to find new routes to market and secure new customers, one of the first things they have to do is change how they define their customers.

In today’s market your customer is a “who” but in tomorrow’s market the customer will also be a “what.” In order to capture the most amount of new value your organization will have to undergo a paradigm shift both in terms of culture and operating and business model.

Today more and more smart, connected products are hitting the market than ever before, and the IoT market is still in its infancy. As it matures it will provide every organization, of all shapes and sizes, with a wealth of opportunity never seen before. For banks one of the first potential opportunities comes not from some fantastically complicated financial instrument but from a common kitchen appliance, the refrigerator.

Your new customer is 6 foot tall and 3 feet wide

In the past fridges were simply cool places for storing groceries. Today are intelligent appliances that can track, monitor and automatically order and re-order products as you run out of them. But in order to be able to fulfill these tasks they need to have both access to your credit or debit card and to the online grocery stores. This is where things get interesting.

You’d expect that most grocery orders can be fulfilled transactionally; you order some milk from your usual grocer and it gets delivered. But what happens if the manufacturer, the consumer or a third party gives the smart fridge the permission, and the ability, to shop around for the best price for that milk?

The fridge is already connected to the Internet and all it would take would be a firmware update to let it and other fridges talk together to form a buying consortium. Now the fridge is one of hundreds of thousands ordering milk and the consortium can begin negotiating deals with suppliers to drive down the price. If your fridge can save you 10 cents per quart every time it orders milk then interesting things begin to happen.

How your fridge can save billions

What would happen if the fridge asked you if you’d like to deposit the 10 cents you saved into a savings account? Or what if it asks you if you’d like to invest it in shares of stock? And what if it wasn’t just 10 cents, because over the course of a year the fridge managed to save you thousands of dollars?

Scale it up and in the U.S. alone if everyone had a smart fridge that could save them 10 percent on their grocery bills then these fridges could accrue “wallets” that would hold at least $65 billion in assets. Now what if we extend that same principle to connected vehicles where cars can come together to form buying consortiums for gasoline? A 10 percent saving here could accrue another $40 billion. For connected washing machines, a 10 percent savings on detergent could accrue another $500 million. And we’re just at the tip of the iceberg.

By stepping out of business as usual and challenging your traditional perceptions or definitions, it’s often possible to spot new markets before your competitors do. IoT might not immediately look like a banker’s dream trend but with a little bit of lateral thinking it could be the biggest market you’ve ever played in.