The Internet of Things (IoT) is a booming topic of conversation these days, both in workplace and household. The concept of IoT has impacted both our life and work style. It’s a gigantic network of connected things and human, which collects and share data about the way it used and about the surrounding around them. So far, the IoT has had a massive impact in all the major industries including the Banking & Financial Services sector. As per Gartner & HISforecasts, there will 25 to 30 billion IoT devices by 2020, and the total IoT market size will be US$3.7 billion (McKinsey). In this post, we will look at the scopes of the internet of things (IoT) on banking and financial services and the impact of IoT on Banking & Fintech industry so far.
What is the Internet of Things (IoT)?
The Internet of Things is the way of connecting devices to communicate, share information, anticipate needs, solve problems and improve efficiency. It’s basically inter-networking of physical devices, vehicles, buildings and other objects, embedded with electronics, software, sensors, actuators, and network connectivity that enables these “smart objects” to collect and exchange data.
Say for another example, the smart refrigerator in your kitchen (at home) can send you an alert (or notification) on your smartphone (while you are leaving office) when you’re out of milk or gas. Your wearable or smartwatch can warn you if there is something wrong with your pulse or heart-rate. Additionally, all these information gets recorded. Later, the software after looking at the data can provide you information like: you are likely to run of milk on Wednesday, run out of gas in two weeks, or likely to get a heart attack in three months (so, time for a check-up and take precautions). Below is a nice infographic on IoT applications in various industries – Fintech, CPG, Auto Tech, Healthcare etc.
Image Credit: CB Insights
IoT & Big Data
We have already discussed the impact of Data Science & Big Data Analytics and Machine Learning & AI on the banking and financial services. The underlying value in IoT is the transfer of data, and the banking and financial sector relies heavily on gathering and analysing data. So, it’s hard not to imagine IoT disrupting the banking and financial services industry.
Image Credit: GSMA
The IoT is generating a huge amount of data, which is currently retained in vertical silos. However, a true IoT is dependent on the availability and confluence of rich data sets from multiple devices, organisations and verticals which will usher in the next generation of IoT technology.
As per Kirk Borne, Principal Data Scientist and Executive Advisor at Booz Allen Hamilton, IoT will play a massive role in shaping the future of data analytics. The IoT promises improved efficiency, accuracy and economic benefits in a number of industries including banking and insurance. According to Bernard Marr, leading technology, KPI & Big Data expert and Forbes contributor, among the top 9 technology megatrends, IoT is very much poised to disrupt the world in 2018.
Scopes of IoT in the Banking and Financial Services
IoT has got the potential to completely change the way banking and financial services sector works. Since the banking industry deals with massive data transfer, gathering and analysing of data, the IoT has a huge impact on it which benefits both the banking services and customer. The IoT is the biggest technological transformation clamming 2nd major digital revolution. The IoT technology in the financial services is to help a consumer to save time, work smarter and to live a more active lifestyle. The IOT on a banking and finance sector is still on a planning stage but there is an immense scope of innovation in it. IoT helps a bank in every aspect, starting from an increase in revenue to better customer services.
Image Credit: LetsTalkPayments
According to Tata Consultancy Services (TCS), financial institutions have reported an average IoT budget of US$117.4 million which is 0.4% of total revenue. Its study reveals that they are planning to spend US$153.5 million by 2018. “A large amount of their IoT budget (32% in 2015 and 29% by 2020) will account for monitoring financial products and services. Also, this year they plan to allocate 30% of their IoT budget to monitor customers. This allocation is expected to increase to 34% by 2020”.
Image Credit: LetsTalkPayments
Within the BFSI & Fintech industry, another IoT opportunity lies in the insurance vertical, specifically within risk management. For instance, with the emergence of telematics (in-vehicle telecommunication devices), cars are now able to transmit drivers’ behaviour data back to the car insurance companies so that they can assess drivers’ risks and premiums accordingly. So, this not only benefits the insurers but also the drivers as their reduced premiums are better representations of their safe driving behaviour.
“These days, most consumers and definitely the customers if financial services firms expect services to be centred around them and their needs, ” said Romain Doutriaux, chief marketing officer of tech startup Dataiku.
“IoT will fine-tune products, for instance by offering specific pricing for a loan or an insurance contract, but will also help in fraud prevention, churn defection (customers turning to other companies), as well as contribute to a more accurate segmentation of customers.”
How can IoT help the Banking and Financial Services Sector to stay ahead of Competition?
In a very short period of time, we all get surrounded by connected devices like smartphones, censored devices and wearable tech in our home, work and public places. This helps the consumer to save time, work smarter and live a healthy and active lifestyle. But for business, there are multiple benefits from IoT. Industries like Banking, Insurance and Finance have quickly embraced the benefits of IoT innovation.
Image Credit: LetsTalkPayments
The banking industry has taken the opportunities to develop many new ways to collect the valuable data of customer through smart and sensor devices. IOT technology has empowered the banking and finance industry technologically to assist their customer and help them to achieve a better commercial result. Internet of things like Biometric and a Positional sensor is helpful to the banking industry to track the quality control in a better way and to take a vital decision on business leading to stay ahead of the curve. Let’s see the benefits of IoT in Banking and Finance Industry.
Image Credit: LetsTalkPayments
Management and Product Planning – With the IoT technology banks can launch better and targeted service offerings. It will help the banking industry to understand what product to launch? And also help to decide the right time for launching the product.
Personalized Marketing – personalized marketing is the best way to retain the customer in a competitive market. IoT technology has made it possible for the bank to keep a track of all consumer activities and offer a product and services as per their requirement.
Cyber Security – With the growing internet banking the security is a major challenge for any banking industry. The IOT technology ensures that the whole banking experience should be safe and secure. The IoT technology ensures that the customer personal data to financial data potentially kept secure on the moving network.
Customer Relationship Management – IoT can help the banks to understand their present economic condition and offer services to the customer as per requires from time to time. This will ensure maintaining a healthy relationship with their customer and better customer experience.
Proactive Services – IoT technology made it possible for the banking and financial industry to detect any service fault and bring it to the notice of bank to handle the issue before it becomes too serious. With IOT technology bank can also track the past activities and customer behaviour. So, any unusual activity in customer account comes into banks notice.
Data Analysis – IOT technology in banking and fiancé industry collect data through mobile apps and digital sensor. Almost every banks have the mobile apps for banking that provides data at a large scale which helps the banking and financial industry to analyse customer behaviour and requirement and helps in the decision-making process of business.
Digital sensors are another source of collecting customer information through ATMs and other automated devices placed physical units to analyse customer behaviour which in turn help the banks to come up with new innovative ideas to serve the customer with potential.
Examples of IoT in the Banking and Financial Services
Visa Mobile Location Confirmation – It is an optional service for consumers which offered through mobile banking apps. The service uses customer mobile geographical location in real time as an additional input into visas predictive fraud analysis. For example, if the cardholder mobile location is same as the payment transaction location, the issuing bank confidently approve the transaction.
See how Visa is leveraging IBM’s Watson IoT platform.
Alfa Bank Sense – It is an advanced mobile bank application which predicts the real-time customer financial behaviour and offers the product or services the customer might need at that time. This IOT application is more personalized than any other mobile banking app and communicates like the Facebook Messenger does.
Groceries by Master Card – It is an IoT application that allows effortless purchasing of Groceries. The purchase is served by fresh direct and Shop rite e-commerce platforms.
Banking on Wearable – Wearable devices have been the easiest win for the banks. Many banks started providing an application for popular wearable devices like apple watch and fit pay. Few banks have also launched their own wearable device like pay with Bpay by Barclays which allows contactless wearable payment solutions. As per experts, Wearables are the next wave of revolution in Fintech.
Image Credit: CMU
Financial services companies like banks and insurers have existed for ages. But, all of a sudden, the banking and financial services are being challenged by the GAFAs (Google, Apple, Facebook, and Amazon) and the Fintech startups. According to Capgemini’s World Fintech Report of 2017, 50.2% of customers say that they have already opted for at least one non-traditional financial firm. So, the banks and financial institutions need to be more customer-centric and develop digital skills in-house in order to survive.
Are you feeling the need to upgrade yourself? Here are few best-curated courses on IoT and Banking & Financial Services for you!
Big Data Analytics & IoT – Udemy
Financial Markets and Investment Strategy – Indian School of Business (ISB)
Internet of Things: Communication Technologies – UC San Diego
Cybersecurity and the Internet of Things – University System of Georgia
Private Equity and Venture Capital – University of Bocconi
Innovative Finance: Hacking Finance to Change the World – University of Cape Town
Finance for Non-Finance Professionals – Rice University
Enabling Technologies for Data Science and Analytics: The Internet of Things – Columbia University
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About Author Tanmoy Ray
I am a career & education (study abroad) counselor and specialize in Admission Consulting at the Post-Graduate level. I have got a Molecular Pharmacology background with 5 years of research experience in the fields of Cardiovascular Medicine, Cancer Biology, Biomarkers, and Drug Discovery. I did my Masters from the UK (Aston University) and have worked at University of Oxford (UK), Utrecht University (Netherlands), University of New South Wales (Australia) and MeetUniversity (India). I can be reached at firstname.lastname@example.org
Author: Tanmoy Ray
I am a Career Adviser & Admission Counselor at Stoodnt. I did my Masters from the UK (Aston University) and have worked at the University of Oxford (UK), Utrecht University (Netherlands), University of New South Wales (Australia) and MeetUniversity (India).