The Internet of Things (IoT) is a collective term for devices that are connected to the Internet and interconnected with one another. Many people have already transformed their homes into smart homes where they can remotely control appliances, security systems, and electrical devices. Soon, people will move into intelligent homes where IoT devices learn their behavioral patterns and create a comfortable environment based on these.
IoT is also transforming sectors beyond our home lives. For one, it has been making waves in banking and finance, an industry that has found it challenging to adapt to certain technological advancements.
For instance, almost US$3 trillion is still processed every day using legacy banking systems, many of which are over 30 years old. While there are significant reasons behind the delay in migrating to newer systems, IoT finance could be acting as a catalyst of change.
3 Real-World Applications of IoT Finance
Let’s explore three real-world applications of IoT in the financial services industry that could directly affect you and the people around you.
The COVID-19 pandemic highlighted the need for contactless payment where there’s no need for merchants and consumers to make physical contact. But even before the pandemic, some companies were already offering contactless payment methods.
Thales Group, for instance, developed prepaid wristbands that its U.K.-based bank clients can use to pay for purchases. They can top up the wristbands by accessing their banks’ app through their phones.
These days, IoT finance devices have also evolved to include bracelets, keychains, and rings, among many others. Here’s a video showing a vlogger uses his smart ring to pay for groceries:
More Secure Payment Methods
Contactless payment devices do away with the need to carry credit or debit cards around, making financial transactions more secure. In fact, security is among the primary reasons for developing this IoT finance technology. These devices help prevent instances of credit cards getting stolen or lost. Instead of printing credit card numbers and other sensitive information on cards, the data is instead embedded into IoT devices where they remain invisible to the naked eye.
Smart Collateral Management
Gone are the days when a bank employee would need to inspect items offered as collateral by clients physically. With IoT finance applications, banks can assess and manage collaterals remotely and automatically.
If a small business applies for a loan and puts up a machine as collateral, the loan can be processed automatically. It can either be approved or declined, depending on how the smart collateral management system assesses the collateral. The system can also monitor the machine’s health and even disable it in case of payment default.
Challenges Surrounding IoT Finance
There’s no doubt that IoT finance applications can make things easier for both financial institutions and their clients. Imagine not having to carry your card or wallet around all the time. That would relieve you of the stress of always groping your pockets when it’s time to pay. At the same time, banks would save a lot of time and resources by using a smart collateral management system.
Still, IoT-enabled device use brings with it specific challenges. For instance, the IoT supply chain is riddled with cybersecurity issues. IoT device manufacturer Sierra Wireless suffered from a ransomware attack on 20 March 2021. While its consumer products weren’t affected and the company has since recovered, the incident brought to light the question: What if IoT banking devices get infected with data-stealing malware?
They also have ever-present privacy concerns. Since IoT devices collect data, users are concerned about who has access to their information, how it is used, and how long it is stored. The financial industry would need to change some regulations to include the effects of using IoT applications on consumer privacy.
While it could be difficult for some financial institutions to migrate to newer systems, IoT is bound to transform the sector one way or another. We are already seeing some of its applications change the way consumers pay for products and services.
Behind the scenes, the data gathered by IoT devices could help banks make more informed business decisions. For instance, increased use of wearable contactless payment devices could help them create better client profiles.