IoT in Banking - its Benefits and Challenges

The Internet of Things (IoT) has brought a new wave of innovation to the banking industry, changing how financial services are delivered. IoT has enabled banks to use data insights in new ways that were not possible before, from IoT-enabled smart contracts to dedicated smart wallets and more.

The Internet of Things uses interconnected devices, sensors, and data systems to collect and send data across the banking network, including bank branches, ATMs, mobile devices, wearables, and other endpoints. The principal purpose of IoT in banking is to use the data collected from these devices to make banking more efficient, secure, and customer-friendly.

In this blog, I aim to discuss how IoT benefits the banking sector, with a brief overview of banks' challenges when implementing IoT.

Benefits of IoT Implementation In the Banking Sector:-

• Real-time monitoring and analytics: IoT devices can collect and transmit data from the banking environment, such as the number of customers, wait time, preferences, and feedback. IoT devices help improve the security of bank branches and transactions by using CCTV cameras, smart alarm systems, biometric authentication, and encryption methods. It lets banks detect and prevent unauthorized access or fraud by using real-time alerts and notifications. Banks can easily track and verify the physical flow of assets and goods financed by them, such as shipments, containers, and vehicles. The data can be used to reduce risks, optimize fund allocation, and scale financial strategies.
• Customer service: Customer service is one of the key aspects of the banking industry, as it directly affects customer interaction, satisfaction, loyalty and retention. The Internet of Things helps banks improve their customer service by using smart devices and sensors to collect and transmit data, allowing banks to offer more personalized and tailored services. IoT data can help banks segment their customers based on their data and provide them with relevant and timely information and solutions. IoT enables more engaging and interactive channels of communication with customers, such as chatbots, voice assistants and smart devices.
• Cardless transactions: Cardless transactions using IoT devices enable banks to offer their customers new and innovative services. Using IoT in banking enables making payments without using a physical card, such as a credit or a debit card. Instead, IoT devices, such as smartphones, smartwatches and such devices, use near-field communication (NFC) technology to communicate with payment terminals and authorize transactions. NFC is a wireless technology that allows data exchange between devices close to each other. Cardless transactions using IoT offer convenience are faster and easier than using cards, as they do not require a physical card to be inserted or swiped, PIN authentication or signing a payment receipt.
• Expanded services: Expanded services using IoT in banking are some new and innovative services banks can offer to their customers using IoT devices and data. Some examples of expanded banking services using IoT are:
• Remote check deposits - IoT devices can enable banks to offer remote check deposits, which allow customers to deposit checks without visiting a bank branch or an ATM. Customers can use their smartphones or smart devices to scan the checks and send them to the bank, saving time and money for both customers and banks.
• Smart contracts - IoT devices can enable banks to offer smart contracts, self-executing agreements triggered by predefined conditions. For example, a smart contract can automatically transfer funds from one account to another when a shipment is delivered, or a smart contract can pay interest to the lender when a loan is due once the conditions for execution are actual. Smart contracts reduce transaction costs, risks and errors.
• Smart wallets - IoT devices can enable banks to offer smart wallets, which are digital wallets that can store and manage multiple currencies, cards, and accounts. The smart wallets are secured using biometrics and encryption and customers can use them to make payments, exchange currencies, and access financial services.

Challenges of Implementing IoT In Banking:-

Implementing IoT in banking has its challenges. Banks need to consider data security, system complexity, workflow reorganization, and more for successful IoT adoption.

• Data privacy and security: The Internet of Things goes hand in hand with privacy and security. IoT devices exchange sensitive financial and personal information and must be protected from unauthorized access or breaches. A security breach can lead to financial losses and loss of customer trust. Banks must use robust encryption methods and secure data transmission protocols while complying with strict data privacy regulations.
• System complexity and integration: IoT devices involve a complex network of hardware, software, and connectivity components that must work seamlessly together. Banks must ensure that their IoT systems are compatible with their existing infrastructure and can handle large volumes of data generated by IoT devices. It is equally important to manage device and sensor maintenance and update the devices and systems regularly.
• Workflow reorganization and innovation: IoT devices can change how banks operate and interact with their customers, and they need to adopt their workflows and processes to leverage their benefits. They must also innovate and create new services and products to enhance customer experience and satisfaction. Banks need to address such challenges to use IoT successfully and securely. They must set industry standards, use strong security measures, and manage data responsibly.

Final Words
The Internet of Things technology can help banks and customers benefit from using smart devices, sensors, and data. However, the flip side is also proper, and IoT can pose multiple challenges to banks and their customers. To address such challenges and take advantage of its many benefits, banks can partner with a reliable and experienced IoT app development company that can provide customized, scalable, innovative solutions, security, and efficiency.