Data sources
The multiple streams of data sources offered by IoT, create the possibility for a bank to develop contractual frameworks based on the data streams. These can then result in an agreement either between a bank and a customer or two customers of the same bank with the bank acting as the broker of that agreement with the chance of being able to insert its own products into the equation.
Ville Sointu explains: “Let’s say the bank has a customer that produces doll making machines. The bank has another customer that wants to produce dolls but can’t afford the machine to produce them. They therefore cannot make the upfront payment to buy those machines from the machine manufacturer and start producing those dolls. The wannabe doll producer might already have an order in place to sell 20,000 dolls but they don’t have the ability to produce them.”
“As it happens now, the customer who wants to produce the dolls would come to the bank and ask for a loan to buy the production machines, showing that they already have a potential order for the dolls. Following that, a long negotiation about the loan would then take place.”
“The way that IoT could hypothetically unlock this situation is very interesting. There would be the possibility of creating a ‘machine as a service agreement’ between the machine producer, the doll manufacturer, a credit institution and ultimately, the buyer of the dolls. An electronic contract, agreed by all parties and brokered by the bank could be created where the machines producing the dolls produce data via IoT that triggers payments based on actual machine usage, creating doll production as a service. At the very baseline of that equation it just becomes an automated contract. Ultimately, it’s either the machine producer or a credit institution that has to foot the bill in actually producing those machines in the first place but now that there is full transparency on the data flow and the electronic agreement, this becomes a far more transparent data set to enable a credit decision to be based upon. Now the bank or the credit institution no longer has to make a decision completely based on the trustworthiness of the doll producer and their business plan; we can base the decision on a very transparent set of data and are subsequently able to automate large parts of this credit decision.”
Of course, as with any new system, ensuring security and trust are critical. Ville continues: “A lot of work remains to be done to make this digital value chain secure and trusted. The security problems in the current IoT space are well known and need to be thoroughly addressed before ecosystems like these can properly function but since the benefits of moving into a real time connected economy like this are well established, the goal is realistic.”