The banking industry is constantly in search of new paths to grow. There are several key trends that will have the most significant impact on the sector in the coming years. And the Internet of things (IoT) is one of them. This is not just only a potential future technology but also an important part of financial institutions’ rapid evolution toward full-scale digital transformation.
IoT in the banking and financial services market size is expected to increase by 50.10% between 2023 and 2030. Technology is critical for banks’ survival, as it offers benefits without which companies won’t adapt to market trends. Let’s take a closer look at the specific advantages and examples of IoT technology used in financial services.
IoT in banking, as in any industry it implemented, improves analytical capacity. Fintech’s expansion has led to a growing amount of data collected, processed, and stored. And an IoT network brilliantly copes with gathering and analysis of a high volume of data. It provides advanced analytics, which helps understand clients’ behavior better.
IoT data collection occurs from users’ smart devices and various sources, including social media. After system analysis bank gets useful information that can serve as a basis for the following operations:
IoT-powered systems help improve productivity in the financial services industry by automating certain operations. With the technology integration, banking institutions can process customer requests, open bank accounts, and disable credit cards faster with minimum human intervention and, as a result, with minimum errors too. IoT in banking is not limited to simplifying daily procedures. Additionally, clients can use IoT devices, for example, to open ATM doors outside of business hours by smartphone.
With the massive digitalization of banking services, the number of frauds in the financial sector is growing daily. This is because hackers have come up with new ways of data stealing. And the Internet of things (IoT), coupled with AI-driven analytics, are powerful tools in the fight against bank fraud.
IoT technology has already made transactions and online purchases more secure with biometrics and authentication codes. Mobile apps also gather data about clients’ habits, preferences, and spending history. These insights can be used to detect unusual or suspicious activity. For example, if an application flags a transaction as fraudulent, the user would be promptly alerted, and his banking account would be temporarily disabled.
Today, banks are primarily focused on the digital customer experience. Because, unlike older people who are content with traditional services, millennials and zoomers are ready to change banks if they don’t meet their requirements. Therefore, financial institutions do their best to anticipate customer needs. And IoT adoption directly affects customer interaction and level of service.
IoT solutions help banks establish a 360-degree view of their customers. They collect data to build detailed profiles, including demographics, life events and relationships with other clients, service preferences, the bank offers they’ve declined in the past, regular payment locations, etc. Using these valuable insights, banking institutions can learn more about their clients, identify their needs, offer personalized services and products, and provide relevant financial assistance and budget plans.
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And speaking of mobile banking, security concerns should be noted. Cybersecurity risks are growing as hackers use more and more advanced methods to hack into banks’ systems to steal sensitive customer data and money. But with IoT, the financial sector can protect personal data and reduce the chances of errors or leaks.
User identity verification is an essential element of banking services today. Businesses use various methods to secure systems and connected devices, including biometric, visual, and even vocal authentications.
IoT-enabled wearable devices have penetrated nearly every market, and banking is no exception. Technology has opened up new contactless payments option for clients. NFC-powered devices, such as smartphones, fitness trackers, and smartwatches, can provide access to credit or debit cards and checking accounts.
Additionally, mobile phones and other wearable devices can enable clients to change their financial habits and tackle the overspending problem. To use this feature, the client must set a spending limit, after which the smart device will monitor financial transactions all day long. And as soon as spending approaches that limit, the user will be alerted with a warning notification.
Not everyone knows that an early prototype of IoT devices has been used in retail banking for decades. Of course, we’re talking about ATMs. Automated teller machines were one of many connected devices that made banks’ performance more efficient. Real-time transactions without waiting in line to teller were a breakthrough at one time.
Today, the Internet of things continues to improve banking services. First, smart ATMs contribute to cutting costs by reducing the number of employees needed for customer service in physical branches. IoT-enabled machines can perform basic maintenance tasks and automatically restock cash. Furthermore, some banks already use IoT sensors to track foot traffic near ATMs. Such data from the banking environment can help choose the proper placement or bank branch for equipment. And some modern cash machines have live-stream video support that allows customers to consult with bank advisers.
Banking IoT opened access to blockchain technology for financial institutions. And some major banks have appreciated its potential and started experimenting with it. Blockchain is safe, transparent, and trustworthy. Additionally, technology simplifies record-keeping and reduces data maintenance costs. But the most important thing is that blockchain provides a platform for transaction participants to communicate directly and come to an agreement without intermediaries. International banks already complete global trade transactions with the help of blockchain, smart contracts, and IoT.
Today, banking institutions are dealing with such problems as rising maintenance costs, obsolete infrastructures, and growing economic instability. That’s why the multiple benefits of this technology are so attractive to them. Big banks invest in blockchain-based startups, work closely with companies that use this technology, or develop their own IoT solutions.
IoT in banking brought customer service to a new level. Smart branches equipped with biometric sensors and connected to other IoT devices provide clients with a fully digital experience. The most common example is dividing customers into groups with similar reasons for their visit. IoT network monitors queues, informs customers of their waiting time, and directs them to a free counter. This is a simple solution, but it increases efficiency and improves the quality of customer service.
Another example of the smart branch is the meeting scheduling option. Clients can plan their visits to offices via smartphone. A bank application also allows customers to manage scheduled appointments and check queue status remotely instead of waiting in line. And smart gadgets gather and store data about all customers’ visits and used services. Additionally, emerging technologies based on IoT enable connected communication systems between offices from different locations. And all these solutions allow banks to cut maintenance costs through staff reduction.
IoT gave the fintech industry a powerful tool for automating customer services – chatbots. AI-fueled virtual assistants made 24/7 bank service possible. Being an easy and relatively affordable IoT solution, this software provides multiple benefits. Its scope of application is not limited by support only. Businesses use it to improve sales, marketing, and real-time data collection.
Text-based chatbots are available across different communication channels, which users prefer mostly. They use natural language processing and machine learning to improve themselves with each new client interaction. As a result, smart conversational platforms offer customers a more personalized experience over time. Moreover, they reduce response time, cut operational costs, and let staff focus on more important requests.
The Internet of things definitely provides banks, insurance, and fintech companies a great scope for innovation. Although financial institutions have actively used IoT systems in daily operations, many brand new directions exist for further development.
But the future of IoT in the banking industry will largely be determined by how fast current implementation problems will be solved. And these issues are common in any field. For example, by providing heightened security on the client side, banks are struggling with the same issues in their systems. Using many devices for data collection makes security more fragile for cyberattacks. Moreover, part of the data collected from different sources is useless. It also may adversely affect clients needing a loan, but their health data can impact the interest rate.
But anyway, IoT is on the side of finance market expansion and contributes to going beyond traditional banking. Its implementation has been achieved in different ways and provides new solutions for an effective operation. And banks will continue moving toward digitalization faster to increase their market share in the coming years.
