The Advent of IoT: a trade-off between convenience and security?
The online world has never been more dynamic or more challenging than it is nowadays. The internet and groundbreaking technology enhancements have reshaped our lives and transformed the way we do things, both in a business environment and in our personal space. Over the past few years, technologies such as cloud, mobile solutions, big data and analytics, which were once the frontier of the payments industry, have become commonplace. And most recently, the Internet of Things (IoT) has been perceived as the new game changer. But what exactly is the IoT and why has it been heralded as the next major revolution in business computing?
The Internet of Things refers to the networking of physical objects through the use of embedded sensors, actuators and other devices that can collect or transmit information about the objects. Basically, via the IoT, individual components communicate with each other and a service center, allowing for virtually endless connections to take place. Additionally, a business model can now include not only services, but also position those services in the center of the model – the so-called ‘everything-as-a-service’ trend. Intelligent products, connected in real-time to the internet and managed via intelligent network, allow organisations to develop new business models and become digital disruptors. Until now, the IoT has been mostly linked with machine-to-machine (M2M) communication. Products built with M2M communication capabilities are often referred to as being ‘smart’. The IoT is expected to connect many of the devices we have in our homes, from smart thermostats to smart fridges. Big market players such as Google and Samsung already understand this and are active participants in this transformation. Google bought smart thermostat maker, Nest Labs, for USD 3.2 billion, while Samsung purchased connected home company SmartThings for USD 200 million.
According to a report from Gartner, by the end of 2015, there will be almost 5 billion ‘things’ connected to the internet. By the end of 2020, the figure is forecasted to rise to over 25 billion. In other words, there will be more than three things connected to the internet for each person on the planet. Furthermore, data jointly released by Cisco and logistics service provider DHL reveals there are actually expected to be around 50 billion internet-connected devices by 2020, which would represent a significant increase in the number of connections. And this is not all. The IoT will definitely continue to grow. According to estimations by the McKinsey Global Institute, the IoT will have a total economic impact of up to USD 11 trillion by 2025. The same source mentions that more than two thirds of the value will be generated in business-to-business settings and business customers and consumers will likely capture more than 90% of the value created.
The IoT – a force that is driving innovation and digital transformation in financial services
The impact of such connectivity provided by the IoT cannot be fully grasped yet. The IoT is expected to transform all industries, including banking. A Deloitte analysis suggests that as many as one quarter of sensors deployed in 2013 could be of use to financial institutions, rising to one third in 2015 and then to about 50% by 2020. In total, the growth in sensor deployments for financial services is expected to be very strong, ranging from just over 20% to 100% annually on a compounded basis, depending on the sector. Big data analytics, combined with a large number of connected devices and environments through the IoT, are set to empower data-driven management, reshape processes and deliver significant benefits. The banking and securities industry will continue to innovate around mobile and micropayment technology using POS terminals and will invest in improved physical security systems.
The IoT from a security and privacy perspective
The IoT really seems to be ‘the next big thing’. However, this ‘giant’ that presents tremendous opportunities for development, that promises convenience and amazing experiences, is not without its shortcomings. The first and most important ‘side effect’ that comes up is the issue of security and privacy. How can businesses and consumers be certain their data is protected with such an explosion of devices and sensors? Cybersecurity will definitely take on a whole new dimension and digital vulnerabilities are likely to expand in more ways than we can currently imagine. Therefore, one of the most pressing problems for businesses planning to take advantage of the IoT is protecting company and customer data. Numerous IoT-based applications depend on access to consumer data, including data collected passively from customers’ behaviour. For instance, one use of the technology could be fully automated checkout in retail settings. Customers could literally walk out the door of a store without having to wait in line or even swipe a card: data-gathering ‘beacons’ can scan tags on all the items in a shopping cart, total the bill and debit the customer’s account, perhaps even deducting money from the customer’s smartphone.
In this context, each sensor could be a potential entry point for hackers and the consequences of a data breach can be devastating. To prevent this, companies should take on the responsibility to work with technology vendors and heavily invest in data-security capabilities. They should also build protections for their own data and intellectual property when they implement IoT systems. Notwithstanding the high risk of IoT, there is a lot of potential. With greater connectivity, there comes greater convenience and customers have a higher expectation of services and support.