Can financial services benefit from the Internet of Things? Absolutely, and to the fullest extent. Not only for gathering more and better data about assets but IoT also changes the way we access banking and manage wealth, invest, and monitor assets. Let’s see how IoT changes banks and FinTech companies.
To improve efficiency and customer service, banks eagerly invest in the Internet of Things. The technology has great potential and a wide range of uses.
How to ensure your financial company makes the best use of this technology? What are the benefits of implementing IoT? What does it take to build an IoT project? We’ll lay out and explain all of the above in this post.
Table of Contents:
- The State of Financial IoT
- Benefits of IoT in Finance
- Financial IoT Adoption Process
- IoT FinTech Applications
- Cost of Developing FinTech IoT Tools
The State Of Financial IoT
First things first, the Internet of Things makes more data available for businesses. And, obviously, being able to gather insights in real time is crucial for banking. For instance, managers can predict how market will fluctuate and solve problems proactively.
The financial Internet of Things is going strong, and here are the statistics to prove the point:
- The adoption rate of financial IoT is 64% worldwide. Bank customers like IoT solutions due to reduced transaction fees. IoT directly connects a business with a bank, hence there’s no need to use Visa and MasterCard gateways. Both are known for high credit card processing fees, ranging from 1.9% to 2.5% per transaction.
- Connected devices are on the boom — according to Statista, there will be over 75 billion of such by 2025.
- It is estimated that the global economic benefits of the Internet of Things in finance will reach $2 trillion by 2020.
The growth rate of the financial IoT market is impressive. However, some banking companies do not implement IoT innovations or do so at a small scale. They neither rethink nor enhance their business processes.
Benefits of IoT in Finance
Before studying and applying the IoT in fintech and the banking domain, company managers need to understand the benefits the technology provides. Here are the main reasons in favor of IoT adoption in Fintech:
- Personalized customer service. Banking service providers can use IoT to gather more data about its clients. After gathering real-time insights about customers’ needs and interests, businesses can offer custom content and tailored experience. Consequently, businesses connect with their audience in more ways and benefit.
- Improved decision-making. IoT helps businesses get data for credit risk assessment. With D2D (device-to-device) communication protocols and sensor implementation, asset management companies can get relevant data across other fields such as retail, agriculture, etc.
- Real-time data gathering. Attending to customers’ needs with IoT tools is more comfortable and faster — thanks to continuous data gathering. For example, in insurance, a provider can offer real-time access to a case database. In banking, a client can monitor the lines at the branch online or schedule cash withdrawal and complete the act at any nearest ATM.
- Smart interactions. With IoT, financial institutions get more involved in a customer’s daily routine. For example, to help track the expenses, customers connect the banking tool to their smart wearables. Furthermore, they can set a limit and block the account if it is exceeded.
- Seamless communication between financial devices. Device-to-device communication has a wide range of applications. First, IoT in banks enables automated cashless payments. Second, insurance underwriting allows to provide customers with curated financial advice based on their spending habits. With this said, people can form loan communities to lend each other money and make shared investments.
Financial IoT Adoption Process
To design a solution that involves the Internet of Things, a financial sector company has to outline how long does it take to develop. Business managers estimate how many people to involve and the budget needed to complete every stage of the project. Here’s a step-by-step breakdown of the IoT adoption process:
First of all, a business manager needs to research the market and ensure the product will help bring forth revenue and exposure growth. Regardless of whether the new product is aimed at sales or for streamlining corporate processes, take your time to study similar innovations and examine their impact on the creator companies.
Outlining the future tool
Next comes prototyping — deciding how to cater the applications to the public. What hardware and software tools to select for development? What tech skills a company will need to create a full-blown product?
The project team decides what data a tool will gather as well as how it’ll process it. This matter has become even more pressing since GDPR came on the scene. As a rule, you should narrow the data to a set that’s vital for your product functionality. So set data processing and storage requirements in stone. And, in case of inspections, keep written guidelines in an accessible place.
Most IoT solutions rely on hardware — sensors, BLE beacons, wearables, etc. Deciding on the hardware is challenging because it has to be affordable and marketable. The team needs to choose the major technology before writing software for it.
IoT software has a multi-layered backend. Usually, developers have to integrate the cloud architecture, communication protocols, data gathering and analysis algorithms, APIs, and so on. Depending on the chosen technology, additional software components may be added to the list.
To make sure the new product blends in with other tools used by a banking staff, developers integrate it with third-party solutions (G Suite, for example). Also, integrations with third-party solutions, such as heavily used services, clients, and utilities, make a product more convenient and user-oriented.
When the code is written, the project team tests product functionality, work, and security. At the testing stage, a suite of cases is written to ensure the product carries out its purpose.
After product release, you have to regularly review and discuss the feedback. When you add new features, test the tool again to avoid technical debt.
IoT FinTech Applications
As financial institutions become more aware of the IoT’s power these days, more innovations and promising use cases make it to the market. Let’s see where the industry is now.
- IoT-enabled security systems. Above all is ensuring secure user into multiple devices. IoT helps create an ecosystem for access control and identity maintenance. It is for this reason that connected devices exchange passwords, digital certificates, and biometrics.
- Wallet of Things. Such apps add secure IoT payments to wearable devices. Moreover, Wallet of Things gives users real-time access to shopping logs and creates expense patterns.
- Tailored insurance. To enhance their services, providers can track safety habits of clients in real time. In particular, to base insurance rates on mileage and driving habits. More connected data will improve the precision of vehicle tracking and increase the number of metrics for analysis.
- IoT-based smart payment contracts. Indeed, adding the blockchain ‘smart contract’ concept to IoT payments is a brilliant idea. This combo creates secure, controlled, and manageable environment for money, shares, property, and other financial exchanges.
Cost of Developing Fintech IoT Tools
IoT projects are complex, so estimating the cost of development is rather hard. The good news for the issue is the dedicated tools. Managers in financial business can calculate the cost of an Internet-of-Things-project with a remarkable precision. Here’s an example of IoT product development costs broken down by component types using IoT cost calculator:
|Type of the IoT component
|Number of hours
|Mobile application (Android, iOS)
|Desktop application (macOS, Windows, Linux, Unix)
Note: The estimates show a feature-based model. In the table, the costs of a highly functional project are stated. Prices may vary for basic IoT products.
A common problem for the financial industry lies in skewed data distribution. Outdated approach to managing and catering limits the scope of services. For instance, it affects delivering users relevant insights. Avoiding credit risks and managing the customer’s financial routines proactively are the basic examples.
Using Internet of Things, we can majorly improve the financial services. In short, the most promising benefits of the technology include:
- faster risk management;
- improved data gathering and storage algorithms;
- improving the shopping habits of a client with intelligent hardware.
Systematic approach in using the Internet of Things to develop products for financial industry is key to success. Start from learning what issues the company struggles with the most and find a cost-efficient IoT solution to solve them. The cost you spend on innovation will pay off soon.