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IoT: Defining the Future of Customer-Centric Banking

In the digital economy that is predominantly experience-driven, service providers across sectors are locked in an intense balancing act to optimize expenses and deliver greater customer-centricity. Banking is not an exception. Bain & Company found that at least 50% of the customer  are ready to switch banks within the next 12 months owing to a poor experience.

Undeniably, Customer Experience (CX) is the new battlefront for banking marketers. How can the internet of things (IoT), which has been steadily making inroads into different sectors, contribute towards personalization of services, smoother delivery, more responsive customer support, and fostering stronger brand loyalty?

What Is IoT?

The IoT is a mesh of smart devices connected over the internet or a network that can operate in cohesion leading to greater situational awareness, reduced cost, and enhanced productivity. Statistics predict that the total installed base of IoT-connected devices worldwide will be 30.9 billion by 2025, a sharp increase from 13.8 billion units in 2021. Further, McKinsey estimated that 127 new IoT devices are presently hooked to the web every second.

Driving Customer-Centric Banking and Financial Services

IoT provides an excellent opportunity for banks and financial institutions to customize services as per the needs of their clientele and drive frictionless delivery at the grassroots level. More devices connected to the web will help service architects to have greater access to transactional data. It will enable them to deep dive into customer needs and optimize experience accordingly to score business wins within brief moments of interaction.

MarketsandMarkets forecasts that the global IoT market in the banking, financial services, and insurance sectors will reach $ 2.03 billion by 2023, registering a handsome Compound Annual Growth Rate (CAGR) of 52% between 2018 and 2023. The trend is in line with the sentiment of digitally transforming Banking, Financial Services, and Insurance (BFSI) service posturing, sweeping worldwide. IoT can help institutions improve operational practices and induct innovation-driven techniques to enrich the CX. As Adobe’s 2022 APAC Digital Trends Reportsuggests, the businesses in the Asia Pacific are leading the world (59%) in stepping up investments in the CX management; it is safe to assume that BFSI institutions will carry out the spending on IoT in this region. But what makes this shift so urgent?

IoT: Addressing Persistent Industry Challenges

The BFSI has been slow to change as a sector with strategic importance, more so across the Asia-Pacific (APAC) region. EY Future Consumer Index - APAC countries covering major regional economies like China, Japan, Australia, and New Zealand revealed that only 23% of the Asia-Pacific customers trust their financial services providers amidst a crisis. Further, another study found that the digital banking adoption among APAC customers has risen exponentially from 54% in 2017 to 88% in 2021. Despite this, most customers are still dissatisfied with the
experience, including a lack of tools, personalized recommendations for products, intuitive user interfaces, and much more.

The findings are accurate as typical reasons that undermine banking experience in other parts of the world are prevalent here. These include a lack of experience tailored to the needs of a highly aspirational customer base, failing to resolve customer queries proactively, exceptionally stretched turnaround time, limited product distribution channels, a low incentive for retaining customers, and so on. Worldwide, 81% of the customers feel that digital experience in banking is a crucial determinant of satisfaction, and failing to keep pace leads organizations to lose more than $10 billion per year. Much of it is in the APAC countries.

Now let’s take a look at how the proliferation of IoT can bring value to the BFSI sector.

Benefits of IoT in Banking

Improved Analytics: IoT device networks dramatically boost the accuracy and speed of ingesting wild data and shaping them into decision-ready analytics for the banking and financial services leaders. With IoT installations, banks can access business data streams in real-time to closely study factors like customer behavior, demands, purchase patterns, and preferences and weave such insights into product and service offerings for assured relevance.

Secured Payments: The adoption of IoT can pave the way for the induction of new payment modes like biometric tokens and smart cards. Also, offering greater ease of use and freedom of access to payments, IoT networks can support payments through wearables, allowing customers to make purchases through smart bands instead of debit or credit cards.

Simplified Transactions: With IoT devices talking to each other over high-speed 5G networks, it is possible to automate transactions and integrate them as services. With machines that can interact and perform transactions in real-time, any IoT device connected to the network will be able to deliver an automated payment experience. The seamless buyer journey that automatic payments can create will benefit banks and positively impact every sector, pacing up the velocity of business transactions.

Assured Transparency: The detailed customer data available through the IoT networks allows banks to offer customers personalized products like insurance while helping them stay ahead of debtors with dubious credentials. This enhanced transparency ends up benefiting both the banks and their customers. While the former can protect its business interests against potential frauds, the latter can now avail various financial solutions based on their behavior and motivations. It will be especially beneficial in improving credit access for the bonafide thin-file applicants in the low-income and younger age groups.

Richer Interactions: IoT has made banking and financial services highly convenient for customers. Nowadays, with the IoT-enabled mobile banking app, customers can transact on the go, at a time, and from a place of their choice. Also, with detailed data on customer choice and preferences available, banks can simplify customer services using intelligent chatbots to resolve customer queries on demand instead of waiting for human front desk executives.

Service Expansion: The insights delivered through IoT sensors can help banks and financial institutions innovate beyond conventional products. It can also allow banking marketers to foster stronger brand loyalty and retain businesses through exciting offerings and rewards for achieving goals.

Assured Privacy: IoT enables banks to incorporate blockchain into their risk management strategy. It prevents malicious actors from tampering with customer credentials, reducing the chances of identity theft. However, devices constantly getting connected to the IoT network radically expand the attack surface, making BFSI institutions  vulnerable to cyber intrusions. Therefore, sustained investment in encryption and security tools is a strategic imperative for banks and financial services bullish on IoT adoption.

Popular IoT Use Cases

Customer Onboarding: With all the devices linked with the customer’s digital identity and footprint, IoT can pave the way in building a unique digital signature for customers. It can authenticate access, similar to the current social media and email logins. Based on blockchain, the unique digital signature can be used to pace up the Know Your Customer (KYC) process and accelerate customer onboarding. Also, knowing more about the customer right at the onboarding stage can help banks design offerings accordingly. For instance, offering a co-branded credit card for a restaurant chain that the customers visit frequently.

Tailored Auto Insurance: The collection of data on customers’ driving habits using IoT and onboard telematics devices has already revolutionized the auto insurance vertical. Compliant customers are eligible for discounts, more favorable premium rates, and other perks. However, further development in this domain gives auto insurers continuous access to other metrics like engine health, general wear and tear, and Global Positioning System (GPS) data on vehicle speed in sensitive zones. Thus, allowing them to price their offerings and improve the bottom line.

IoT-Enabled Smart Contracts: Smart Contacts are algorithms that can enforce the negotiation or performance of a contract after the fulfillment of the stated criteria. With IoT and digital identity, smart contracts can be auto executed and enforced. For instance, controlling access to a premise on non-payment of rent or paying for a product after the trial period. It has a significant role in mitigating operational risks and designing products that can enhance the CX.

Automated Leasing: IoT sensors can continuously monitor metrics like asset usage, wear, and tear, and idle time leading to better pricing. It can contribute to developing new daily leasing models where transitional products can be made available as a service. While the approach can significantly simplify the terms and conditions of leasing, it  an also allow banks to have greater control over the assets. For instance, a bank can remotely disable an asset on the breach of contract clauses.

Challenges of IoT in Banking

However, the application of IoT in banking and financial services is not without its share of challenges. The proliferation of IoT devices radically increases the number of endpoints that can lead to:

  • Data breaches within the bank’s organization or its supply chain, compromising the privilege and confidentiality of its customers
  • The exploitation of customer data for unintended purposes
  • Vulnerable IoT-enabled applications with potential security exploits

In response, it is recommended to use edge devices rather than the IoT cloud for storing and processing customer data. Further to counter threats to applications, banks and financial institutions can rely on automated cybersecurity solutions that continuously scan the landscape for vulnerabilities and trigger countermeasures without waiting for manual interventions.

Why Outsource IoT Implementation?

Outsourcing is a practical option to minimize the risks and maximize the benefits of IoT deployments for the banking and financial services use cases. By delegating the task to an experienced IoT implementation partner, an organization can avail the required specializations and skill sets on-demand and at a nominal cost that might otherwise take years and a fortune to develop internally.

Further, IoT implementation partners operate with a perspective that cannot be matched by a bank’s internal technology leaders solely focused on banking IT. Operating across sectors and at scale, the threats and opportunities that IoT deployments bring forward for a bank are more apparent to a seasoned IoT implementation partner than anyone else.

One such IoT leader is Xebia, bringing value to its BFSI clientele worldwide. Its offerings have focused on modernizing institutions to be competent in a predominantly IoT-enabled environment built on ingenuity, technology foresight, and deep business understanding. Get in touch with the IoT consultants to find out how it has been helping the banking and financial services customers evolve and be future-ready.

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