• Bailey believes the Internet of Things is about bridging the physical world with the digital world
• He also thinks there’s a big opportunity for banks to start working with impact investors
• Smart city projects will be driven by a mix of public and private sector corporations

Here is the transcript:

Foo Boon Ping (BP): Good afternoon, everyone. It’s 4:00 p.m. here in Singapore and Hong Kong and 8:00 a.m. in London. Today we are very excited to be talking about an area that is quite new to the financial services area. We are discussing the Internet of Things. We’re very happy today to have an expert on that area speak with us. First let me introduce Matthew Bailey, who is a recognised Internet of Things or IoT pioneer.

He’s an advisor to a number of governments and corporates on the use of IoT and in the related area of impact investing strategies, an advocator of smart city ecosystem. He’s also a keynote speaker on the topic around IoT and impact investing. Welcome, Matthew, and thanks so much for joining today’s TABLive session. Could you give us a primer on what IoT is and how it works?

Matthew Bailey (MB): Yes, of course. Good morning, everybody. We need to look at the reason, the backdrop as to why IoT has become such a global phenomenon. We see people like McKinsey, GE, Cisco, Intel talk about this being a global wave of innovation worth trillions and trillions of dollars. The reason why the Internet of Things is so important is because the world faces two major problems at the moment.

The first one is that the United Nations talks about an additional three billion persons living in and around cities across the world. That is going to put a huge strain on city resources and public services. We have to build intelligence into our cities in order to optimise usage of resources such as water and energy, and also to actually become sustainable economically.

The second big problem that the world faces is around food security. We need by about 2050, with an additional roughly about 2.4 billion people on the planet, we need to increase our food output by about 70%. That’s a huge challenge. Those two phenomenons are driving something called the Internet of Things. So what is the Internet of Things? The Internet of Things is about bridging the physical world with the digital world.

It is about the unification of processes. It’s about sensors that are deployed in the physical world, maybe in our homes, maybe on ourselves, maybe in our transport infrastructure, maybe on our grids, maybe in our factories, maybe in our schools, maybe in our hospitals, maybe across the agricultural land. Effectively, it’s sensors deployed across the entire landscape of human civilisation, measuring information from the physical world. That may be measuring whether a parking space is free in a certain part of the city. To help you find that parking space quicker.

That effectively has been proven that if you use something called Smart Parking, you will be able to find a parking space 30% quicker and that means there’s less pollution because you’re driving around less. So these sensors are measuring information from the physical world and then they’re tweeting that information into the cloud, where applications, big data and artificial intelligence, take this huge tranche of physical world information and make it into sense. Then we can take intelligent action.

MB: I would say that the areas that banks need to have a good look at are things like smart cities. I indicated earlier why smart cities are such an important and imperative innovation that we need to get right.

It’s that smart cities are collaboration. It’s a new form of collaboration between the private sector, the public sector, academia, and citizens. The private sector is looking to government for investment. The public sector is looking to the private sector for investments. It’s kind of a stalemate. McKinsey talks about smart cities being about a $1.7 trillion global economy that’s going to merge over in the next 10 to 15 years. And I agree with them. Where the banks can play here is creating new types of bonds to actually fund these smart city initiatives. So, new types of social impact bonds become popular.

In Kansas City, they raised hundreds of millions to fund their smart city initiative using a particular type of bond. We’re starting to see these social impact kind of bonds emerge that are enabling the funding for these smart city impact-driven services, building intelligence into cities starting to become very popular. I think there’s a big opportunity for banks to participate around funding smart cities. The other thing that I would look at is things like smart agriculture. Food security is a global topic. It’s under threat because of the climate that we’re facing and the changing climate.

Effectively working with funding for food security initiatives and smart agriculture is also somewhere that I think the banks can help in terms of providing these new types of social-driven impact bonds. There are many areas that banking execs can take a look at other than smart cities and smart agriculture and new types of bonds. There’s something called impact investing. It’s been estimated that around $40 trillion is going to be inherited by women millennials over the next 30 years. That’s $40 trillion philanthropy capital that needs to express itself in impact-driven business propositions.

I think there’s a big opportunity for banks to start working with impact investors to be a steward of investing in these new types of bonds that are investing in IoT and impact-driven kind of markets like smart cities and smart agriculture. I think those three things are very interesting. There’s a big opportunity for banks to provide and transform in these new types of funding models levering impact investing, levering social impact bonds to stimulate innovation and development of these imperative innovations.

BP: Okay. Now, a lot of this investing of funding projects is quite big infrastructure project financing type investment, banking type initiatives. What about for the man in the street, for the consumers in general? How are they using IoT? And banks who serve the High Street customers, is there something that is coming into their lives today that banks should be thinking about?

MB: Yes. There are two things I have to say on this actually. The first thing is there needs to be a big education with citizens to understand what IoT is and how it’s going to affect their lives and also how they can participate in innovation and IoT. But the biggest opportunity for banks is around citizen data ownership. What we’re going to see is citizens reclaiming their data and using that data as a new currency to trade for services. Who’s going to steward the citizen data to do transactions on behalf of the citizens to trade their data for either financial reward or service rewards?

Well, citizens don’t really trust the government. Citizens are used to using banks to look after their currency, to look after their economic wealth. For me, I think there’s a big opportunity for banks to become a steward of citizens’ data currency, where effectively they’re looking after their financials, but they’re also looking after their data and then trading their data using technology like blockchain to do transactions on behalf of the citizen for services and economic return. 

BP: Okay, great. What are the developments and trends coming out from IoT and are you seeing some banks doing this? How are they positioning themselves to be the stewards of this data, or, as you’ve mentioned, providing citizens data currency services?

MB: There needs to be a conversation with corporations and governments that currently assume they own the rights to the citizens’ data. That simply is incorrect. There has to be a conversation where citizens start to regain their data. I think that the banks and other corporations can start taking the lead by building out these kind of secure, trusted escrow currency vaults where citizens’ data, farming data, and fishing data, and other types of vertical data is stored and then we trial the actual solution in proof of concepts to see how that works. I think that for the banks, it’s about trying it out.

It’s about getting involved in pilots. It’s about having an agility and shifting culture a little bit to say okay, for this particular smart city or for this smart agriculture initiative, or whatever it may be, we are going to steward the citizens and the farming and the owners’ data and then we’re going to actually work with other corporations to deliver as a service and to monetise the citizens’ data. So what we’re seeing in the Internet of Things is the lifecycle of sales is changing. 

Now the other thing to mention is something called blockchain. I’m sorry to interrupt. Blockchain is an automatic contract negotiation technology. What we’ll see is blockchain will start to automatically negotiate contracts and services for citizens. I heard a talk recently by someone in UAE that all their public services will be underwritten by blockchain by 2020. We’ll start to see is leadership, strong countries, to try these blockchain types of technologies.

In China, there’s been an announcement of a $30 billion new smart city that will be rebuilt entirely on blockchain. What this means is if my washing machine needs a new part, the blockchain will automatically order and select the best deal for me in line with my cultural profile, in line with my economic potential, and in line with the way I use the washing machine. Blockchain will automatically negotiate the best part of that. The same with a car, for example, if you need new tires or you’re looking for a new car, blockchain can look at your cultural profile, it can look at your economic outputs and your economic remits.

It can look at the way you drive and securely, automatically negotiate the best contract for you for a new car or for a new pair of tires.

With China re-building the economic phenomenon of bygone years called the Silk Road - IoT will play a key enabling role.. One could even envisage autonomous driven trucks delivering goods on the Silk Road all the way from China to Europe - imagine an automated Amazon Warehouse but much bigger The key enabler for this new blueprint will be a data platform traversing the entire length of the Silk Road, where IoT applications for each intelligent service and each country share their data in real-time. This would enable optimization of services, resulting in huge cost savings and lower price of goods to the end consumer.

We’re going to see another ten smart cities announced in China over the next ten years. And China is looking to really take the lead around integrating intelligent inter-cities to enable citizens to thrive, the public sector to thrive, the private sector to thrive, and academia to thrive.

BP: How do the banks participate in these emerging opportunities? You are saying a lot of this is still at a very preliminary stage. 

MB: Right, so there’s a huge amount of opportunity of live smart city projects now for the banks to get involved in. The first thing that I would advise the banks to do is to do their research. Go and visit different smart city initiatives and smart agriculture initiatives around the world. Go and have a look at what’s going on. Then I would invite the banks to develop a vision, form a collective committee, and how do the banks want to participate in the new, data-currency-driven economy?

Then I would encourage them to dive deeply into impact investing and look at these new social impact bonds. Then I would encourage them to get involved in proof of concepts around smart cities and proof of concepts around smart agriculture and build business cases with these initiatives in smart cities and smart agriculture going around the world. There must be hundreds of smart city initiatives going on around the entire world. So there is plenty of opportunity for banks to have a look at and participate in smart cities.

BP: A lot of these smart city projects, are they driven by public or private or a mix of public and private sector corporations?

MB: It’s the latter. It’s a new collaboration between the private sector and the public sector. Because what’s being recognised now is that the public sector and the private sector have to form a union and work together to make a locale thrive. No longer can we rely on the public sector to find the money and to build it. No longer can the private sector take any more. The private sector has to step in too and be responsible for the development of its locale.

We’re starting to see this and I’m involved with a new smart region initiative in Colorado in Denver South, with the Denver South Economic Development Agency . The aim of the Alliance is to accelerate the adoption of smart cities and IoT-based initiatives throughout Colorado to improve quality of life for residents and businesses and create an economic development draw to Colorado. As far as I am aware no banks are directly involved yet. However, US Banks are moving into our region.

They are partnering with technology giants, with developers, with city mayors and government, with academia, with the entrepreneurial community, with the citizens, to create and develop a roadmap and deliver a roadmap for the next 20 years to make this region sustainable. At the moment, the region delivers 20% of $300 billion that Colorado generates. So there’s a huge tranche of capital that comes out of this region. So it makes sense to protect this region and create a model for the future of how counties, cities and towns within the region can collaborate to create something that is sustainable. Colorado's economy generates $300 billlion p.a. and the region of Denver South generates over 20% of that revenue. 

Dealing with common challenges such as congestion and transportation; Dealing with issues around affordable housing; Dealing with issues around public health care; Dealing with issues around air quality; And many other types of intelligent services that we need to bring to the region to make it thrive not just now, but also in the future.

BP: Okay. This is something that the banks probably would be exploring, investing and developing over the medium to long-term, over the next 20 to 30 years as you’ve mentioned.

MB: Absolutely. Within this region, there is going to be an entire smart city built. That means that is a city that is – it’s going to add about 20% to 25% of additional real estate to the Denver Metro area, which is an incredible addition of residential and business real estate. I would imagine that all kinds of funding approaches are being considered that may leverage different types of bonds and investment packages from the private, public sector and who knows maybe the banks as well, in order to finance this intelligence-driven new Smart City right in the middle of the Denver South Region, in the City of Lone Tree.

BP: Okay. Now, you mentioned impact investing as a new form of financing or investment for banks. Is it traditional role as financial intermediary and conduit? This possibly can see a new form of capital markets, new form of stock exchanges emerging. On the other issue of data currency services, how well are banks today based on their current business model, where they are driven essentially to maximise their margins to support these services? They will need to transform themselves.

MB: Absolutely. I’m looking at some statistics at the moment. The Deutsche Bank published a report a few years back and found that 90% of the people they interviewed, when they’re investing in social impact type of bonds and investment remix, they were outperforming significantly the traditional types of investment markets. What we’re seeing now is the banks are starting to wake up. We’re becoming an environmentally-driven society. We are starting to become a socially driven society. The banks and most of the finance institutions across the world are now investing in sustainability.

They’re outperforming and outgrowing the traditional types of investments made in oil and gas or whatever. So the banks have already cottoned on to this. The next thing is we can go so far with this environmental and social impact kind of bonds and kind of investment strategies, but this huge tranche of impact investment capital, which is going to be that $40 trillion over the next 30 to 40 years. Tapping into that and being able to steward that responsibility for investors and bring it into impact-driven IoT-centric business propositions around smart cities and others, is an incredible opportunity for the banks to be that middle man and steward on behalf of the investors that will have all this philanthropy to invest.