Thursday, September 29, 2022

IoT and data-driven FinTech look to rock finance to its core

FinTech IoT

As the Covid-19 pandemic wreaked havoc on businesses, countries, and global economies alike, bringing projects, funding, conferences, and travel to a screeching halt, the tech industry prospered and skyrocketed upwards.

Digitization filled the air with everything from education, grocery shopping to remote working from home. The financial services industry, although under extreme pressure to meet rising demand, followed suit as people flocked to FinTech firms to resume their monetary responsibilities.

In parallel, the global financial services industry is witnessing a silent evolution, driven by an insurmountable need for easy interconnected payment solutions, and pushed by a tidal wave of powerful technological advancements within its arsenal. 

While data analytics, artificial intelligence (AI), and cloud-based digital infrastructures seem to be taking the main headlines, it is with the Internet of Things (IoT) that FinTech will look to make its greatest leap yet.

IoT is the term used to describe physical devices that have the ability to synchronize using the Internet to perform a plethora of activities and tasks.

From connected cars and Samsung’s smart fridge to powerful sensor relays inside active volcanoes, IoT devices are increasingly integrating an already connected world. The implications are astounding, and adoption is progressing at an incredible pace.

According to global consultancy McKinsey, the planet already hit 10 billion IoT devices back in 2018, and by 2025, that number will grow as high as 64 billion.

In laymen’s terms, the rise of IoT is already happening at such a rapid and massive rate, which is indicative that the FinTech industry is heading toward transformative changes within its ecosystem. It’s estimated that, by 2022, global spending on IoT technology could reach as high as $1trn.

From an on-the-ground perspective, IoT can greatly aid FinTech by removing the many bureaucratic barriers put on the financial supply chain such as KYC procedures, account and transactions settlements, and the like, according to Laurent Tohme, a Paris-based seasoned trader and researcher within the financial industry.

“Automating and allowing IoT to take the wheel with these processes will allow financial analysts to properly add, develop, and grow these systems to make the most accurate decision, instead of wasting precious time on paperwork,” Tohme told Inside Telecom.

The financial trader further explains that this process in and of itself will cause a big shift in the financial industry’s labor market, where workers that used to handle the mechanical tasks previously mentioned will no longer be needed.

“This will shake up the financial industry’s ecosystem by shifting the talent pool it usually picks from and will head toward professionals that are able to maintain, develop, and grow these intricate systems,” Tohme added. 

Data-driven finance

Financial institutions have already been gathering consumer and contextual data to make more accurate and informed decisions for generations; since the more data an organization can collect, the better it can protect its interests while creating a value stream shared for itself and customers.

Thus, adding IoT to the mix will only make data collection efforts even more accurate, efficient, and most important, cost effective, as after any global crisis, companies will look to bootstrap their budgets to replenish their losses.

The approach to data-driven finance is relatively straight to the point, especially seeing that almost 3.5 billion people own and actively use smartphones, which inherently are data collection devices from a single end point.

While smart appliances, vehicles, apps, and fridges are all helping us order groceries, book movie tickets in real time, process payments and many others, at their core, these devices are data collectors of the world around them, as well as the preferences of their owners.

This information will prove to be vital for the FinTech industry.

“IoT is essential to data-driven FinTechs, since these firms rely on gathering information to accurately adapt their services based on consumer needs, collected by real time analytics and insights that tell the story of consumer behavior, allowing these firms to better tailor their offerings to provide the best consumer experience,” Jimmy Khoriaty, Software Project Management Consultant at Banque de France, told Inside Telecom.

This has not only increased the value of FinTechs going forward but has also caught the eye of the world’s largest data collectors – Big Tech companies – that are well underway to penetrate the financial services ecosystem.

“From my perspective, I believe that Big Tech has adopted FinTech – through licensing or outright acquisitions – and not the other way around, and have done so to capitalize on their disruptive technologies by adding them to their services,” Khoriaty added.

The software consultant argues that in order for FinTech to properly and effectively succeed, “it has to be data-driven for it to continuously evolve and adapt by better gathering consumer information through their offering of convenient services and integrated devices, just look at how Apple Pay functions.”

On the other side of the spectrum, Tohme considers that data-driven finance using IoT will bolster the FinTech sector especially through cementing their presence in developing countries.

“The first thing that will be witnessed from this, is the ability to bank the unbanked in developing societies and communities of the world,” the veteran trader noted.

Tohme highlighted that unlocking this reach will aid more people to establish formal savings accounts, which in turn will simplify the act of issuing credit in a more systemically controlled manner while respecting restrictions across the board.

“This will bring immense growth to the areas of the world that need it the most, since a large number of people don’t possess a formal source of funds or revenue,” he said, adding that “while these may seem elementary for occupants of the developed world, these FinTech solutions powered by IoT are well on their way to achieve what brick and mortar banks couldn’t, allowing them to obtain credit to grow businesses, and help them safeguard savings.”

Internet of Payments (IoP)

In its simplest definition, IoP points to the initialization and processing of payments over IoT objects, such as wearables, appliances, or cars. It is a game-changing machine-to-machine (M2M) trend, where a human isn’t a primary initiator, but they are being notified right after their smart things make necessary purchases.

“While the protocols and standards for IoP regulation are still in the pipeline, we believe that they hold much promise to turn into the next momentous fintech innovation since with the expansion of PSD2 and Open Banking third-party providers and fintechs can also take on the roles of IoP providers,” according to UK-based FinTech software developer DashDevs.

In short, this means that – in much the same way that the last ten years saw every smartphone become a potential purchasing tool – the next few years will see any and all devices become platforms for purchasing goods and services.

“From the comfort of their homes to the confines of their cars, people want to make purchases when they want and where they want,” Sherri Haymond, Executive Vice President, Digital Partnerships, North America at Mastercard, was quoted as saying. “Our familiarity of shopping with mobile and voice-activated devices have created the expectation for almost every device to be a way to shop and pay.”

In the IoP age, everything from a household appliance to your car has the potential to become an endpoint for payments.

In the Automotive sector, both GM and Honda have released features which allow drivers to do things like make restaurant reservations, pay for goods and services like fuel, movie tickets and parking, all from the car’s navigation system.

Honda’s Dream Drive demoed at CES 2019 and featured the car manufacturer’s collaboration with Visa, Mastercard and PayPal.

“Combining Visa’s payment expertise and Honda’s expansive platform, we are one step closer to transforming the car into a new epicenter for commerce,” Olabisi Boyle, Vice President of IoT, at Visa said in a statement.

IoT and FinTech have invited themselves into our homes, crept into our shopping bags, and invaded our daily lives without us even being fully aware of it; yet, over a mere matter of months, and a handful of timely circumstances, they have become our best friends.