The Internet of Things (IoT) in finance improves customer experience, streamlines operations, and facilitates data-driven decisions.
IoT collects and transfers data efficiently, saving time and money. It automates core processes via efficient data processing. As per a recent report by Verified Market Research, “IoT in Banking and Financial Services Market Size And Forecast, ” IoT in finance will reach USD 30925 Million by 2030. It will exhibit a CAGR of 50.10% from 2023 to 2030.
These statistics show that IoT will continue to extend enhancements in customer experience in the future.
Benefits of IoT in Financial Services
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Security
IoT tightens security by combining biometrics with IoT devices. It ensures secured access to banking apps and transactions.
It helps in proper credit assessment. At the same time, data from IoT devices provides details about a customer’s financial habits.
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Customer Experience
IoT improves the customer experience by offering tailored services. Banking apps offer on-the-go banking, while wearables help in contactless payments. Mobile apps and websites generate data when customers make transactions.
It allows banks to tailor the services for each customer as per their history. Some of the benefits include- cash management and budget plan suggestions. Banks can also tailor interactions with customer profiles. Good tailoring efforts attract and retain customers.
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Automation
IoT automates banking tasks by connecting devices and exchanging real time data. The tasks include data entry and reporting and complex processes like loan and compliance checks. Automation enhances operational efficiency. It also improves accuracy and cuts costs.
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Fraud Detection
Rising digital transactions have made fraud detection and prevention vital in banking. IoT enhances a bank’s fraud detection operations.
As per a recent report by PWC, “PwC’s Global Economic Crime and Fraud Survey 2022,” 51% of businesses said they experienced fraud in the last two years. And 40% of them encountered fraud on the platform.
IoT devices check transaction data to identify unusual patterns or malicious activities. The algorithms track fraud, alert relevant parties, and block transactions.
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Rapid Decision-making
Many business base their decisions on data analytics, business patterns, and market research. Banks can use IoT devices to collect and analyze clients’ data, offering insights into customer needs. It facilitates rapid decision making.
IoT, when combined with AI, drives strategic decision-making. Banks can analyze big data using RPA, AI, and ML. It helps them make informed decisions on how best to allocate resources.
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Streamlines Finance and Accounting (F&A) Operations
F&A tasks involve the collaboration of various departments for efficient data collection. Banks can automate the complete process rather than manual collaboration.
They can collect and update the data in real time using IoT devices. It saves time and collecting and managing efforts.
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Better Analytics
IoT offers updated information about the projects or customers the banks are investing in. It helps them accurately assess the ROI.
For example, banks might use data from numerous apps and sensors for consumer loans. It helps them gain insights into consumer’s spending behavior.
Challenges of IoT in Financial Services
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Data Privacy and Security
One of the key issues with IoT is data security and privacy. As IoT devices exchange sensitive financial and personal data, securing it is crucial.
Breach results in a loss of finances and customer trust. Hence, banks must use solid encryption methods with secured data transmission protocols. They must also set tight data privacy regulations when implementing IoT.
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System Complexities
The IoT implementation involves the integration of many devices, systems, and platforms. It causes difficulties in the current banking framework.
These difficulties give rise to compatibility, management, and maintenance issues. Thus, banks need good resources to manage and maintain complex IoT systems.
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Workflow Changes
IoT deployment for banks requires workflow and process changes. Task automation reduces human errors. Shifts like these lead to employee resistance and job security concerns.
Change management strategies like reskilling, training, and communication facilitate a smooth transition to IoT driven workflows.
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Data Breach and Exploitation
Banks collaborate with big tech firms to benefit from IoT devices and ecosystems. A data breach can put their customers’ data privacy at risk.
Data exploitation is another challenge. While banks offer tailored services, they might correlate the non-existent data.
For example, banks might not always reward customers’ fitness regimens when offering tailored services. Thus, they can use customers’ health status as an excuse to increase the loan interest rates.
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Weak Applications
It is easy for hackers to infiltrate banking apps if banks do not maintain and regularly update them. A data breach can lead to loss of customer finances, affecting the bank’s reputation.
At the same time, there are chances that the customers’ phones are not secured. It provides hackers with an access point to hijack the data.
To avoid breaches, banks can use automation solutions. RPA bots or workload automation help run cybersecurity tests, detect weaknesses, and download system patches and software updates.
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Integration
Banks must integrate IoT devices and systems with current banking systems and processes. Solid integration ensures seamless operations. They must also assess their IoT systems’ interoperability. It helps ensure that these devices communicate with other systems.
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Investments
The IoT solution requires heavy investments in technology and infrastructure. Deploying the tech can take much work for small financial organizations. Banks must consider the benefits and costs of implementing IoT.
Checklist to Implement IoT Banks
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Find Proven Use Cases
Banks must identify use cases that use IoT. Thus, these proven uses cases pose limited risks. For example, payments are a primary area where banks can use IoT technologies.
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Enhance Data Management
Banks must enhance their data management structures since IoT generates vast data. Thus, better data structures and governance rules capable of handling vast data securely are essential.
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Set Tight Security Measures
Banks must secure their IoT ecosystem with adequate security measures. IoT devices are an easy target for hackers as they have weaker defenses. They must work closely with IT teams to set tight security measures.
Also Read: Leveraging the Internet of Things (IoT) in FinTech Stack
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Track ROI
IoT investments are costly. Thus, banks must ensure that they spend their capital correctly. They can consider parameters- how IoT boosts customer service and reduces audit times when they assess ROI numbers.
Conclusion
IoT has reorganized financial services by shifting from traditional to transformative solutions. IoT devices and sensors offer real time data and insights. It helps banks make better decisions, enhance customer service, and streamline operations.
The use of IoT provides banks the opportunity to gain a competitive advantage. It enables them to create new products, services, and business models. The tech offers many benefits.
They include a complete customer view of enhanced financial security, fraud detection, and insurance strategies. It allows businesses to address customer needs maximizing customer experience. It lets banks offer mobile wallets and better security with Blockchain.
