IoT (Internet of Things) technologies have gained popularity in the fintech industry, both among companies and startups as it opened new possibilities for innovation, efficiency, and enhanced customer experiences. McKinsey estimates that the economic impact of IoT will be around $11 trillion dollars by 2025.
In terms of the fintech industry, this connectivity has proven to be particularly valuable in payment processing, risk management, customer engagement, and security. IoT in fintech offers personalized and seamless services, biometric authentication and smart payment solutions. Besides that, IoT aids in risk management, fraud prevention, and efficient asset management in finance.
As a result, fintech and IoT integration has witnessed widespread growth, becoming indispensable for organizations. A report suggests that the global banking and financial services market (BFSI) for IoT is projected to reach a staggering $116.27 billion by 2026, rising from $17.85 billion in 2018.
This article explores the increasing popularity of the internet of things in the fintech industry, its benefits, and challenges in greater detail. We will also showcase examples of fintech businesses that have successfully incorporated IoT into their operations and highlight the impact it has had on their growth and customer satisfaction.
- Defining IoT in Fintech
- 7 Ways How Fintech Projects, Banking, and Financial Companies Can Use IoT
- Empower contactless payment
- Shift to smart credit cards
- Use beacons in financial services
- Gather data for better solutions in fintech
- Enhance security
- Combine AR with IoT
- Benefits of IoT for Fintech
- Data-driven insights
- Enhanced customer experience
- Improved risk management
- Personalized marketing
- Fraud prevention and security
- Challenges with IoT for Fintech Businesses
- Data management and analytics
- Scalability and Infrastructure
- Consider Inoxoft as Your Trusted Partner
- Trading automatization platform
- Integrating online payment services with CBS
- Final Thoughts
Defining IoT in Fintech
Internet of Things (IoT) is a network of interconnected devices and objects that collect, exchange, and analyze data for automation and smarter decision-making. It enables data sharing between physical objects, leveraging advanced technologies like analytics, big data, or cloud computing, with minimal investment and human intervention.
To grasp the working principle of IoT, it is important to understand the key components that make up the IoT ecosystem. Let’s take a closer look at each of them:
- Connectivity: IoT relies on wireless protocols like Wi-Fi, Bluetooth, cellular networks, or specialized IoT connectivity solutions to ensure that devices can transmit and receive data efficiently.
- Devices: These are a wide range of physical objects or devices that are embedded with sensors, actuators, and connectivity capabilities. IoT devices can collect data from surroundings or perform specific actions based on the received data.
- Data: Sensors embedded in IoT devices capture data about various parameters such as temperature, location, or status. This data is transmitted to a centralized storage or cloud platform for further processing and analysis.
- Applications: The processing and interpretation of the collected data: data analytics, machine learning algorithms, etc.
Talking about fintech and IoT integration, we must consider several steps and components. Here is a description of the IoT integration process with a schema illustrating the key elements:
- Identifying needs. If you are a fintech company, you should determine specific areas within your operations where IoT and fintech can add value (e.g. customer experience, operational efficiency, risk management, or supply chain optimization).
- Device selection. Choose the appropriate IoT devices and sensors based on the identified needs, considering factors like functionality, data collection capabilities, connectivity options, and compatibility with existing systems.
- Connectivity. The next step is establishing a reliable and secure network infrastructure to connect IoT devices and enable seamless data transmission (e.g. Wi-Fi, Bluetooth, cellular networks, or specialized IoT connectivity solutions.
- Data collection and processing. Configure IoT devices to collect relevant data and send it to a centralized data storage or cloud platform. Implement data processing mechanisms to analyze and derive actionable insights from the collected data.
- Integration with existing systems. Here you integrate IoT data streams with existing digital systems, such as customer relationship management (CRM), payment gateways, data analytics platforms, or risk management tools, for data synchronization, and collaboration across systems.
- Security and privacy. Implement robust security measures to protect IoT devices, networks, and data from cyber threats. Ensure compliance with privacy regulations and adopt encryption, authentication, and access control mechanisms.
7 Ways How Fintech Projects, Banking, and Financial Companies Can Use IoT
Empower contactless payment
Thanks to smart devices and wearables, customers can make secure transactions using their smartphones, smartwatches, or even IoT-enabled cards. IoT in the fintech sector eliminates the need for physical cards or cash, providing a seamless payment experience for both customers and fintech businesses.
By leveraging IoT for contactless payment, fintech projects, banking, and financial companies can offer frictionless transactions, reduce payment processing costs, and enhance overall customer satisfaction.
Some of the examples of IoT in fintech companies and banks:
- BPAY contactless system in Australia
- Visa wristband by Caixabank
- Westpac PayWear wearable accessories with a chip connected to a bank account
- Capital One utilizes IoT sensors in its ATMs to enable cardless cash withdrawals
- ‘Connected Money’ app launched by HSBC
Shift to smart credit cards
Internet of Things connected credit cards allow two-way communication between clients and banks. For instance, Dynamics is a company that creates battery-powered interactive credit cards – the first computer inserted into a credit card that allows information, cost control, and convenient usage of your finances at your fingertips. Such IoT solutions for fintech are changing how people access banks, purchase things and manage multiple accounts via a single credit card.
Use beacons in financial services
Let’s accept that nowadays people prefer to solve things online via a banking app rather than commuting to the branch and waiting in a queue. This is where we can mention the benefits of IoT for fintech – smart devices automate, accelerate and personalize the way you receive services.
Think of beacons – small wireless Bluetooth devices that identify devices in close proximity and enable them to perform some actions. They are widely used in stores for marketing purposes and improving customer experience and became one of the IoT use cases in fintech.
Beacons can help bank clients receive upgraded personalized services. Plus, mobile wallet users can perform swift payments or transactions and place money on deposit via beacons. Banks can manage queues, and as soon as clients enter the branch, their intelligent wearable devices connected to a beacon will notify them of available consultants to approach, a list of services, offers, sales, and other valuable information. As the usage of IoT for fintech, beacons in fintech can help with the following:
- Cash flows monitoring
- Managing and processing balance inquiry
- Offers depending on geographical location
Gather data for better solutions in fintech
Nymi startup develops wearables and interesting to note they used heartbeat for biometric authentication. The usage of IoT in fintech startups can be a source of large amounts of customer data which allows to extract useful insights – performance and peak points of customers in a branch.
IoT wearable devices, such as smartwatches, can react to users’ balances, overdrafts, spending, and attempts to withdraw money for fraud detection. Using data analytics, the smartwatch can provide real-time spending insights, such as monthly expenditure summaries, expenditure trends, or alerts when spending exceeds predefined limits. This helps users monitor their spending habits and make informed financial decisions.
Generally, IoT technology offers various benefits in the financial services industry:
- IoT in banking for branch location: IoT technology can be used to enable real-time geolocation services, allowing customers to locate nearby bank branches or ATMs quickly. By integrating IoT sensors and geolocation data, fintech companies can provide customers with personalized information about branch availability, services, and wait times.
- Faster customer service with real-time data: Customer service representatives can leverage IoT technology to access real-time customer data directly from their wearable devices. By having instant access to customer profiles, transaction history, and account details, consultants can address queries, resolve issues, and offer tailored financial advice.
- IoT wearable devices for brand recognition: Branded smartwatches or payment bands, can contribute to improved brand recognition for fintech companies and banks. Companies can increase brand visibility, promote their services, and create a lasting impression on customers.
- Operational risk reduction and automatic payment contracts: Smart contracts powered by IoT sensors can trigger automatic payments based on predefined conditions or real-time data inputs to enhance efficiency. IoT devices can also monitor critical infrastructure, detect anomalies, and trigger alerts in real-time, allowing proactive risk management and preventive measures to minimize operational risks.
IoT in the financial sector uses biometric sensors to identify people present in a branch and send alerts to the bank system in case of suspicious activity. Because wearables in banking transfer biometric data and sensitive information like credentials, devices can appear vulnerable, so it’s necessary to think of appropriate security systems.
Artificial intelligence and IoT cybersecurity solutions gather special data, analyze activities, and detect movements and images via special sensors for data security. British Standard Chartered invests a lot into developing IoT for finance. Together with Huawei, they have developed IoT applications that can track the movement of goods and trigger automatic payments.
Combine AR with IoT
AR can unlock the full potential of IoT: IoT devices capture data from the physical world, while AR devices take external data, process it and provide new better solutions from their side to the physical world. In fintech, applications of AR and IoT can help with the next things:
- Data collection, visualization, and navigation. AR and IoT can collect data from various sources and present it in a visually engaging and intuitive manner. This allows faster and more efficient analysis of financial data, reducing the time required for operations. AR can act as an intuitive assistant and navigate people within an office or branch, using smart doorbells, facial recognition systems, and smart locks to enhance the overall customer experience.
- Expanding human capabilities. By overlaying virtual data onto the physical world, AR can enhance decision-making, credit risk analysis, and financial modeling. And IoT devices can collect real-time data from market trends, customer behavior, or economic indicators, enabling financial professionals to make more accurate decisions.
- Reduce costs and bring more profit to businesses. AR-IoT apps can predict and send alerts in case of risks which usually leads to additional expenses to recover from consequences. Software and wearable payment devices reduce the amount of manual work and automate everything to a level when a client interacts only with machinery to get services and stay completely satisfied.
- Cost reduction and increased profitability. AR-IoT applications can help businesses reduce costs and improve profitability. Software and wearable payment devices streamline payment processes, reduce manual work, and automate transactions. Improved customer satisfaction enhances loyalty and repeats business, contributing to overall profitability.
Benefits of IoT for Fintech
IoT technology for fintech brings several benefits, enhancing various aspects of financial services. The positive impact of IoT on fintech includes:
IoT devices generate some amounts of real-time data, allowing fintech institutions to gather valuable insights into customer behavior, preferences, and usage patterns. These insights enable personalized financial services, improved risk assessment, and more accurate fraud detection.
Enhanced customer experience
IoT enables the creation of seamless and personalized experiences for end users – they can access financial services conveniently and securely. For example, wearable devices can provide real-time notifications on account balances, spending habits, or payment reminders, enhancing financial awareness and control.
Improved risk management
With the help of IoT devices and sensors, companies can continuously monitor and collect data on various risk factors – market conditions, asset performance, environmental factors, etc. This data can be analyzed to identify potential risks, assess their impact, and develop proactive risk mitigation strategies.
Nearly the most crucial role of IoT for fintech lies in gathering valuable data about customers to provide more personalized and targeted marketing efforts. By understanding customers’ pain points, fintech companies can create customized marketing campaigns tailored to individual needs and interests.
Fraud prevention and security
With the increasing cybersecurity risks faced by banks and financial institutions, IoT offers additional layers of authentication and fraud detection to protect sensitive data. For example, biometric data from IoT-enabled devices like fingerprint scanners or facial recognition can strengthen identity verification processes, reducing the risk of fraudulent activities.
Challenges with IoT for Fintech Businesses
Besides the benefits of using IoT in the fintech market we mentioned above, IoT technologies also come with certain challenges:
Data management and analytics
Banks and fintech companies must develop robust data storage and processing capabilities to handle the large volumes of data that IoT devices generate. Employing advanced analytics tools to emanate valuable insights from the data and use it effectively to improve decision-making is also a must.
Scalability and Infrastructure
Financial institutions need to invest in robust network infrastructure, cloud computing capabilities, and data centers to support the growing IoT ecosystem. Scaling up the infrastructure while maintaining performance, security, and reliability can be challenging and require careful planning and investment.
Banks and fintech companies need to develop robust data storage and processing capabilities to handle the large volumes of data that IoT devices generate. They must also employ advanced analytics tools to emanate valuable insights from the data and use it effectively to improve decision-making.
Consider Inoxoft as Your Trusted Partner
Unleash the full potential of IoT in the fintech industry with Inoxoft. With our comprehensive suite of fintech software development services, we offer tailored solutions to help you navigate the complexities of IoT integration — from identifying strategic use cases to implementing robust security measures.
Inoxoft also specializes in software integration services for diverse systems, applications, and platforms to empower your organization. Our team of experts creates outstanding custom integrated fintech solutions, including IoT devices, data analytics platforms, CRM systems, and payment gateways.
Contact us today to learn more about how our services can propel your fintech organization to new heights in the digital era. But before that, take a closer look at some of our successful case studies:
Trading automatization platform
The client wanted to automate all process chains. We faced difficulties in predicting all the conditions that would affect the decision and implementing specific methods of simultaneous data analysis. Nevertheless, the trading platform performs calculation operations in a logical sequence in real time, reducing the time of order formation to 30 seconds.
Integrating online payment services with CBS
If you want to adopt ‘PayPal-like’ payment systems, Inoxoft knows how to process transactions instantly while adhering to EMV security protocols. Users will be able to pay bills, track finances and save on transactions, improving the customer experience.
In conclusion, the integration of IoT technology in the fintech industry offers numerous benefits and opportunities for innovation: enhance customer experiences, streamline operations, improve risk management, and drive business growth. By embracing IoT and its various applications, fintech projects, banking and financial companies can stay ahead in the competitive landscape.
However, there are visible challenges that need to be addressed: interoperability issues, scalability requirements, and the ongoing battle against hacking attempts. Fintech businesses must prioritize cybersecurity, invest in robust infrastructure, and stay updated with regulations to ensure the successful implementation and utilization of IoT.
The future of fintech lies in harnessing the power of IoT and engaging it to transform the way financial services are delivered to the customers. With careful planning, implementation, and continuous improvement, they can unlock the full potential of IoT and drive innovation in the financial services industry.
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Frequently Asked Questions
How can we use IoT in fintech projects?
In this article, we discussed 7 different ways of how fintech projects, banking and financial companies can use IoT. We can empower contactless payment, shift to smart cards, use beacons, gather data for better solutions, enhance security and combine AR with IoT.
How does IoT affect the fintech industry?
IoT significantly impacts the fintech industry by enhancing customer experiences, improving operational efficiency, providing data-driven insights, expanding financial inclusion, and integrating with emerging technologies.
What are examples of using IoT in fintech?
Think of smart payment systems, asset tracking, fraud detection, risk monitoring, customized banking services, or remote monitoring and control.