Data Network as Foundation for New IoT Banking Financial Models

Due to the increasing digitization of machinery and equipment, data rather than steam is now driving innovation in the industrial sector. Banks can benefit from this evolution and the resulting networking of business processes - for example, when they analyze usage data in real time and offer their customers customized financing on this basis.

Producing ever more efficiently: With this in mind, industry is building new machines and production facilities in the digital age. The financing of these technical facilities is also undergoing a significant transformation in terms of digitization, because by connecting the machines to the Internet, insightful production figures can be determined and shared with third parties such as financial service providers. Banks can use this data to create new financing offers for industrial customers, adding new, dynamic pay-per-use products to their portfolios. The use of technologies that process the valuable raw material of data quickly and intelligently makes this possible.


The fourth industrial revolution, Industry 4.0 for short, describes the comprehensive digitization of the industrial sector. After steam and electricity, it is now primarily algorithms and data that are the driving force behind innovations such as the automation of production processes or smart machines.

One elementary component of Industry 4.0 is the Internet of Things (IoT). This term refers to the networking of objects via the Internet. This enables objects to communicate and interact directly - with their environment or with each other. The exciting thing: It is no longer just the typical smart devices such as computers or smartphones - today, cars, refrigerators or turbines of wind power plants also diligently supply data.

In an industrial context, IoT (often referred to here as the Industrial Internet of Things - IIoT) is used by equipping machines and operating equipment with sensors and networking them with each other. Through this exchange, so-called cyber-physical systems are created with the help of information technologies: data-based networks from which valuable information can be extracted. In this way, figures can be recorded and events automatically controlled to optimize processes in production and manufacturing.


IoT has already taken over private life and industry: everything is connected. But financial institutions can also do Banking of Things and thus develop new business models in the corporate customer sector. With the digitization of industry, banking customers in the corporate segment have also changed their demands. Today, financial service providers are expected to provide faster credit decisions and individually tailored financing offers for trade and industry. So far, however, there are hardly any innovative financing models in use, although the demand is steadily increasing. Banks must take these needs seriously in order to remain competitive, because IoT-specialized fintechs are ahead of them in terms of technological adaptation.

The fact that customized, flexible corporate financing is a customer requirement that is not yet being met to the necessary extent and is becoming increasingly important is summarized in the 2019 study Financing Models in the Context of Industry 4.0 by ibi research: "On the financial markets, there [is] a clear mismatch between financing needs for modern, efficient and sustainable machinery and production facilities based on new technologies on the one hand and financial investment wishes of medium- and long-term investors on the other. This "mismatch" is costly in both microeconomic and macroeconomic terms and can inhibit further development toward Industrie 4.0 or put companies at a severe competitive disadvantage."

The report, which aims to provide an overview of the current status and future financing models in the context of Industrie 4.0, surveyed 90 experts from various industries on the biggest challenges for financial service providers in relation to corporate banking and Industrie 4.0, revealing that solutions for the development and integration of new business models with regard to Industrie 4.0 and the development of a suitable platform strategy are still lacking: 41 percent identified business models, 34 percent platform strategy and 32 percent product development as tasks that still need to be solved.


In corporate finance today, loan rates and residual values for machinery and equipment are fixed in a linear and static manner over a financing period. However, every industrial company is subject to seasonal and cyclical fluctuations. Financing solutions that take these aspects into account are needed.

Financial institutions can also be integrated into value chains networked by IoT, for example in the manufacturing or energy industries. Manufacturers make their data on the production process, such as the operating time of the machine or the number of goods produced, accessible. The task now for banks is to use this information as the basis for new business models and personalized services.

A customer-oriented cost proposal, for example, can be created in this way: The machines to be financed are connected either indirectly (via the manufacturers) or directly to the banking system and transmit their usage data. Based on this database, the bank can offer a flexible, usage-synchronized payment model. Such pay-per-use models can be used to balance out seasonal and cyclical fluctuations, which preserves the company's liquidity. Loan agreements can also be designed in this way on the basis of data and the repayment amount calculated according to actual utilization.

Individualized corporate financing not only gives financial institutions a decisive unique selling proposition that takes the needs of the company into account. The know-your-customer principle is also taken into account through the constantly updated data analyses of the business. Nevertheless, the question arises as to the strategic and technological implementation with which the digital networking between bank and corporate customer should take place. An example will illustrate how the use of a banking platform can enable usage-based financing in an industrial environment.


A company in the manufacturing industry buys a machine. For the calculation of dynamic financing, it is to be transmitted how often the machine is used per day. To simulate this, in our example a robot solves a Rubik's Cube and transmits the usage data in real time to a demo bank.

With the help of a banking platform, the data from the machine can be received and processed on the bank's side. The software displays the received usage data of the current month and automatically visualizes the average and minimum repayment amount. Based on the term, the repayment development per month can be viewed.

Due to its underlying professionalism, the platform prepares the data immediately. It contains the necessary business logic, enabling it to determine the current payment based on daily utilization and calculate the residual value of the machine in real time. Since the data is always kept up to date, an adjusted financing rate can be issued dynamically. This also takes into account the seasonal fluctuations and setup times that are common in the industrial sector. For banks, the regular evaluation of the data means better risk monitoring and the automatic data analysis and preparation means more precise risk assessment, for example when granting loans. The industrial customer avoids a liquidity bottleneck during off-peak periods.


Whether repayment rates are calculated for repayment plans or a real-time assessment of the residual value takes place - automated, intelligently networked solutions can serve not only for the development of new business models in the environment of Industry 4.0. The value chain can also go further for banks when it comes to leasing or financing vehicles, as information of all kinds, be it the number of goods produced, operating hours of the machine or kilometers driven, can be taken into account. This makes a banking platform a universally applicable tool in the age of IoT and Big Data.

A platform solution like the one shown in the example makes data controllable and individualized financing solutions possible in the first place. The added customer value generated by offering such a dynamic payment model ultimately gives the bank a clear competitive advantage and optimized margins.