The Internet of Things—a world where most working objects are online in some fashion—promises to change everyday life and boost the economy. But who knew it could make it cheaper to buy a fridge?
That’s the conclusion of financial innovation consultants at Capco who developed a theory about how the internet of things could change the way banks issue loans. Most analysts focus on the functional aspects of the internet of things—how the plugging a refrigerator into the internet could make it more consumer-friendly or easier to service. But the folks at Capco argue that real-time knowledge about a purchase could make it easier for a bank to loan you the money to purchase it.
If you buy a new fridge today, you might pay hundreds or thousands of dollars for it. If you put that charge on your credit card—an unsecured consumer loan—you might pay the average annual percentage rate of 13.02%. That’s a high interest rate compared to what you might pay on a car loan—an industry average APR of 4.2%. Making a consumer loan more like a car loan would make it cheaper for you to buy that fridge.
While there are lots of differences between car loans and consumer credit, a big one is collateral: A car is worth something, and the ability to repossess it gives banks additional surety on the loan. Capco’s analysts think a less valuable but still pricey consumer item, like a fridge, could be used as collateral if banks could constantly monitor its location, condition and performance—i.e., if it was plugged into the internet. Since banks would have to carry less capital on their balance sheets against the possibility of you defaulting on the loan, they could give you a better rate.
Of course, you’d have to come to terms with the fact that your bank knows the status of your refrigerator at all times, a not entirely comfortable situation for midnight snackers. But it could mean savings on other internet-of-things friendly household purchases. It might seem a bit farfetched, but that’s what they said about credit-default swaps.