IoT in Financial Services: What Is the Internet of Payments?

From smart devices and home assistants to autonomous vehicles  internet connectivity goes above and beyond to expand to new markets. It might become the next step in digitalization as the forecast predicts that in 2025 there are gonna be over 24 billion IoT-based solutions. Such a rapid spread has encouraged financial institutions to consider the use of IoT to open up more business opportunities.

The definition of IoT

The Internet of Things (or simply IoT) is known as the system for physical assets (smart gadgets, watches, cars) with connectivity and sensors to store, communicate and deal with information without human help.

According to recent statistics, the IoT market will most likely reach $1.1 trillion by the end of 2026, with the financial sector becoming its biggest segment. No wonder that financial institutions are actively implementing IoT initiatives.

Before we define the methods and places for deploying IoT solutions, we need to understand the main functions of IoT.

How Does IoT Work?

Gadgets with sensors are connected to the IoT platform that collects data from different devices, analyzes it, and transfers to certain appliances to act on the needs.

The IoT platform clearly defines useful data and leaves out the unnecessary one. The gathered information is utilized to determine patterns, existing issues, and offer recommendations and advice. The ecosystem has the below structure:

  • Sensors include those gadgets that connect to the Internet and allow for remote management. They gather different data, from location and temperature to health indicators.
  • Gateway is used to transfer information with the help of Bluetooth, Wifi, or Ethernet. The connectivity methods have different ranges of connection and consume various amounts of power, so it is worth selecting the one that comes in compliance with the IoT system regulations.
  • Services that are cloud-based are responsible for monitoring the device interaction with the unit that controls it.
  • The controller stands for any used gadget. With the help of IoT solutions, customers can get emails, check their network, adjust things, and perform all kinds of actions.

IoT in Fintech

With businesses looking for new ways to get to know their consumers and build advanced services to satisfy their needs, people keep investing in different gadgets and IoT solutions. That is why those gadgets that improve the quality of customer life keep gaining popularity.

As people pay for products within one click and prefer online shopping to a local grocery store, the new term has entered the market — Internet of Payments. IoP refers to processing payments and their initialization over different appliances and wearables. All the operations are executed without human interaction with the latter being able to receive all purchase notifications.

IoT advantages in Fintech

The Fintech industry is already utilizing IoT to accumulate information and conduct major financial operations. People can now use smart gadgets for personal security, health, and everyday convenience. While there are some businesses that find IoT inconceivable, there are obvious benefits to consider.

First, IoT offers customer-focused services. Financial institutions utilize IoT to gather customer data to find new approaches to connect. When companies have instant insights on consumers' interests and demands, they are able to offer tailored products, better experiences, and personalized content.

Second, IoT allows services to make error-free decisions. With the use of sensors and new communication protocols, the company’s analysts get all the needed figures to create comprehensive profiles, address issues, and prevent fraud.

Third, IoT is the synonym for smart possibilities. The financial industry combined with IoT has all the chances to become a significant part of a customer's daily routine. People can connect their fintech applications with their smartwatches to track their costs, set spending limits, or block exceeded accounts.

Fourth, IoT enables synergy between different financial devices. The latest innovation in Fintech permits automated cashless transactions and turns IoT “things” into real e-commerce platforms. Companies can now provide customers with more precise financial recommendations, enable P2P lending or shared investments.

IoT Software Development in Fintech

While developing an IoT application, there might be certain challenges, like choosing the right technology, or platform, complying with regulations, and providing enough security. Financial institutions have to look above the standard payment operations and design more comprehensive systems that enable users to use a certain device, set it up to their preferences, and receive all the alerts related to its activity. Such systems should have the ability to report on time and quickly resolve any issues.

When network “things” start to function on their own, payment providers will greatly benefit from the adoption of Open Banking and PSD2. Software engineers can utilize open APIs to create solutions for the offered products. Hyper-connected financial institutions, as a result, will be able to provide scalability, interact with other companies on the market in a direct and indirect way, and use gathered data for growing revenue.

Another thing to keep in mind when it comes to fintech app development, powered by IoT, is providing ultimate security. With a growing ecosystem, identity verification and personal data protection have become more important and complex. As smart gadgets have access to user personal data, IoT endpoints can be sensitive to fraud. Fintech companies need to install future-proof and sophisticated security measures to make sure all the sensitive data is kept safe.

IoT Challenges in Fintech

While the IoT market has all the chances to grow and expand, it is important to address existing pain points to receive tangible results. In order to avoid potential threats, banking institutions need to consider the most relevant challenges:

  • Customer trust. Shopping powered by IoT cannot be just developed, leaving people to adopt. IoT privacy measures should be always explained. Companies need to educate their customers on security regulations to keep all the data safe. Besides, they need to be clear about what data is gathered and how it is utilized.
  • Integration. As the Fintech industry implements IoT, there is a need for cooperation with software providers that have not previously been linked to financial services and interactions. Hence, there is a need to modernize legacy systems and make use of microservices to enable a smooth integration.
  • Data ownership. Financial operations based on IoT will provide vast amounts of data to find more about consumer experience and income streams. The issue might be in using data and sharing it with banking services, consumers, fintech providers, and other firms. Hence, IoT providers will need to decide what data they will collect and how it will be stored.

IoT Impact on Financial Services

Connected devices provide financial services with amazing opportunities to embrace and stand out among competitors. Customers are constantly looking for more innovative solutions to fit into their on-the-go lifestyle. Below are a few of the methods of how IoT is implemented in Fintech:

Wallet of Things. Such apps allow users to do all the transactions without physical cards and allow fast payments with the help of smart devices. Such wallets can be used through smartphones, wearables, tablets, and even smart home assistants. A great example is the Honda Smart Dashboard that enables drivers to purchase snacks, pay for fuel, and time spent on parking from their cars.

Financial Security System. With smooth banking interactions, IoT cybersecurity has become a big issue. Most financial institutions refer to biometrics as a great tool that enables strong security measures. Many companies are introducing sophisticated security solutions like eye and finger scans along with cardless ATM withdrawals with the help of mobile phones.

IoT Insurance. With the goal to provide better services and make the right decisions, companies can track consumer safety habits in a more efficient way and base insurance rates on driving manners, mileage, and health. Companies offer customers smart solutions for homes with fire sensors, cameras, and other detectors that notify people whenever there is an emergency. Insurtech agencies allow customers to obtain insurance on a pay-per-mile basis based on the health of their car or driving habits.

Smart recommendations. With such a vast amount of data, companies need to know how to utilize it effectively. IoT helps to analyze large volumes of data, determine algorithms, identify patterns, and benefit from them.

Future of IoT

Digitalization, in many industries and particularly in the fintech sector, is said to replace traditional financial institutions, increase the industry’s infrastructure, and improve it to make it more convenient and hassle-free. While banking services are data-driven and digitalized as never before, it is crucial to make use of technological innovations and solutions like IoT.

Understanding the system of IoT, having a team of professionals, analytical capacity, and constant monitoring of the infrastructure, companies can strengthen information acquisition and its storage, improve risk management framework and discover better methods to connect with consumers and increase their engagement.

Contact us today and get a consultation with the Blastdevs team to see how IoT can change your financial business.