It’s no secret that the Internet of Things (IoT) is booming and the network is expected to include 25 billion devices within the next four years. This, in turn, can have a global economic benefit of $2 trillion.
As the financial services industry heavily relies on gathering and analyzing data and IoT’s underlying value is the transfer of data, making it the perfect marriage. As a result, it’s really not difficult to imagine the impact that IoT will have on the financial services industry.
The industry has also started to invest increasingly to develop both internet infrastructure and external customer-facing technologies. Retail banking, in particular, is expected to spend more than $16 billion on digital information technology resources and this trend is expected to increase over the coming years.
As a result, the impact of IoT in FinTech is inevitable. In fact, this is evidenced by PWC’s 6th annual digital IQ survey which identified financial services as one of the top 10 industries to invest in sensors for potential IoT innovations.
Further, according to PWC’s Global FinTech Report, Blurred lines: How FinTech is shaping Financial Services, more than 20% of traditional financial services businesses are at risk of being replaced by FinTech initiatives by 2020.
Why is IoT in FinTech Important?
In the near future, customer experience will be the key brand differentiator. So as price and product become less important, making static physical objects smart and engaging with them will become more vital to making the financial institution the easiest brand to engage with.
This is because the wealth of data that will be communicated by smart devices will help financial service providers to build highly accurate account profiles of their customers. This can then be utilized to increase engagement, boost customer relationships, and improve retention rates.
These points of engagement can come in the form of well-timed customer advice and solutions to help make wise financial decisions or tips to better manage finances. Further, the experience at the ATM can also be transformed by augmenting it with a smartwatch or a smartphone.
Retail banks can also follow the lead of commercial retailers by placing sensors in the bank that can make recommendations, suggest product details, and even offer discounts via the customer’s smartphone.
It makes a lot of sense as recent research found that consumers who received personalized messages were 20% more likely to make a purchase. From the banks perspective, this could mean increased adoption of extra lines of services as a result of personalized messages. For the consumer, it might translate into less time spent lining up at the bank.
Personalized Loans and Payments
IoT in FinTech or the FinTernet of Things (FoT) also has the potential to have an impact outside the retail banking setting. For example, there maybe a way to use it at the point of purchase when you’re looking to buy a new car.
So when you walk into a dealership, you may be able to get a personalized message of how much financing has been approved before even meeting a salesman. Further, banks may also be able to provide customized loan services to customers in a timely manner before they make a purchase decision.
Further, when this technology is properly incorporated into the industry, it can potentially streamline business processes and create new revenue opportunities for the financial sector.
In the insurance sector, IoT will disrupt the industry by having an impact on risk management. Some automobile insurers are already trying to offer usage-based insurance which will properly align premium insurance rates and driver behavior.
This is now possible because of telematics (in-vehicle telecommunication devices) that can transmit the necessary data effectively. This can be mutually beneficial for both the insurers and the safe low-risk drivers.
With the emergence of smart homes, the same ethos can be translated into home insurance. Before there wasn’t a way to reliably communicate information such as door locking behavior and minimizing the risk to fire to insurers. Now the sensors can do this for you efficiently and effectively.
It’s quickly becoming a reality and before you know it, you’ll also be calling it the FinTernet of Things. It’s the only way for financial institutions to survive in a smart world where the consumer has become accustomed to personalized experiences. This is the primary reason for the enhanced adoption of technology in the financial sector which is usually averse to change.