Is there a place for the IoT in Capital Markets?


On returning from the Gartner Symposium in Barcelona last week, my head was brimming with new narratives about the latest and greatest technologies that were going to transform financial services and what IT leaders should be doing about it. Unfortunately, in amongst all the platforms, ecosystems and new ways of thinking there was a constant nagging question. Gartner was pushing very hard that the three technologies CIOs should be focussing on for 2018 were:

Artificial Intelligence (AI), Application programming interfaces (APIs) and the Internet of Things (IoT). These topics are all seen as critical parts of the future digital platform used by winning firms. This was borne out by the many vendors in the main hall showing their wares. The predictions about industry spend were also suitably large i.e. “The global IoT market is expected to grow with a CAGR of 19.75%, and is expected to grow to $2,488 Billion by the end of 2022.”*

In Capital Markets AI can be applied to many use cases; I can also squint and see how Open APIs are relevant as well, even if their natural habitat is on the retail side mainly as a result of the incoming PSD2 regulation. But what of the IoT? This was the nagging question I couldn’t get out of my head: Is the IoT applicable in Capital Markets?

The IoT

To help you avoid having to browse the search engines, I shall provide you with a brief summary of the IoT. Fundamentally, it is the bridge between the physical and the electronic world. 10 years ago the focus of this was ‘RFID tags’ – sensors passing physical location data, mainly in a supply chain oriented scenario. Now, with the plummeting price of the sensors, this capability has grown enormously, with a vast number of web connected widgets applied to pretty much anything, either controlling or sensing data, from jet engines to CCTV cameras, all generating vast amounts of data. Even though it is still some way off, the IoT also dovetails beautifully with distributed ledger technology. Smart contracts and cryptocurrencies connected with IoT technology will allow machines to exchange value with each other, which will be a critical part of the eventual machine driven society.

As an example of the above, consider a ‘smart building’ where an internet connected light senses that the filament has melted and therefore needs to be replaced. The light, or more specifically the sensor, can put the request on the maintenance marketplace using a smart contract; a third party electrician wins the work order and replaces the bulb. The sensor then detects that it is fixed, triggering the smart contract to make a payment to the electrician. This ‘Business Moment’ potentially occurred without the owner of the building even being aware.

Capital Markets

However, Capital Markets is an industry where we pride ourselves on already making everything as electronic as possible as we strive for straight-through-processing (STP). So is the IoT approach relevant? i.e. what are we bridging between? Ignoring the use cases that are applicable to any office or company that employs people, I believe there are some examples where it could be used:

  1. Commodities
  2. OK, so this is a bit of a cheat – not everything within Capital Markets is abstract. In the commodities world the underlyings are eventually shipped and delivered, therefore all use cases that are applicable to supply chain sensing (or for that matter using blockchain technology for providence proving) are relevant. Regarding the sensing side, there will also be required data analytics due to the Big Data being collected.

  3. Using the IOT concepts and ideas
  4. Due to the large amount of activity and investment there will be concepts and ideas that leak into industries without a major physical presence. An example of this is the concept of a ‘Digital Twin’ – an electronic representation of a physical entity. A simple example would be a ‘real-world’ internet connected thermostat that has an electronic replica of itself on a server somewhere that has the current state, historic data and the ability to control the real-world thermostat. This separates the functionality from the interface, making it easier to programme and test. In the banking world conceptually you can regard a ‘financial position’ as a Digital Twin of a set of real transactions, as it represents the aggregation of those transactions. Therefore technologies relating to Digital Twins may find applicability here.

  5. Making the abstract real
  6. Lastly, we can pretend that what is electronic is actually real. For example as an FX trade goes through its lifecycle (e.g. RFQ, price, book, affirmation, confirmation, settlement), it passes through many systems. Having ‘sensors’ in each of those systems would allow you to see more clearly the passage of the trade through your infrastructure and where any bottlenecks may occur. This offers the tantalising prospect of:

    a) Using AI and the autoscaling features of cloud technology to dynamically provision your operations infrastructure in realtime, based entirely on demand to meet a Service Level Agreement (SLA)

    b) Offering a premium service to clients so they can see where their trade is inside your systems, pre-emptively resolving exceptions that may be queued for manual processing

    I am not suggesting that these are completely valid use cases with great ROIs. However, hopefully they demonstrate, along with the huge amount of investment from other industries, that it may be a little premature to discount the possibility that the IoT may have a valid and valuable role to play in Capital Markets.

My advice….keep an open mind…and “watch this space!”


*According to a recent MarketWatch report