IoT in Banking: How Smart Technology Can Revolutionize Financial Sector
IoT technology has become the primary force behind changes in banking and other financial services. If we abstract from such popular technologies like blockchain and look at the picture globally, we can notice increased digitization in the finance industry.
In this post, I will go through the primary reasons why the Fintech area requires IoT technology.
How Financial Business Can Benefit From an IoT
Before creating your own IoT solution for FinTech service, consider how you can benefit from it. Below you’ll find five powerful reasons why your financial business needs an IoT.
Gather All Data in Real-Time Mode
For instance, when a person wants to insure a house or health utilizing the IoT, he/she can gain access to renewed information regarding patterns of utilizing the insured product. If individuals insured the car, they could view all regulations regarding insurance cases collecting sensor information from any place (home or car). And it’s just one of the thousand solutions IoT contributors can offer.
Personalized Customer Service
Taking into account that customers’ preferences change from case to case, financial organizations try to keep up with digital innovations creating new business solutions. Today users can always reach their banking accounts using various devices (tablet, smartphone, etc.)
That‘s why financial institutions build IoT apps to collect more data about clients, their preferences, and behavior. Based on gathered information, banks will be able to provide customers a personalized experience and better financial services. It enhances “bank-customer” interaction and reinforces the growth of banking technology.
Improving the Decision-Making Process
The more information the banks will obtain from IoT devices, the better the decision-making process will be. For instance, based on social media data or customers’ buying patterns, banks can draw up the picture of possible credit risks for each client and then create personalized commercial offers. In this case, you need to build an analytical software that will help adopt it. Hence, IoT technology in the financial sector allows experts to figure out the general condition of each field.
Communication Between Various Devices
Sensors along with software make it possible to automatically process cashless payments without integration with customers’ phones or banking cards. For instance, a sensor installed in the cash register in the supermarket can identify the number and the types of products in users’ pushcarts. Then it calculates the total price for products and pays for the check automatically. Surely, all FinTech solutions need to comply with financial regulations.
Clients Smart Interaction with the IoT
Today, the capacity of the Internet of Things in financial areas is huge. It seems that the IoT is an internal part of finance strategies. It allows users to connect their banking account to various smart devices. For instance, you can build a banking app that will notify its users when they overstep the limit of planned expenses or send notifications relating to financial transactions.
IoT Uses Cases in Fintech
Banks from all sides of the world are striving to utilize IoT capabilities in their industry to attract more customers.
Starting from mobile applications that are utilized by a significant number of banks, since they can help identify customers preferences to a variety of sensors that enable financial organizations to collect data from their departments and wearable sensors that can monitor how clients utilize their banking products. Undoubtedly, the IoT and financial services are a winning combination.
IoT vs. fraud. The Internet of Things, along with AI, can help banks to fight against cyberattacks. IoT devices in Fintech and AI-based software can gather more information about money transactions made by their clients. Based on this information, financial entities can strengthen the security level and facilitate the economic processes.
Hidden payments. As I mentioned earlier, sensors in tandem with software simplify the development of hidden payments and other financial operations utilizing different devices (smartwatches, voice-recognition devices, RFID sensors in Uber taxis and restaurants to make auto payments without using a smartphone)
Payments from all sides. IoT technology in the finance industry allows you to build an ecosystem of smart devices to streamline and accelerate the payment process. And thus, pay from all around. Not only IoT apps but different home appliances like smart refrigerators enable users to pay for food delivery.
Autonomous wearables. Many banks and financial institutions already implement wearable payment options into business services to widen their client base while providing more convenience in outdoor shopping. As for statistics, the market size of Wearable Payments Devices is forecasted to reach $42.9 billion by 2026. Moreover, a new generation of wearables will function without a smartphone. Within a couple of years, rings, VR devices, smart clothes will put back smartwatches.
In fact, there are a lot of ways on how to use IoT in the financial industry. However, bear in mind that hardware won’t work without good working software.
Challenges of IoT in the Financial Sector
Unfortunately, there are always two sides of the same coin. And IoT isn’t an exception. Especially when we talk about finances where security is vital. All the benefits of IoT I’ve outlined above may bring some problems connected with the confidentiality and security of users’ data. The financial sector that utilizes the IoT connections needs to predict the customer’s data security risks. Below you’ll find the main weak points of IoT in FinTech.
Privacy and Security
The Internet of Things is a network of smart devices and different software where the risk of cyberattacks is vast. When financial and private data is being transferred through the IoT network, all this information can be hacked and stolen. So privacy and security are vital issues to be considered when it comes to data protection.
No Common Standards
All IoT devices need to be maintained differently. But there are no general standards for supporting IoT equipment. The reason is that there are a lot of suppliers who produce hardware utilized in IoT. So it seems to be impossible to create a common maintenance standard. And even though all manufacturers will reach a verdict on standards they need to follow, the technical background will differ anyway. So, the lack of common standards may cause the failure of IoT devices’ functionality.
The longer and more prominent the system is, the more difficult it is to maintain and control. But remember, the breakdowns in the IoT network can lead to total system failure and huge losses. The IoT can be considered as the chain where each part plays an essential role in good connection. If something goes wrong, the whole process will be paused. This is why you need to cooperate with reliable hardware manufacturers and software development companies who will be able to deliver high-quality products. Indeed, IoT in the financial sector is a technology that is pretty hard to deal with. But the game is worth the candle.
IoT technology automates business operations which in turn affect jobs around the world. Banks and other financial entities will have to reduce employment with the coming of IoT devices in Fintech. Unfortunately, unemployment growth will reduce the economy’s output and worsen the social situation globally.
The Internet of Things has significant potential in banking and other financial sectors, and its future is encouraging. However, you need to flesh out this process to adopt it wisely with the maximum return. Even though some disadvantages are described above, many financial institutions start adopting IoT technologies into their business processes.
Vitaly Kuprenko is a technical writer at Cleveroad, a web and mobile application development company in Ukraine. He enjoys writing about tech innovations and digital ways to boost businesses.