The Internet of Things (IoT) is rising in prominence in many industries, from marketing to engineering. Finance will soon embrace the IoT too, with great value delivered to financial and banking services, both for organisations and consumers alike.
There are short and long-term benefits offered by the IoT in finance. Short-term, the IoT can provide organisations with data for tailored communications and offers, to provide more accurate product suggestions and rates. Longer-term data insights can streamline operations and transform a firm’s business strategy.
Indeed, the value delivered by the IoT is expected to reach $15 trillion by the end of the decade.
Masses of data
The IoT will produce a great deal of data. By 2025, it’s anticipated that people will own more than 50 billion IoT devices. The massive deployment of sensors will create data that will improve senior decision-making.
As Varun Mittal, global emerging markets Fintech leader at EY explains, “Everywhere where more data can help you make a decision – that is where IoT adds value to financial services.”
Enhanced IoT-use will help organisations build financial products that fit each customer’s needs. Firms will know what their customers want, providing tailored premiums and loans that are suited to the risk associated with each individual. To achieve this, however, firms will need Machine Learning (ML) and Artificial Intelligence (AI) to sift through the mass of data created by the IoT. Humanly speaking, it’ll be impossible to make sense of it without AI’s assistance. This will also necessitate data scientists and analysts who can build and manage AI and clean and store the data.
There are wider applications in finance. Insurance companies, for example, will be able to determine risk more precisely. Previously, insurers have relied on indirect indicators such as someone’s age, address, experience, salary and credit score. Now, IoT data can be used to inform premiums. Automotive insurers can use data on driver behaviour and vehicle use to create tailored pricing that accurately reflects risk exposure.
Similar data can be used to assess someone for a loan. Their credit history can be combined with behavioural data to provide accurate rates and loan offers that are less risky.
Trade finance will also see vast benefits. International trade flows are expensive and predominantly paper-based. IoT devices will make these processes quicker by tracking supply chain movements and demand for goods, improving the process efficiency and reducing cost and risk for organisations.
Another use case comes in the form of wearables. Wearable devices can give consumers alternative payment options – paying could be a simple as swiping a wristband or smartwatch. Apple Pay is available on the Apple Watch and 55 million people in the U.S. use ‘proximity’ payments, worth $98.88 billion, through wearables and smartphones.
Payment security will also be positively impacted. ATM-based transactions and cash will likely decrease in favour of digital payments (that are much harder to defraud).
A better experience for all
Such developments will improve the banking and finance experience for everyone, providing better deals for customers and reducing the risk for organisations. Firms that embrace the IoT will become more customer-centric and successful as a result. Those that become IoT literate now will reap great returns in the future.
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