How IoT, smart devices, and FinTech are challenging traditional banking

The Internet of Things (IoT) has created widespread opportunities to disrupt nearly every industry, including traditional banking. FinTech startups leaning in to IoT powered solutions, and BFSI executives must follow suit or be overtaken.

As the Internet of Things continues to expand and strengthen its hold on the present, traditional banks and lenders must look to their own connectivity and flexibility to withstand the challenges presented by FinTech competitors. Startups that have been built around new technologies can provide innovative kinds of financial services, and traditional banks must adapt or fall behind.

Many FinTech companies use an "unbundling" model, providing singularly accessible services customized to the user's needs and linked to IoT frameworks that provide a higher level of flexibility and mobility. This appeals especially to Millennial and Gen Z customers, as well as underbanked nations with large populations who require basic service that is highly affordable.

IoT for Banking
According to Fintech Finance, the main appeal of IoT for banking customers is that it transforms static, physical objects (like ATMs and kiosks) into engaging and smart interactive devices. As customer experience continues to rise above product and even price as a major brand differentiator, potential customers lean towards choosing a banking option that provides convenience and ease of use over brand loyalty.

ATMs and payment processors can be augmented with smartphone or smartwatch identification technology, making debit cards and PINs obsolete – two of the biggest vulnerabilities associated with card based banking. FinTech solutions are embracing simplified transaction options, and IoT is poised to provide connected options that bypass human error and weak authentication.

In the IoT age, banking is changing.

Retail banks can follow the example provided by retailers who place sensors in stores to suggest products, offer discounts, and provide recommendations via their smartphone via an app. Likewise, banks can utilize accessible apps for tailored, timely delivery of personalized offers that are more likely to result in conversions than other presentations.

According to Datafloq, the development of wearables can be a key factor in the widespread adoption of IoT-driven banking, with the potential for identity verification via biometrics as opposed to vulnerable username and password combinations. Currently, most wearables have to be connected to mobile phones, but non-tethered wearables can be positioned for deep penetration in the consumer banking market, with basic banking services already in the queue and more banking services expected to be accessible in 2018.

Peer 2 Peer Payments
Probably the biggest challenge to traditional banking is P2P transactions, which are now available across a wide range of disruptive companies. From PayPal and Venmo's payment transfer systems, the idea of easy, cheap, virtual money transfer spread, and platforms like WhatsApp, Facebook, and Google Wallet quickly followed suit.

For traditional banks, the answers have been to participate in third party platforms, like ClearXchange, but more banks are now creating their own internal systems to encourage customer loyalty, with Wells Fargo depending on Zelle and Chase on ChasePay.

In all cases, IoT connected smart devices are capable of providing a seamless payment experience. Instead of using a traditional bank channel to buy groceries, an enabled smart fridge can complete the transaction, arrange shipping, and set itself a few degrees colder for a predetermined time period after anticipated delivery to offset warmer foods being introduced.

There is still room for the larger BFSI sector to adapt to and adopt these disruptive trends. Building customized product offerings and partnering directly with FinTech organizations provides two ways for traditional banks to tap into the market being developed with IoT capabilities.

As the banking industry gets on board with the development of IoT technology, Perle will be there to provide much needed support, with key connective fixtures such as console servers and media converters. Connect with us today to learn more about our work in the BFSI space.