IoT is already blowing our minds in our daily lives with its fancy droids, and refrigerators reminding us our milk is overdue. Its impact is also becoming more significant in the business world with industries starting to embrace the benefits. Financial services is no different in fact, it is one of the top 10 industries that has been investing in sensors for potential IoT innovations (PWC’s 6th annual digital IQ survey). They even have a romantic couple nickname: Finternet of Things!
Adopting IoT brings opportunities in parallel with some challenges to Finance Services. Let’s see both impacts of IoT in Financial Services.
a. Privacy and Security
The most critical challenges that the IoT industry faces are Privacy and Security. Information generated, received, processed and shared must be secure as every device connected to a network is open to manipulation. Compromised devices will lead to disclosure of customer data and financial risk. Therefore financial services organizations will need regulations to address these risks to protect consumer privacy.
Insurance organizations and banks are already utilizing information from various devices and multiple platforms such as phones, wearables, cars, home appliances etc. in order to calculate the potential risks of a customer. Therefore interoperability of these devices needs to be taken seriously as the variety and volume will grow even more. As a solution, financial services industry already started some initiatives for standardization which are expected to increase more.
c. Data Management
The explosion of new data from various devices with multiple users complicates data management for the financial services industry. Data management and collaboration scenarios need to be addressed and resolved in every field in the industry.
a. Customer Experience
One of the most beneficial outcomes of IoT in Financial Services is Personalization. Financial service organizations can offer potential solutions by collecting and analyzing data from customer behaviors, spending patterns and earnings which help customers to manage their financial conditions better.
Analyzing customer data not only enables financial services organizations to offer personalized services. They can also be beneficial when used with location technology. For example banks can make relevant location-based decisions such as analyzing the frequency of ATM usage in certain areas to target new ATM installations or open new branches.
Another outcome for customer experience in Financial Services is card-free financial transactions. Banks already started to enhance the ATM experience by augmenting it with users’ smartphones or wearables without the hassle of carrying a debit card, while mobile wallet apps linked to financial institutions enable customers to make mobile payments effortlessly. Beacons can also conclude financial transactions between businesses and customers. The technology provides a range of uses including scanning codes and coupons, gathering information, and extracting payments without mobile devices even being presented.
b. Risk Management
With regard to risk management, the opportunities mostly lie in the insurance sector. With the help of telematics (in-vehicle telecommunication devices), automobiles are now able to transmit drivers’ behavior and vehicle usage data to the insurance companies. As a result, auto insurance companies can calculate drivers’ risks and offer usage-based insurance to align driving behavior with premium rates. This will also benefit low-risk drivers as well as the insurance companies since they will pay reduced premiums.
The same logic can be also applied to home insurance and health insurance. If the customers voluntarily agree on sharing data from their household devices or wearables, their insurance can be monitored and personalized accordingly how they manage their households and health. In order to receive information from the customers, insurance companies can reward behaviors that minimize the risks.
Investment banks can benefit with the help of the data aggregated by insurance companies. For example they can predict stock levels and feature revenues from delayed shipments or new asset insurances, and predict possible company expansions from multiple employee travel insurances to a certain destination.
As it is seen, the Fin-ternet of Things is becoming a reality for the financial services organizations. The industry is proactively deploying the IoT technologies and adding to their roadmaps. As a matter of fact IDC Financial Insights predicts total IT spending by financial institutions globally will exceed $310 billion by 2019 which proves us we will be seeing more use cases in the future.