The industry will be largely disrupted by IoT
The Internet of Things, or IoT, is the ability of technology to connect objects to the Internet for the purpose of sharing data. Because the financial industry relies on so much data, it is no surprise that the industry will be largely disrupted by IoT. The financial industry has not accepted IoT as much as some other industries have, but they may be forced to do so by the willingness of FinTech to use IoT to a much greater degree. And this is for good reason. Analysts predict that by 2020, IoT will add anywhere from $300 billion to $15 trillion to the economy.
Current IoT Practices in the Financial Industry
The financial industry has been slow to really adapt to and use IoT to its full potential. The three main businesses that have done so are insurance companies, commercial real estate, and banking.
In the insurance field, many companies allow consumers to install sensors in their automobiles that allow the companies to track data about consumer driving habits. This allows them to offer discounts to drivers and encourage safe driving habits. The data they collect can also increase the accuracy of underwriting.
In terms of real estate, businesses are using IoT to help improve expenditures. IoT devices can help with security, climate control, and energy use. Malls are also using data to track foot traffic in order to increase rental income and investment.
Banking has embraced IoT with biometric scanners in ATMs and bank apps in smartphones, tablets, and smart watches. Many consumers can access bank accounts with apps, make payments with mobile devices, or manage all banking functions on devices through digital banks.
The Future of IoT
In a recent report, Gartner experts forecast that IoT devices will grow at a 32% CAGR from 2013 to 2020. This will result in over 25 billion units in over 200 different categories being used worldwide.
Due to the rate at which technology changes, it can be difficult to predict what the future of IoT and the financial industry will look like. However, there are some predictions based on current technologies.
Increased transparency, what some people call radical transparency, will reduce the advantages some companies have in investment and lending due to information imbalance and their unique outlooks.
Data privacy will be even more important as more data will be at risk of being stolen by criminals committing fraud.
IoT data may create additional services in the financial field. These new companies may manage data and provide data to other institutions for a certain fee.
In banking, IoT could help improve underwriting and find new markets. It could also give banks the opportunity to lease or sell new products based on IoT.
IoT also has the potential to increase automation in trading and investments. Data from IoT devices, analytics, and algorithms will accelerate these possibilities.
The insurance industry has made the most use of IoT and will continue to do so. Auto sensors will continue to inform insurers about consumer behavior and how they can relate to coverage and costs. As IoT increases, the same principles could be used in life insurance policies, allowing consumers to have a device monitor their behaviors and have their costs adjusted accordingly.
The Challenges of IoT
There are many significant challenges to the financial industry as IoT increases its influence.
Many companies may benefit financially from using data gathered from IoT devices, but some of them might be hesitant to do so. Some companies feel that releasing data to other agencies, like financial institutions, will put them at risk. The data could include strategies and advantages that companies do not want competitors to see. This hesitancy to share data has blocked the innovation of more complex IoT innovations in the financial industry.
If the first challenge were resolved, there would still be difficult aspects of IoT in finance. So, if companies were willing to release all forms of data without fear, banks and other financial institutions would need to be able to collect and analyze the data. Many institutions do not currently have the infrastructure to do so.
Lastly, there will probably also be resistance from consumers and consumer watchdog agencies. Many groups may see IoT data as ‘big brother’ watching them. Regulators and other groups may try to limit the amount of data that can be collected or shared with financial institutions due to privacy concerns.
How the Financial Industry Adapts to IoT
In order to be ready for all the changes in IoT technology and the financial industry, companies need to follow certain steps.
The first would be to learn about the technology and how it could impact the company and the industry as a whole. As part of the process, companies need to have strategies in place for how they will incorporate the technology or stay competitive with other organizations that incorporate IoT technology.
Companies in the financial industry should also reach out to experts and researchers in IoT to form partnerships. These relationships will help them understand more about what may be coming next and help them stay ahead of the curve.
It is never too early to start to implement some of these technologies in small ways. These early experiments with IoT will help companies test for impacts and learn how to make the use of the technology more effective.
When planning for the future, leaders need to think of a future where every object will be able to share data. In this way, they can think of innovative ways how their company could make use of that can gain an advantage over other companies.
When thinking of how every object will be able to share data, they also need to be aware of how much data they can actually handle. Many companies will need to upgrade their infrastructure or workforce to handle the management and analysis of the increased amount of data.
Traditional financial structures and systems will need to adapt
As IoT continues to evolve, the financial industry has to put quite a few measures into place to ensure that they stay relevant and profitable in a world where consumers have more options. Traditional financial structures and systems will need to adapt to technology and invest in ways of using it to their advantage.