Advancements in mobile technologies and the internet of things have had a significant impact on a variety of industries that offer consumer-facing products and services, allowing for improved convenience, personalization and oversight. The banking sector, in particular, has embraced digitization with open arms, providing consumers with greater access to their financial resources and more control over their purchasing decisions. While the enhanced connectivity offered by IoT-enabled systems has undoubtedly supercharged e-commerce, payment processing and online investing, there is still a lot of room for the further integration of embedded devices. According to Absolute Markets Insight, IoT in the banking and financial services market is expected to grow at a CAGR of 55.3% between 2019 and 2027, driven by increased automation and the demand for optimized solutions.
How financial service providers utilize IoT
Beyond the obvious machine-to-machine communication capabilities, IoT has the potential to revolutionize how financial service providers collect and analyze data on consumer behavior. This would enable a deeper understanding of economic trends and customer preferences, allowing institutions to improve their services and streamline their operations. While the growing demand for personalized banking solutions has pushed companies toward customizable features and payment methods, it's also significantly disrupted traditional processes, such as lending, trade finance, collateral management and insurance. Additionally, emerging technologies have created new peer-to-peer business models that may negatively impact established financial institutions moving forward. This partially accounts for why many large banks have started ramping up their tech investments - financial institutions have an average IoT budget of $117.4 million, according to Tata Consultancy Services.
In terms of specific use cases, EdgeVerve Systems identified 12 examples of how banking institutions are adopting IoT technologies, including:
Another IoT-based trend that has garnered significant attention is the use of connected devices as payment endpoints, as the rising popularity of voice-operated virtual assistants and wearables has forced financial service providers to rethink their transaction models. The ability to purchase products in real-time requires a high degree of automation and infrastructural investment, along with the ability to verify personal biometrics to offset the risks of identity theft. One proposed solution is to provide customers with IoT-embedded wallets that possess unique identifiers, though this could end up exacerbating existing security and privacy concerns.
The bank of things
The integration of IoT capabilities within the financial services industry is still in its early stages, but many believe digital applications represent the future of banking. The "bank of things" refers to the material infrastructure that facilitates the transmission of financial data between consumers, financial institutions and commercial businesses, enabling a networked economy of connected devices that can accelerate banking services and operations. Deploying this framework would allow consumers to make contactless payments and track their spending with greater accuracy, while also giving retail banks access to a massive volume of customer data. The primary goals of BoT include optimizing customer experiences, enhancing information sharing and providing increased customization features, which are notably similar to current financial technologies.
While BoT-oriented business models offer a range of benefits for consumers and banking institutions alike, they're also extremely susceptible to cyber attacks and hardware failures. In June 2018, Visa's payment system suffered an unexpected outage that prevented businesses and individuals throughout Europe from using credit card readers to pay for goods and services, Wired reported. While the company quickly restored it's services, the incident illustrated that faulty IoT infrastructure can have a severe economic impact if the proper protections aren't in place.
Cybercrime is another major concern for financial service providers and banking institutions that heavily utilize digital applications. According to a 2019 report from the Identity Theft Research Center, the banking industry suffered 135 large-scale data breaches in 2018 alone, exposing more than 1.7 million sensitive consumer records. As companies continue to ramp up their data collection and analysis efforts, the need for robust cybersecurity protocols becomes increasingly dire. It's also important to consider that many consumer IoT devices possess a glaring hardware and software vulnerabilities that leave them open to exploitation. Mitigating these risks will be essential for ushering in the tech-driven banking solutions that many organizations are looking to implement.
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