IoT may be revolutionizing many sectors, and fintech is no different. But there are many risks to consider with the implied rewards.
It’s no secret that the Internet of Things today is changing a lot of sectors. But apart from the growing common use of IoT in our lives, areas like the financial sector can also benefit from this technology.
Let’s look at five big advantages of IoT in fintech.
1. Real-time data collection – Insurance companies can really benefit from IoT as clients can get all their important information about their insured goods no matter where they are at the moment. For example, if you insure your house, using special sensors you can get all necessary information about all needed changes in insurance coverage directly to a phone-based app and into a database. Or, if you want to ensure something in another country, you can easily receive local rules of insurance on your mobile device.
2. Improved customer service – All financial institutions, including everything from banks to P2P lending organizations, always look to provide their customers with the best solutions and thus, the best offers. To implement it wisely, you need to know all preferences of customers and what services they are interested in.
Due to special sensors installed in these organizations and the large number of mobile devices people use, it is possible to collect more information about each customer and find out about the all financial nuances that can be interesting for him or her. Then, financial organizations will target useful tips for each customer and it will improve customer service on the whole.
For example, smartphones of customers can connect to sensors installed at the entrance of the bank. When customers enter the bank, sensors can authenticate their identity that increases security and send all required information personally for this client.
3. Faster decisions – When banks gather information about their customers, it helps them create a structure of all financial capabilities of each customer. If bank analyzes personal preferences of the customer using his/her social media and credit history, it can make a faster decision whether a customer is reliable and his/her creditworthiness is high. If everything is good, the bank can make a good offer for the existing customer or potential customer. Using special analytical software together with a bunch of sensors, banks can succeed in it.
4. Connecting to your customer – Everybody knows about contactless payments, like when you just wave NFC-based smartphone or credit card over PoS-terminal and make your payment. The future of IoT in fintech can give us even more opportunities. Imagine that sensors integrated into the cash desk will allow you pay for all products you’ve collected automatically. The payment will be done from your mobile wallet when the cost of all products will be calculated. If your wallet is out of funds, the payment will be rejected.
5. A better level of interaction – IoT can bring a new level of interaction between devices and people. For example, when people pass by sensors in a branch, they can get notifications that their credit payment is overdue and they need to make monthly payment urgently. If you spend money outside of your preset parameters, you will receive a notification from your virtual personal banking assistant that you exceeded the limit of purchases for today and you need to stop, reinforcing better spending habits.
But then, there are connected fintech shortcomings
Unfortunately, we cannot ignore the pitfalls banks and their clients may face if they plan to integrate IoT in fintech. There are some risks executives need to consider.
1. Security – IoT means a network of different connected devices and often a large network of different software packages. That means that hackers can use one software package to break the link in this chain. It can lead to serious losses; aside from funds that can be stolen, personal information is also under threat. Security solutions abound, but they are neither cheap nor easy to implement.
2. Lack of common standards – Much IoT hardware is built by different manufacturers, and it means that they may not work identically. That means there is a probability that some devices can function improperly with each other due to different standards. Unfortunately, this problem cannot be solved easily today.
3. Network complexity – The larger a network is, the more trouble and malfunctioning may arise during the maintenance. If one sector in this network breaks down, it can become a serious failure in the system and the reason for great losses. Careful vetting of manufacturers and asset managers for this devices, along with their operational software, based on their IoT experience is key.