Fintech Mobile & Online Payments

Web 4.0, the 2020s and the internet of things

Web 4.0, the 2020s and the internet of things. Main image: ramcreations,
Written by Chris Skinner

Technology, internet of things, payments, insurance … when we wake up to what these guys are doing, we’re going to go wow, just wow. Story by Chris Skinner.

We are already entering the fourth-generation internet, the internet of things, but it won’t really take off until the next decade, the 2020s. Sure, we have self-driving Teslas and Nest home appliances, along with Samsung’s Smart Things, but it’s not mainstream yet. For example, none of my friends has a self-driving car yet.

This will change though, and it’s not just things on the internet, but a whole raft of technologies, from robotics to artificial intelligence to machine learning, combined with IoT that will make it happen. These technologies are playing into every aspect of our lives, from street lighting to gene editing, and is transforming our world into a connected, smart structure.

The idea is that you can place a chip inside anything and make it smart: smart roads, smart buildings, smart cities, smarter people. In the next decade of the internet, a number of key developments will come into play to start building the semantic web, or Web 5.0. In other words, whether we consciously know this or not, we’re building a smart planet where everyone and everything is connected and communicating nonstop. How many things are connected in this future planet? There are various estimates. Research house IHS Markit estimates 78 billion things communicating by 2025.

The IoT market will be massive. Source: IHS

McKinsey says this will be a multi-trillion-dollar market that, after the mobile internet and artificial intelligence, will be the most impactful technologies for the next decade.

The internet of things has a potential economic impact of $2.7-6.2tn until 2025. Source: McKinsey Global Institute Analysis

And, if you like that sort of thing, Forbes does an annual roundup of what the research firms are thinking about IoT, including other headline grabbers such as:

  1. Bain predicts that by 2020 annual revenues could exceed $470B for the IoT vendors selling the hardware, software and comprehensive solutions.
  2. General Electric predicts investment in the Industrial Internet of Things (IoT) is expected to top $60tn during the next 15 years.

This is big. In my own mind, I’m just thinking that I’ll have a TV, car, fridge, heating system, desktop or tablet (or both), mobile and watch, health monitor possibly swallowed and inside me, robot to look after the house, security system, dog, children and automated personal assistant all on the net. That’s 15 things on the net just for me. Then my wife and kids will have a few things, probably at least five each. So, in a typical household in a developed economy, there will be an average 30 things on the internet. Bearing in mind we are in a developed economy, there will be smart governments who will roll out a further average five things on the net per person, e.g., security monitors, car sensors on the roads, automated toll systems, tracking services and suchlike.

Trillions of transactions

My household of four people has just added another 20 things to the internet thanks to the government. So, we’re looking at a minimum 10 things per person in a developed economy online. In developing economies and in countries where some of the society are excluded or have less inclusion, there will still be a lot of things on the internet supporting them. Definitely a mobile device, but equally government monitoring systems and smarter infrastructure. For the purposes of this blog entry, I’m going to be conservative and estimate that two-thirds of Earth’s population, which by 2025 will have risen to eight billion people. Let’s say that the United Nations is on track to increase inclusion by that time – it’s one of its sustainable goals – and only half the planet are in poorer conditions (compared to two-thirds today) and you have four billion people with an average of five things on the internet monitoring their activities, and four billion with 10 things, of which five are for their lifestyle and five are for the government.

That’s a minimum of 60 billion things on the internet, and these things are communicating nonstop. The fact they’re communicating means they have intel inside, and that means they can transact. If 60 billion things are trading and transacting nonstop, 24/7, you’re talking trillions of transactions. It wouldn’t surprise me, in fact, that there may be billions of things transacting trillions of times a minute in very small amounts, all day long.

What is the financial system that will support that structure of operation, and how will it know what things are allowed to transact with which? Again, you can find the detailed answer in ValueWeb, and a core question here is how machines are authorised to trade on behalf of humans, and when do the machines need to be kept in check? For example, if my fridge orders 12 bottles of white wine when it usually orders six, is that a mistake? Should it be verified? And how often does the human want to verify what their fridge – TV, car, house, and so on – is doing? Equally, how does the bank know that the fridge – TV, car, house, and so on –belongs to that human, and what they’ve authorised it to do?

This is something that leads us naturally into a digital identity discussion … or does it? To be honest, the more I think about my internet of things, the more I think my things will be wrapped up in a mobile wallet. This is why the Alipay (China), Paytm (India), Vipps (Nordic) and Venmo/PayPal (US) become so key, because these wallets can wrap a range of things inside, and aggregate the payments they need to make. This is the real underlying play by Apple Pay. After all, I have my mobile (iPhone), watch (Apple), TV (Apple TV), car (soon to be self-driving Apple car) and more. They are all in my Apple account for which they Apple Pay. So when I ask the question, “When you have billions of devices transacting trillions of times a minute in very small amounts, what is the financial system you use to support it?”, it doesn’t have to be blockchain, machine learning, data analytics and cloud – although in the back-office, these technologies will create new and dynamic efficiencies – but if you really want to take away the friction of transacting, then the device aggregators will win, and those device aggregators are already out there doing their thing. By aggregating devices, you can aggregate their transactions, thereby allow trillions of transactions among billions of devices nonstop, and then bill once monthly.

Such a neat and under-recognised idea that when we do wake up to what these guys are doing, we’re going to go wow, just wow.

Managing risk

Meanwhile, another facet of IoT worth touching on to conclude is that if you have a smart house, a self-driving car and health monitor chip inside, what happens to insurance? More insurance is taken because of risk, but if self-driving cars never crash, there’s no risk. A smart house will know when you’re in or out and will tell you if someone who shouldn’t be there is in. If your health is continually monitored, analysed and reported, then do you need health insurance?

As smart things, smart cities and smart networks connect everything, risk reduces dramatically. Traditional risks anyway. But what about the risk of your machine doing something it shouldn’t? The risk of your health chip breaking down? The risk of your house monitor failing?

In fact, what I’ve started to see is insurers using smart houses and smart things to manage risk better for you. An example: the insurer knows if you’ve left the house and left a window open or a light on, and can tell you. Interesting times indeed. You can read more about the fourth-generation internet of things in a few other related blog posts:

READ NEXT: The Internet of Things, explained

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. Read more here. Main image: ramcreations,

About the author

Chris Skinner

Chris Skinner is an independent commentator on the financial markets through the Finanser, and chair of the European networking forum the Financial Services Club, which he founded in 2004. He is an author of numerous books covering everything from European regulations in banking through to the credit crisis, to the future of banking.

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