- Healthcare sector
- Real estate
- Retail are relying on IoT to streamline and facilitate their business activities.
Are relying on IoT to streamline and facilitate their business activities.
This article looks at how banking and finance could be the next industry taking advantage of IoT ecosystems. After all, they are a sector that can never have too little data to leverage for processes such as credit rating, loan applications, and fraud detection.
What is IoT in banking?
IoT in banking refers to the interconnected webs of IoT devices that gather, transmit, and allow for the processing of data, in a cloud or in an on-premise server, to enhance the banking experience, for the customers and bankers alike.
What are the benefits of IoT in banking?
The following points are some of the advantages of utilizing IoT in banking:
Banks can improve the security of their branches by using CCTV cameras, round-the-clock monitoring, smart alarm systems, and other security-focused technologies. Where IoT comes into play is that these smart devices can all be connected with one another and remotely controlled. So if an intrusion is detected, the security team can quickly lock up the branch, if applicable, or take other appropriate measures.
2. Real-time monitoring
IoT devices have the capability of gathering real-time data from the banking environment. By leveraging this data, banks can assess customers’ needs at any place or time. One example would be projecting, at the banks’ location, the estimated time a customer has to wait in line. Or a more technologically-savvy example would be banks sending notifications to the users if their balances are close to running low. The point is that real-time data gathering will allow banks to offer data-accurate services.
3. Fraud detection
The number of fraudulent incidents in banking has been on the rise globally. Figure 1 showcases the frequency of banking frauds in the UK from 2010 up until 2020.
IoT has the potential to curtail this tragedy. Already, IoT devices have made transactions more secure, with mobile phones requiring the user’s biometrics to finalize a purchase. Or websites requiring the input of an authentication code sent by the banks to the users’ phones, to make sure it’s actually them who are making a purchase.
The last example of how IoT is helping detect and minimize fraud is the online banking applications sending notifications every time a purchase is made. This will enable the user to be mindful of each transaction and it provides them with a time-space to instantly flag a purchase as fraudulent if they don’t recognize it.
Explore AI in fraud detection in more detail.
4. Improved analytics
IoT can provide banks with up-to-date information regarding the projects or individuals they are investing in, thus helping them accurately measure the ROI.
For example, by leveraging data from street cameras and satellites to monitor the level of economic activity in the vicinity. Other use cases could be:
- For consumer loans, they might leverage data from various applications and sensors to get an accurate insight into the consumer’s spending history.
- For securities, they could leverage data from various analytics platforms (Bloomberg Terminal, FactSet, Eikon) to view the amount of trading that is done with government bonds as opposed to privately-issued bonds.
If you are interested in learning more about the use of technology in investment, we have an article that discusses the use cases of alternative data in finance.
5. Improved customer service
Leveraging data from mobile applications, websites, or other domains where transactions are made and recorded will allow banks to personalize the services for each customer based on their history. Such services would include personalized money management suggestions and budget plans.
6. Expanded services
Modern banking is not only confined to money and asset management. Banks have recently begun leveraging data from customers’ smart wearables (i.e. smartwatches) to keep track of their fitness level. They will then reward them with cash-backs or lower APRs with respect to their fitness regimens and daily routines.
7. Cardless transactions
With the aim of facilitating transactions as much as possible, mobile banking applications now sync with credit and debit cards, allowing users to make wireless payments by their phones alone. In the COVID-19 pandemic, especially, this feature has allowed for the safekeeping of hygiene in shops and other crowded locations.
What are the challenges of IoT in banking?
The biggest challenge for IoT in banking pertains to the security of the banks and their clients. Some of them include:
1. Data breaches
Most banks today are partnered with big tech firms such as Google, Apple, Samsung, and Amazon to make the most out of their IoT devices and ecosystems. A data breach at any of those companies would jeopardize the banks’ and their customers’ data privacy.
Recommendations: Use edge computing rather than IoT cloud to store and process your data for improved security.
2. Data exploitation
Another challenge is the exploitation of the data. Even though it might be advantageous to have banks offer you personalized services, they might not always reward your fitness regiments, for instance, with cash backs. The next time you go in to apply for a loan, they could use your health status as an excuse to increase your rates based on a non-existent correlation.
3. Vulnerable applications
Their mobile banking applications, if not properly maintained and constantly updated, could be infiltrated by hackers and result in the wiping out of thousands of customers’ life savings. Or even if their applications are secure, customers’ phones, for instance, might not be. This again provides infiltrators with an access point through which data can be hijacked.
Recommendation: To mitigate risks related to application vulnerabilities, banking, and financial organizations can rely on automation solutions such as RPA bots or workload automation to run cybersecurity tests, discover vulnerabilities in the system, and automatically download system patches and software updates.
For more on IoT
If you are curious to learn more about the use cases of IoT in different sectors, read:
- Top 9 Use Cases of IoT in Manufacturing
- 5 Use Cases of IoT in Automotive
- The Ultimate Guide into IoT in Retail: Benefits, Challenges, & Case Studies
Or, if you believe your business will benefit from an IoT solution or device, feel free to check our data-driven hub of IoT solutions and tools.
And we can guide you through the process:
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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