Internet of Things in Banking & Financial Services
When it comes to technology adoption, banks and financial organizations often lag behind other industries. However, 2016 is a turning point for the sector. 70% of the finance industry decision makers consider the Internet of Things strategic or transformational for the banking industry, citing payment security and improved loan collateral tracking as the key reasons to invest in new tech. Here’s why.
3 factors behind Internet of Things financial services & banking growth
- More customers jump on the Internet of things bandwagon. This year wearable devices are expected to ship 102 million units worldwide (up 24% from 2015). The total value of mobile payment transactions made at the point of sale will soon top $ 27 billion in the USA alone. NFC payments are now available on Fitbit wristbands, Apple Watch and Android Wear. As consumers get more comfortable with making contactless payments, retail banks have to adopt latest technology in order to stay competitive;
- The Internet of Things is getting standardized & affordable. The global environment of smart sensors and connected devices has been called the Internet of Broken/Insecure things for years. And while IoT security and interoperability issues are still far from being solved, vendors have made considerable progress in developing and implementing the Internet of Things security and connectivity standards. UK government has recently financed the HyperCat project to help 40 companies (including startups and IT tycoons) create the universal infrastructure for connected devices. Vendors are getting familiar with the Internet of Things software development; the wearable OS market, for example, is dominated by only four operating systems, including Android Wear, watchOS and Tizen. Finally, IoT product development costs are diminishing. With the rise of low-cost sensors and prototyping tools, building an IoT solution is no longer considered an unaffordable luxury;
- The competition within the FinTech sector continues to grow. MasterCard partnered with Coin to bring contactless payments to wearables and took part in Samsung’s smart refrigerator project, enabling customers to automatically order groceries from FreshDirect and ShopRite. The company has also joined General Motors to create a connected keyfob that helps the drivers of autonomous vehicles pay for goods and services on the go. Visa eliminates fraud risks by matching transaction and geolocation data and has embarked on a connected car commerce project alongside Pizza Hut and Accenture. In other words, the Internet of Things’ opportunities for banks and financial services companies are getting too large to ignore!
IoT banking and Fin-ternet of Things: benefits are real
- Cost reduction and effective risk management. Provided banks and financial organizations analyze IoT-generated data, they can gain a better insight into customer asset management practices and mitigate credit risks. Let’s take manufacturing industry, for example. Companies that borrow loans from banks usually offer raw materials and finished products as collaterals. Instead of manually tracking resources prices and the customer’s turnover, a lender could install smart sensors in the manufacturing and warehouse facilities to make sure the loan is paid off timely and according to the agreement. IoT solutions are also implemented by auto loans companies that lend money to customers with limited credit history. Over 2 million of US vehicles purchased on credit are equipped with smart trackers that allow lenders to track customers’ whereabouts and block cars unless the monthly payments are made on time. The technology enables auto finance companies to reduce lending risks by at least 30%. Even more opportunities lie within the insurance sector. Using connected trackers for remote diagnostics and location detection, companies like Metromile offer cost-effective insurance plans based on drivers’ mileage and road behavior;
- Improved customer services. In 2015 Barclays, UK’s biggest banking and financial services company, partially brought their mobile app functionality to smartwatches. According to Steven Roberts, the company’s strategic transformation director, some of the Barclays mobile app users check their balance up to 50 times a day; now they can access the information on their wearable devices. The bank also built three custom wearable gadgets enabling users to make contactless payments. Similar solution is currently being developed by Giesecke & Devrient, a German company that plans to distribute payment and fitness devices in China. And here’s another Internet of Things application in banking. Westpack, a New Zealand-based bank that heavily invests in new technology, deploys beacons to identify customers once they walk into a branch office and greet them personally;
- Increased payment transaction security. IoT vendors implement a wide range of tools to secure payment transactions, including tokens, magnetic secure transmission, biometrics and smartphone verification. Last year Citigroup and Diebold introduced a smart ATM that scans a customer’s iris to verify his identity. The machine doesn’t have a touchpad or screen. Instead, a customer needs to access his banking mobile app, enter the sum he wants to withdraw and approach the ATM with eyes wide open (literally). Nymi, a Toronto-based wearable tech company, went even further and designed a smart fitness tracker that uses cardiac signature (EKG sensor readings) as a biometric identifier. MasterCard fights fraud using the fingerprint and face recognition technologies. Once you download the banking mobile app, the software scans your photo or papillary ridges, transforms the data into a unique binary code and sends it to the company’s server. Although the technology is still being tested, it could be a huge step towards the cashless, cardless and safe financial future.
By 2018, the average IoT-related spending per company across the banking and financial services industry is expected to reach $ 153.5 million. If you’re going to incorporate IoT into your company’s IT strategy (or consider building a wearable payment device), make sure to address a reliable vendor. The development and deployment of the Internet of Things banking solutions requires great experience in R&D and embedded systems engineering, as well as strong adherence to security best practices.