The Internet of Things (IoT) is connecting devices, from cars to consumer electronics like smart watches. It's also integrating itself into our financial lives. IoT in fintech represents a massive wave of innovation and change for personal finance and banking.
Here are just seven examples of how IoT is changing the financial industry:
Virtual currencies are an example of how the Internet of Things is being used to facilitate a new type of financial transaction.
Unlike traditional fiat currencies (which are guaranteed by a government), virtual currencies like Bitcoin and Ethereum aren't backed by any assets and are not legal tender. They can also be used for illegal activities such as money laundering, so it's important to understand how these transactions work before deciding whether or not they're right for you.
Online banking, whether it be through a bank’s website or an app, is a great example of how IoT can improve customer experience, security and reduce fraud.
One of the main benefits of online banking is that it allows you to manage your finances from anywhere at any time. You can check balances, pay bills, and transfer funds from home or work if you need to make an important payment outside of regular business hours. This helps reduce stress (and late fees!) when making payments on time becomes more challenging due to busy schedules or unforeseen circumstances like travel delays.
Online banking also offers convenience because there are no physical branches required for customers – all transactions take place electronically between users and their financial institutions over secure networks such as SSL/TLS connections with encryption keys that ensure privacy while making transactions possible in real-time without any human interaction whatsoever!
Mobile payments are growing in popularity. Mobile payments allow people to pay for goods and services using their mobile phones.
Mobile payments are convenient, secure, and fast. They are also convenient for businesses, which can make use of apps like Apple Pay or Google Pay to make transactions more efficient by eliminating the need for cash registers and paper receipts.
Fraudsters are using IoT devices to commit fraud:
- Fraudsters may use the device's IP address to spoof their location, enabling them to commit remote fraudulent transactions or even steal sensitive data from the user or third parties.
- By leveraging a compromised device, criminals can obtain access to certain resources such as databases and email servers. For example, an attacker might use a connected printer's port forwarding capabilities to gain remote access to your network by setting up an outbound VPN connection with its IP address as the endpoint address (via Dynamic Port Forwarding).
Loan management automation
One of the most common areas in which fintechs are using IoT is to automate loan management. This can help banks improve customer experience, reduce costs, and accelerate time to market.
For example, a bank can use geolocation data from smartphones to assign risk scores more accurately. The more accurate assessment of risk leads to greater efficiency in credit underwriting and a better customer experience.
In another scenario, smart contracts allow for automated payment services so that every party involved in making a loan gets paid immediately upon completion.
Robo-advisors are financial services that offer automated investment advice.
They use algorithms and software to provide investment advice and have been around for years. Robo-advisors have become increasingly popular in recent years, with some claiming they can outperform human advisors by up to 1% per year.
The most common types of robo-advisors target millennials who want a hassle-free way to invest their money in low-cost funds or ETFs. Some robo-advisory platforms are hybrid models that combine an algorithm with human help (either through phone calls or web chats).
Smart contract development
Smart contracts are computer programs that facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts can be used for a variety of purposes, including in financial services.
For example, smart contracts can be used to represent the terms of any financial instrument (such as an option or debt security), record and automatically execute the transfer of assets on an agreed upon condition (e.g., payment flowing from one party to another in a certain amount and at a certain time), and/or automate key business processes such as trade execution and settlement.
By eliminating paper-intensive processes that require manual intervention by multiple parties, smart contracts have the potential to: simplify and streamline processes; reduce costs and risks associated with errors in manually inputting data into multiple systems; increase speed for both parties involved in executing agreements; create greater transparency during transactions between parties; build confidence among all stakeholders involved in those transactions; provide additional trust among counter parties who do not know each other well because they do not need physical signatures in order for agreements executed via blockchain technology—which uses cryptography techniques—to be binding; reduce fraud risk due to third party verification since intermediaries may no longer be required when executing agreements using this technology.
IoT innovations can improve financial apps and services.
As we've discussed, IoT can be used to improve the speed, accuracy, security, and efficiency of financial transactions. But it's also a great tool for improving scalability and accessibility.
IoT innovations in fintech are helping banks to grow their customer bases by enabling new forms of communication between customers and businesses. This can increase loyalty while also reducing costs associated with service provisioning.
For example, banks have traditionally issued credit cards to customers who they trust will pay their bills on time every month.
However, this is not always the case—a fact that leads many consumers to carry balances or default on payments altogether (which hurts both parties).
With IoT-enabled financial tools like social media accounts or virtual assistants that provide insights into consumer behavior patterns over time (e.g., payment history), banks can make better lending decisions based on data that wasn't previously available to them through traditional methods such as credit reports or consumer surveys.
These are just some of the many examples of how IoT and fintech are working together to make our lives more efficient. You can see that making this a reality requires a lot of planning and work, but when done well, the results can be truly spectacular. We expect more innovations like these to appear in the coming years as we move towards an increasingly connected world.
Need help designing and developing your next digital banking, neobank, or fintech product? Contact us today!