The future of banking is becoming increasingly more digital and the integration of the Internet of Things (IoT) is making this process faster, more secure and efficient.
In recent years, we have seen a growing number of banks adopting IoT technology to better serve their customers and optimise their operations.
But how does the Internet of Things in banking work and how is it improving the financial industry? In this blog post, we will explore the key aspects of IoT in banking and its potential impact on finance.
What is IoT?
The Internet of Things, otherwise known as IoT, is the network of physical devices, vehicles, and appliances that are embedded with sensors and software. These devices can collect data and communicate with other internet-enabled devices, making them “smart” objects.
With the increased use of IoT in our daily lives, it has also become an integral part of various industries, such as healthcare, transportation, agriculture, and finance.
IoT devices, such as smart devices and wearables, use IoT SIM cards to connect to the internet and transmit data.
How is IoT used in Retail Banking?
In a banking context, IoT infrastructure is used to create the Banking of Things (BoT). BoT is the integration of IoT devices with banking services, enabling financial institutions to provide more personalised and efficient services to their customers.
There are several applications and use cases of BoT in retail banking, and the following section will explore some of them in detail.
Smart ATMs
The concept of IoT is not as novel in the banking sector as one might think. In fact, ATMs, which have been in use since the 1970s, are an early example of IoT in banking.
These machines have significantly reduced the number of in-branch transactions, streamlined queues, and reduced operational costs for banks worldwide.
With the advent of smart ATMs, the role of IoT in banking has further evolved. These intelligent machines utilise IoT technology to further optimise transactions and reduce running costs.
For instance, some smart ATMs are now equipped with live-stream video support, enabling customers to interact with a remote teller for complex transactions.
Smart Branches
As IoT continues to develop, so does the in-person experience of visiting a physical bank branch. With smart branches, banks are looking to provide a more personalised and efficient service for customers.
Smart branches incorporate IoT sensors to track customer movement and behaviour in real time, allowing banks to gain insights into how customers interact with the space. This data can then be used to improve customer experience by offering tailored services and optimising the layout of the branch.
Equipped with IoT sensors and digital signage, these branches effectively monitor queue lengths, provide real-time updates on waiting times, and guide customers to available service counters, significantly enhancing customer satisfaction.
A prime example is Virgin Money’s Studio B, which has integrated Amazon’s voice assistant, Alexa, allowing customers to ask straightforward financial queries.
Additionally, facial recognition technology is deployed in this same branch for interactive customer engagement, further optimising personalisation and the overall banking experience.
Fraud Detection
With cases of card fraud on the rise globally, banks are searching for effective solutions to combat this issue.
Fortunately, IoT technology has proven instrumental in the fight against fraud in retail banking.
Leveraging the power of connected devices and artificial intelligence, banks are now able to monitor unusual activity in real time. Any irregular or suspicious transactions can be instantly flagged, allowing for immediate action to be taken.
These advanced IoT systems can also track the geolocation of transactions, providing additional data to identify potential fraud. For example, if a card is used in two different countries within a short period, the system could detect it as a potential fraud case.
This would lead to the account holder being promptly alerted about the activity, with their account being temporarily disabled if necessary to prevent further fraudulent transactions.
This use of IoT technology has greatly enhanced the security measures in retail banking, providing customers with peace of mind when carrying out transactions.
Automated Banking Operations
The adoption of IoT has completely transformed the ways banks perform important banking operations, such as processing requests, disabling credit cards, transferring ownership of assets, and opening new accounts.
IoT has paved the way for banks to offer an increasingly automated, efficient, and user-friendly service.
For instance, Chase Bank has impressively streamlined its account opening process using IoT, enabling customers to open a new account within just five minutes.
This seamless integration of technology not only results in enhanced efficiency but also significantly improves the overall customer experience by saving time and making banking procedures more convenient.
Enhanced Security
IoT’s impact on enhancing security in the realm of retail banking is profound. Access to real-time information and smart security systems integrated with IoT sensors offer advanced protection against potential breaches.
Moreover, biometric technologies, such as facial or fingerprint recognition, bolster the security of digital banking operations, ensuring an additional layer of verification.
This fusion of IoT in security practices has led to considerable advancements in protecting both customers’ assets and the bank’s infrastructure, reinforcing the overall integrity of the banking ecosystem.
Better Customer Service
IoT significantly empowers customer service within the banking sector, utilising artificial intelligence (AI), chatbots, and analytical data to provide a more personalised experience.
Chatbots, enabled by IoT, offer 24/7 customer support, answering routine queries, guiding users through banking procedures, and even assisting in transaction processes.
Coupled with AI, these automated systems can learn from interactions, improving their responses over time and providing a personalised experience to customers.
Moreover, IoT-generated analytical data offers valuable insights into customer behaviour and preferences, allowing banks to deliver tailored services and proactive assistance.
This innovative approach not only improves customer satisfaction but also significantly reduces the turnaround time for service requests, optimising the overall banking experience.
Role of IoT in Online Banking
With mobile banking overtaking in-person transacting, discovering ways to optimise and enhance the remote banking experience has been crucial.
IoT has been instrumental in this regard, elevating the security and flexibility of online banking solutions by providing a seamless integration of devices and applications.
Smartphones and tablets with embedded IoT sensors pave the way for secure, location-based authentication for online banking transactions, enabling users to transact from anywhere at any time.
Moreover, this technology allows banking apps to gather data on user behaviour, such as spending habits and patterns, to offer personalised financial advice and recommendations.
Cardless Transactions and Mobile Wallets
The introduction of mobile wallets and cardless transactions, such as through Apple Pay and Google Pay, has been made possible with the help of IoT.
These mobile wallets use near-field communication (NFC) technology to enable contactless payments, allowing customers to make transactions with just a tap of their phone.
Similarly, cardless transactions can be completed using a mobile banking app, which can be integrated with IoT to communicate with the bank’s system. This provides customers with a seamless and secure way to make payments.
New Authentication Methods
The introduction of biometric authentication for banking in recent years has proven to be an effective method of reducing fraud and enhancing security.
IoT plays a crucial role in this as well, with biometric data being collected and analysed through connected devices, using fingerprints, face ID, retinal scans or voice recognition to verify the user’s identity.
This advanced authentication method reduces the risk of unauthorised access to bank accounts and provides an added layer of security for online banking transactions.
Voice Banking
Following on from the last point, the steady introduction of voice banking is a testament to the impact of IoT in finance.
Voice banking allows customers to use their voice commands for various banking activities, such as checking balances or making payments. This technology utilises natural language processing (NLP) and AI to understand and execute commands, providing a more convenient banking experience for customers.
In 2019, NatWest piloted a voice banking feature by integrating Google Assistant into their mobile app. This pilot aimed to enable customers to inquire about their balances and spending habits.
This innovative approach utilises IoT to provide a hands-free and convenient banking experience for customers. The success of this pilot has led many other banks to explore the potential of implementing similar features in their mobile banking apps.
How IoT is Enhancing Trade Finance
Banks engaged in trade finance have welcomed IoT advancements with open arms, using the technology to make informed decisions based on real-time data.
This process of optimised risk mitigation relies on advanced analytics provided by a network of sensors and devices, providing a more accurate assessment of trade-related events.
More than the ability to make informed decisions based on IoT-generated data, the Internet of Things enables a streamlined approach to allocating funds to specific trade events, reducing delays and improving the efficiency of trade finance operations.
The integration of IoT in trade finance has also enabled the automation of various processes such as issuing letters of credit or handling invoice financing, significantly reducing the time and effort involved.
Challenges of IoT for FinTech
As with any application of this technology, there are some noteworthy industry challenges to consider when it comes to FinTech applications. These include data privacy concerns, the risk of cyber attacks, and data management..
Financial institutions must ensure that appropriate and strict security measures are in place to protect sensitive personal data collected through IoT devices.
Additionally, there is a growing concern about the reliance on IoT for financial transactions. In case of system failures or cyber attacks, banks must have backup systems and contingency plans in place to prevent any disruptions to their services.
Data management is another crucial aspect that banks need to carefully consider when implementing IoT in their operations. The large volumes of data generated by connected devices require efficient storage, management and analysis to extract meaningful insights.
Effective Solutions for IoT Challenges in FinTech
To mitigate the challenges that come with implementing IoT in banking, financial institutions must employ robust strategies and solutions. To address data privacy concerns, banks can adopt end-to-end encryption for data transmission between IoT devices. This can significantly enhance the security of information, making it extremely difficult for hackers to decode the data even if it is intercepted.
Regarding the risk of cyberattacks, banks can implement multi-layered security protocols and continually update their systems to counter new threats. Regular penetration testing and vulnerability assessments can help identify weak points in the system, allowing banks to address these issues proactively.
Additionally, banks should have a robust disaster recovery plan in place to ensure service continuity in the event of a system failure or cyberattack.
Data management can be effectively handled through the use of advanced data analytics and cloud computing. These technologies can efficiently process large amounts of data in real-time, providing actionable insights that can drive decision-making.
Furthermore, the use of AI and machine learning can help in the precise analysis of large datasets, enabling banks to make accurate predictions and strategic decisions.
Finally, it is crucial for banks to comply with all relevant data protection regulations to ensure that they handle consumer data responsibly. Therefore, institutions should engage in regular compliance checks and audits, ensuring that their practices align with the law.
Adopting Leading IoT Connectivity Solutions
In conclusion, the integration of IoT in banking is shaping the future of finance, providing numerous benefits such as enhanced security, improved efficiency, and better decision-making.
Despite some challenges, financial institutions are actively embracing this technology to stay ahead of the curve and provide customers with a more convenient and connected banking experience.
With advanced solutions from companies like Caburn Telecom, companies in the financial sector and beyond can overcome these challenges and fully harness the potential of IoT to optimise their operations and services.
From global SIM solutions to eUICC applications, Caburn Telecom is an industry leader in IoT connectivity solutions.
With extensive experience in providing bespoke solutions to sector leaders, Caburn Telecom provides secure, reliable and cost-effective connectivity for connected devices in financial institutions.
Our innovative IoT solutions can help banks overcome common challenges associated with implementing IoT in their operations, providing a seamless and efficient IoT experience.
Contact our experienced team today to learn more about how adopting IoT can transform your business operations.