7 Benefits of IoT in Banking in 2024: A Comprehensive Guide

Wondering how the Internet of Things (IoT) can transform banking? In this comprehensive guide, we‘ll explore 7 key benefits IoT offers banks and financial institutions, from improved security to better customer service. Read on to learn how IoT is changing the future of banking.

What is IoT, and How is it Used in Banking?

Let‘s start with the basics – what exactly is the Internet of Things? IoT refers to a network of interconnected smart devices that can gather, exchange, and act on data in real time. These devices have sensors that collect data about their environment. They also have connectivity that allows them to send this data instantly over the internet to apps, dashboards, and other systems.

In the banking world, IoT takes many forms across ATMs, bank branches, mobile apps, and more:

• Smart ATMs have sensors that can detect potential tampering or infrastructure issues and alert bank staff.
• Digital signage displays at bank lobbies can use built-in sensors to measure foot traffic, wait times, and customer engagement.
• Surveillance cameras become intelligent with computer vision algorithms that automatically flag suspicious activity.
• Mobile banking apps leverage data from a user‘s smartphone sensors and connected devices to provide personalized, contextual services.

IoT-enabled devices transform bank infrastructure. Image source: Finextra

Banks partner with major technology companies like Microsoft, IBM, and Cisco to integrate IoT capabilities into their systems and infrastructure. This allows for intelligent tracking, monitoring, and automation at scale.

Now, let‘s look at the top 7 benefits financial institutions gain by implementing IoT ecosystems.

1. Bolstered Physical Security

IoT devices like smart surveillance cameras, motion sensors, and alarm systems can dramatically improve the physical security of bank branches.

According to research by McKinsey, robberies at financial institutions have increased by over 200% since 2010. IoT capabilities can help mitigate this threat.

For example:

• Movement-activated cameras with night vision capabilities can provide 24/7 coverage of bank perimeters with no blind spots. Real-time motion alerts allows rapid verification of threats.
• Vibration sensors attached to vaults and ATMs detect early attempts at tampering or drilling. This enables early intervention before significant damage occurs.
• Alarm systems networked via IoT can immediately notify law enforcement and bank security staff of unauthorized entry. Integrated smart locks can even automatically seal off facilities.

McKinsey estimates that real-time surveillance and response solutions enabled by IoT can reduce bank robberies by 30-50%. This enhances safety for bank staff and prevents losses.

2. Real-Time Insights for Improving Customer Experiences

IoT sensors provide bank executives with an incredible amount of real-time data they can act on to improve branch experiences.

For instance, digital displays equipped with built-in sensors can measure:

• Customer wait times by tracking movement in queues. This data can power apps that notify staff when lines become excessively long.
• Customer demographics by using computer vision to estimate age ranges and gender of those passing signage. This allows targeted promotions.
• Engagement levels by tracking eye gazes and time spent looking at display content. Banks can quickly iteratre if campaigns aren‘t resonating.

According to research by Deloitte, 77% of banking customers want services personalized in real time. IoT devices supply the data banks need to achieve this.

3. Detecting Fraud Rapidly

With bank fraud on the rise globally, IoT technologies provide enhanced capabilities to detect fraudulent transactions quickly before major damage occurs.

For example:

• ATMs can have anomaly detection algorithms that identity unusual withdrawal patterns and alert staff to potential skimming attempts.
• Debit/credit cards with embedded sensors can track for cloned usage indicating fraud. Banks can instantly alert customers of unrecognized transactions.
• Facial recognition on mobile banking apps requires user authentication for risky actions like wire transfers. This adds another layer of protection against theft.

According to data from FICO, real-time fraud monitoring systems can:

• Reduce false positives by over 30%
• Cut investigation time by over 35%
• Lower fraud losses by up to 50%

IoT integration enables continuous risk assessment to catch fraud faster than ever before.

4. Improved Credit Risk Assessment

By applying advanced analytics like machine learning to IoT data, banks can more accurately estimate customers‘ creditworthiness when underwriting loans or credit accounts.

For instance, transaction data from mobile wallets and spending patterns from credit cards can feed into algorithms that determine a consumer‘s risk profile based on factors like:

• Consistency of income
• Essential vs discretionary spending habits
• Payment history

In one example, Spanish banking group BBVA was able to increase bad debt recoveries by 29% by feeding alternative data from IoT devices into its underwriting models.

Continuous credit risk assessment powered by data from IoT devices helps banks lower defaults and better qualify borrowers.

5. Personalized Banking Experiences

IoT allows banks to offer ultra-personalized services tailored to individual customers based on their unique profiles and demonstrated needs.

For example:

• Investing platforms can perform real-time checks on customers‘ risk appetites based on bio-data like heart rate and make appropriate recommendations for conservative vs aggressive assets.
• Mobile banking apps can track spending at bars, rideshares, entertainment venues, and suggest saving opts like auto-transfers to savings after certain thresholds.
• Credit card providers can adjust credit limits and interest rates based on policyholders‘ IoT-connected fitness trackers and smartwatches, similar to auto insurance policies adjusting rates based on safe driving habits.

According to research from Salesforce, 91% of customers are more likely to shop with brands who provide personalized offers and recommendations. IoT enables this level of personalization in banking.

6. New Revenue Streams from Premium Services

Banks can also utilize IoT data to create innovative new premium offerings to generate additional revenue.

For example:

• Banks can offer budgeting and financial coaching as a subscription service powered by analytics on customers‘ spending data.
• Retirement planning services can be enhanced by factoring in health and wellness data from customers‘ fitness wearables to provide comprehensive life planning.
• Gamification apps similar to digital loyalty programs at retailers can be offered to incentivize behaviors like saving by rewarding points for achievements, creating engaging experiences.
• Small business banking customers could pay for value-added services like inventory management and demand forecasting powered by IoT data from their company‘s connected systems.

According to McKinsey, monetizing data and analytics alone could potentially deliver over $60 billion of added value to the banking sector.

7. Frictionless Payments using IoT Devices

IoT enables seamless contactless payments via mobile phones, wearables, and other connected devices. This provides convenience for customers and improves transaction security.

• Mobile wallets like Apple Pay and Google Pay allow customers to checkout with just their smartphone anywhere contactless payments are accepted. No physical card required.
• Wearable payment chips embedded in smartwatches and fitness trackers allow consumers to pay on the go from their wrist.
• Retailers are exploring pay-by-touch powered by IoT where shoppers can checkout by tapping a sensor on a payment terminal with their finger. No phone or card needed.

According to Visa, more than 100 million contactless cards were issued in the US alone by the end of 2020. IoT-driven payments make transactions seamless across channels.

Key Challenges of IoT Adoption for Banking

While the benefits are compelling, adopting IoT also introduces new cybersecurity and privacy risks that banks need to manage closely:

• Increased Surface Area for Attacks: Each new connected device expands the potential attack surface. Hackers could target vulnerable IoT devices to infiltrate bank networks.
• Data Privacy Concerns: Banks must be transparent with customers regarding data collection to avoid privacy violations that erode trust in the brand.
• IT/OT Convergence Complexities: Bridging IT and Operational Technology networks to enable IoT system-wide is complex. New protocols are required.
• Regulatory Compliance: As IoT usage expands, banks must ensure they comply withemerging regulations. Failure to do so risks costly fines.

Recommendations for Managing IoT Security

Here are 5 best practices banks can follow to securely leverage IoT:

1. Build a cybersecurity culture focused on IoT risks with training across the org.
2. Utilize edge computing to process data locally on devices rather than transmitting to the cloud.
3. Implement robust access controls for managing identities across human and machine users.
4. Encrypt all IoT device communication and data-at-rest to prevent interception.
5. Maintain real-time network monitoring with automated attack response to identify threats rapidly.

With strong governance and security controls, banks can harness IoT securely to deliver major value.

Case Study: How Santander Rolled Out Enterprise IoT

Spanish banking giant Santander provides a great case study in IoT adoption. They set up an Internet of Things Center of Excellence to drive an enterprise IoT strategy.

By aligning business priorities with IoT capabilities, Santander was able to deliver several high-ROI initiatives:

• Implemented smart ATMs with sensors to detect potential card skimming or tampering at branches, enhancing security.
• Rolled out Tap on Phone contactless payments across merchants to accelerate mobile wallet usage and boost transaction volumes.
• Developed innovative customer-facing solutions like investment portfolio management apps powered by IoT data analytics.

Within 2 years of launch, Santander‘s IoT COE had deployed over 16 large-scale projects, demonstrating the potential transformative power of IoT in banking.

Key Takeaways on IoT in Banking

Here are the major points we covered on how IoT is impacting banking:

• IoT connects devices like ATMs, sensors, wearables to collect and exchange data, enhancing visibility.
• Key benefits include improved security, personalized customer experiences, contactless payments, and new revenue opportunities.
• However, IoT also introduces new cyber risks around data privacy, app vulnerabilities, and more that banks must manage.
• With proper governance and security controls, IoT can unlock major value – as demonstrated by many leading financial institutions already using it today.

Ready to explore IoT possibilities for your bank? Reach out to discuss your needs and we‘ll help assess if IoT can benefit your organization.