IoT in Banking and Finance
The Internet of things is defined as a worldwide network of uniquely addressable objects created among themselves, and the objects in this network communicating with each other with a specific protocol. In addition, it is also possible to define a system of devices that communicate with each other and create a smart network by connecting and sharing information thanks to various communication protocols.
The concept of communication between machines goes back a long time. Before the 1900s, telegraph services, between 1900 and 1949, thanks to the Enigma machine, German soldiers could transmit the communication among themselves in an encrypted way. Between 1950–1999, Bluetooth, computers, digital wearable devices, and ARPANET technology. Banking and Finance technology started with the French banks verifying customer signatures in the 1900s, followed by the implementation of Morse code in telegram services. Between 1950 and 1999, today’s technologies such as credit cards, ATMs, chips, swift, online banking were also important. It was a significant development process in FinTech.[1]
After the 2000s, with the development of technology, the rate of the use of mobile phones and the widespread use of mobile networks led to the development of mobile banking, the availability of the internet from every point, the convenience of cloud- based storage areas in data storage, the spread of blockchain technology and cryptocurrency, IoT (Internet of Things) devices (smart devices and watches). With the infrastructure provided by these rapid technological developments in the field of banking and finance, as in many other fields, it was adopted, and thus, rapid, and innovative approaches were created in the banking and finance sector. [2]
If we need to talk about the usage areas of IoT in banking and finance, providing information when the customer visits the bank or providing the most accurate service with personalized data, it can be used instead of credit card and mobile phone for payment and cash withdrawal thanks to wearable devices, its wearable devices can be used for banking with biometric authentication. Biometric authentication helps to increase security in transactions and mobile wallet approaches, such as android pay and Apple Pay. These have replaced credit and debit cards on the payment side. [3]
Together with IoT, it provides many advantages in the field of banking and finance. Personalized banking service with the information obtained from the customers’ data, Smart bank branches reduce the number of employees as well as reduce the customer’s waiting time, determine the best financial support packages based on the expected yield for farmers in the agricultural sector based on the crop yield, security with location- based verification flows to prevent credit card fraud. A warning wave is sent to the wearable device by determining the credit card spending limit through wearable devices. In addition to all these things, there are some of the disadvantages in the development phase of security solutions for stored data, where there are many networked devices, the lack of a uniform standard can create some communication problems between devices, and maintenance work can be challenging due to the complex network structure. [4]
Due to the changing trends in financial systems and changing user preferences, we can say that IoT is the next breakthrough technology. We can collect customer data and transmit this data to different places with the help of other connected devices on the internet. In this way, process optimization, cost reduction, productivity increase and acceleration and customer’s life can be facilitated. This means that we need to talk about a new banking concept and banking experience with the use of IoT technologies. Especially after the 2000s, thanks to technological developments and the widespread use of the Internet, the increase in the number of devices connected to the Internet and the ease of data exchange, IoT has created an opportunity for the emergence of applications that will evolve.
As devices connected to the IoT ecosystem become widespread and customers prefer to use these devices, customers’ financial habits begin to change. [15] By analyzing these habits well, banks and financial payment institutions can produce more effective solutions to their customers and increase customer satisfaction by providing solutions to problems that may put the customer in a difficult situation, such as possible excessive spending. As an example, we can give Interact IoT company, which is one of the banks that first offered IoT technology to its customers. Interact IoT has provided its customers with an application service that works integrated with the wearable IoT device, and with this application, the customer is warned with a shock wave in case the spending limit previously determined by the customer is exceeded.
When examine the statistics of the past few years, we can see that there has been a significant increase in the number of devices connected to the internet and the total time people spend with these devices. While 75% of the world’s population had limited access to the internet in 2016, we see that 4.5 billion people are actively connected to the internet in 2019. As this number increases, the use of IoT technology and related applications for institutions is becoming more and more interesting.
HOW WE USE IoT IN BANKING
IoT technology and applications that use this technology as infrastructure can be used by banks and other financial technology companies to prevent or reduce fraud cases, anticipate potential risks, provide competitive advantage and increase customer satisfaction. Since banks have a large number of customers and each customer can use a different device, data collection and big data transfer is only possible with IoT. With the convenience brought by the IoT, time is saved and the data obtained from different sources is analyzed and interpreted more accurately, enabling the system to work smarter. [13] In addition, with the IoT used in branch banking, customers can use the branch more actively, or with the IoT used in mobile banking, customers can solve their problems with the help of a virtual assistant without going to the branch. By using such methods, customer experience is improved and customer satisfaction is increased, while risks are managed and the integration between the customer and the bank is safer. Additional security options are also possible thanks to IoT technologies.
Payments made over the internet in the virtual environment and financial services received today constitute the most important building block of the modern economy and have increased their importance with the pandemic. Thanks to digital payments, an efficient infrastructure is created for both the customer, the institution and the government. As a result of the ease of access to the Internet and the increase in customer access on a global scale, institutions in many sectors want to turn this opportunity into an advantage and it is up to banks or other financial institutions to provide this infrastructure. Since market shares in many countries have not yet stabilized, the digital payment industry is a sector open to investment and growth and is a great opportunity for organizations. However, it is essential to develop an IoT-based application to enter this market. Thanks to Industry 4.0 and the developing IoT devices, we can develop effective, efficient and personalized products at low cost. Our main goal here is to allocate time and budget to automate operational work and focus on more personal features. The purpose of a bank or financial institution is not just to meet instant customer needs; at the same time, it should be to obtain useful information for the future and improve and develop its existing services.
When we analyze it from a demographic point of view, today’s Z generation constitutes a significant part of bank customers. This generation consists of young people with different expectations, perspectives and preferences than previous generations. In order to respond to these expectations and to add the next generations to the customer pool, banks need to adapt their current banking models and ways of doing business. This is not possible with traditional methods, but only with the cooperation of Industry 4.0 and IoT. In order to bring the next generation of customers to market and gain a competitive advantage, the mentality needs to change radically.
With the help of the development of artificial intelligence, the increase in the number of voice assistants and the latest technological developments, digital banking will be invisibly included in our daily activities and routines in every moment of our lives. “You want to get all the hassle away, so banking is becoming invisible,” said Benoit Legrand, chief innovation officer at ING. The coming years show that we will be able to do some things automatically without realizing it. Despite products like “Google Glass” that have been tried but failed globally before, the IoT can be seen as the crux of the next technological revolution. We can reach this conclusion when we think about the wearable devices that have gained popularity recently and what we do with these devices. Now we will be able to handle our banking transactions just by touching our watch or with a voice command. This shows that the traditional banking concept will change and it should be adapted to modern life. [5] An ING startup initiative, FINN-Banking of Things, develops software that lets smart devices make autonomous payments on behalf of the user. It can be embedded in smart bottles, so that when a bottle is close to empty, it reorders. It can be installed in a car, so that at a gas station or tollbooth, the payment is made automatically. “You can load your car with 100 euros or dollars and the car pays whenever it’s put in those conditions,” Legrand said. The bank has been piloting the technology with BMW. [6]. “Voice banking through these machines is where we are going,” he said. “Why? Because
human beings are lazy. First we needed to go to the bank to get cash. Now you can open your computer and do a couple of things, you can tap your phone and pay. The next stage is to say Alexa, transfer two euros to my mom. This is the next step in laziness.”[7]
How Banks or Fintech Company’s are collected data and which sources they use?
Mobile Apps
When we put the concepts of banking and IoT side by side, the first thing that comes to mind is mobile application. In addition to being the simplest and most basic IoT application, applications to be made in this field are the first choice for banks due to the large number of mobile users. In general, although almost all banks have their own mobile applications, few of them process the big data coming from these applications and turn it into a personalized service. However, thanks to this data, many important information such as customer behavior insights and user interaction can be accessed. Mobile applications are the easiest and most reliable IoT application that banks can use to enter the market due to reasons such as high number of users and ease of use.
Digital Sensors
Customer behavior can be analyzed or better service can be provided by using sensors at points where customers need to physically contact the bank. These sensors can be placed in devices such as bank branches or ATMs. Thanks to the sensors, not only customer satisfaction is ensured, but also possible device failures can be detected in advance.
Benefits of IoT in Finance
Banks can provide personalized service to their customers by using the data obtained from IoT devices. The more and more meaningful the data obtained, the more customer- specific experiences can be designed using this data. In this way, a different bond is established between the bank and the customer and extra benefits are obtained.
With the continuous connection of IoT devices, real-time data acquisition has become extremely easy. After real-time data is obtained so easily, the bank can offer instant service to its customers or offer alternative options to its customers. In banking, a client can monitor the lines at the branch online or schedule cash withdrawal and complete the act at any nearest ATM.
Thanks to the IoT, banks are more involved in the daily life of their customers and can obtain more information about their daily routine. In this way, it can take instant action on issues such as appointment reminder, expense control, account transactions.
Thanks to the seamless communication of different types of IoT devices with each other, the bank and the customer can stay in touch with each other through many channels.
EXAMPLE OF USAGE AREAS
Banking on wearables
With the concept of “any” that comes with IoT technology, wearable devices that we are not even aware of and almost forget in our daily lives and that have become an integral part of our lives have managed to take their place in the market. It was among the top options for the customer in terms of use, thanks to its low cost realization, the beauty of the visual design and its use as an accessory. Since banks respond to these demands of customers, many wearable technology applications such as watches have been developed. Apple, one of the leaders of the phone and smart watch market, is also involved in this sector with its “Apple Watch”. Today, contactless payments can be made with wearable technological devices in many countries and there is no need to physically carry a card or wallet.
Apart from the contactless payment method, you can view bank account transactions, make money transfers, and even communicate directly with a customer representative, thanks to wearable devices. [14]
IoT Based Smart Payment Contracts
Blockchain technology, which has been included in our lives after the article published in 2008 [10], has started to be discussed as an alternative service proposal for banks and financial institutions, thanks to its decentralized feature, ease of authentication, distributed transaction sending and transaction security. Even if there are no regulations accepted all over the world yet, some banks have tried to exchange money with this method and were successful. In addition, some big technology companies have announced that they can sell products or services with blockchain technology-based digital currencies. [11] In our country, Akbank became the first financial institution to send money using blockchain technology.[12]
IoT-enabled Security Systems
- User authentication for mobile devices
- Biometrics authentication on mobile devices
User authentication for mobile devices
Due to the frequency of use of mobile devices, fast access comes to the fore. Because of this fast access request, authentication methods are equally important to ensure security. Here, user passwords, pin codes and some key shapes are generally used as a verification method. Due to the increase in mobile device usage, these devices now need to be faster. So for quick access; users can use PIN codes, passwords or some patterns of unlocks. However, these methods are not sufficient to ensure security. It can be difficult to remember the passwords set, and it negatively affects security as it is likely to be broken. Therefore, some safer methods have been developed:
- Security token: used for user authentication like, one-time passwords.
- Smart cards: it is an embedded device that holds user information like, cryptographic keys.
- Biometrics: provides authentication with the user’s physical information like, fingerprints.
Biometrics authentication on mobile devices
With technological progress, biometric feature scanning can now be performed on mobile devices. This is provided by the sensor on the mobile device or an embedded scanner. With these add-ons, the operation of the application is directed according to the biometric characteristics of the person.
There are phones that already use this biometric authentication technology. These are iPhone from Apple and also in Android devices like Samsung Galaxy S5. Biometric features are the most reliable methods for authentication. Fingerprint and iris detection, which are personal in this field, are the most used methods. These features are more reliable and more flexible user authentication methods for the users to prove their identity. However, these basic methods used for authentication do not always give accurate results in practice. Because the same biometric feature may produce different results due to sensor interaction or noise in the environment. Therefore biometric-based systems do not always produce accurate results compared to password-based systems.
Because in this systems, two feature vectors which are belonging to the same user may not be the same, that is, the difference between the vectors may be greater than zero. Here, the cases where the difference is not zero indicate the cases where the vectors are different. However, it can be said that biometric-based systems provide more security. Because personal characteristics cannot be shared or copied; but it can be monitored by the system.
Although it is a more reliable method, sharing our biometric information with the system also raises serious privacy problems and concerns. This is especially important because in humans, biometric characteristics are private and limited; therefore these properties cannot be changed. This risk is also increasing due to the large increase in the use of wearable and mobile devices. Therefore, authentication is a common issue that researchers and vendors deal with. Biometric-based authentication used in mobile devices is examined in 2 categories. These are; Physiological and Behavioral categories. The physiological biometrics category is about the physical characteristics of the user. These features can be fingerprint, voice or iris shape. The behavioral biometrics category, on the other hand, is based on the user’s use cases. These are user-specific gestures; such as keypress patterns. [16]
Wallet of Things
Instead of the physical wallet and plastic credit card we use today, we have stepped into a more interactive and ever-changing card world with IoT. As a customer, we no longer have to carry a physical card in our wallet or obtain different cards from each bank. We can manage everything digitally and with a single record. The only thing that needs to be done for this is to provide the screen or application interface by the bank, where the customer can manage this digital record and change the information or limits instantly.
Improved Banking Experience
Banking services have been affected in many ways by developing technology and changing customer habits, and the resulting increased use of IoT. Now customers want more personalized and distinctive service and experience and feel special. Thanks to the data we collect from different sources, thanks to IoT, we can respond to these requests of customers. Thanks to the continuous communication of devices connected to each other due to the nature of IoT, a previously booked appointment is synchronized on all connected devices, making it easier for the customer to manage his life. In this way, waste of time such as unnecessary waiting time is prevented. From another point of view, the transaction records of the customers, the services they use and the questions they ask are kept in the system as data. A more personalized service can be provided to the customer by using this data in the next service purchase of the customer. For example, Citibank activated a system that uses IoT beacon and communicates via Bluetooth so that its customers can use ATM devices 24/7.
INVESTIGATION of EXAMPLE APPLICATION
Hardware layer: It is the layer that physically constitutes the IoT device itself and also covers the communication layer that serves to obtain and send data. This layer is in constant interaction with the outside world.
Communication layer: It is the layer where the network and transport layer required for Internet infrastructure and communication are located. Information such as routing of incoming data to the next node, error control, instant status of nodes are made in this layer.
Integration layer: In this layer, data is stored and processed. At the same time, data security is also responsible for this layer.
Interface of application layer: It is the layer where the interaction with the external customer takes place. Communication is usually provided through a visual interface. Process status, alarms are displayed in this layer.[9]
An application example suitable for this structure is given above. The application receives a photo from the customer through the sensor, and this photo is sent to the bank’s server, passing through the layers. After the bank has made the necessary verification, the user is allowed to log in to the application.
FUTURE WORK
In near future integrating neurotech with the fintech and banking solutions will not only improve the customer experience of the data received from IoT devices. It also provide an experience that will give the most accurate answers to the needs of the customer. Beyond that, the use of neurotechnology will perhaps pave the way for the user to perform banking and financial transactions with brain waves without the need for an interface in the future. [8]
On the other hand, This will help improve various security verification mechanisms and provides a faster and more personalized experience of investment, payment and cash transactions in banking and financial services in the future.
Expanded range of Service beyond Banking
Instead of using IoT technology only for financial services, some banks develop services that affect their customers’ daily lives and aim to be healthier. An example of this is an application made by U.S. Bank, where customers are expected to perform certain tasks to keep them fit, and in return, they earn points or various financial rewards. Thanks to this application, customers think that their banks see themselves not only as customers but beyond that, and thus their belonging to their banks increases. [7]
Special thanks to my friends Öykü and Nalan, with whom we prepared this article.
REFERENCES
- Next Generation Internet of Things in Fintech Ecosystem by Moinak Maiti, Uttam Ghosh, IEEE Senior Member
- IOT Security Issues Via Blockchain: A Review Paper by Abid Sultan, Muhammad Azhar Mushtaq, Muhammad Abubakar
- Augmenting Banking and FinTech with Intelligent Internet of Things Technology by Nisha Arora, Pankaj Deep Kaur
- Smart Banking Using IoT by Rani S. Lande, Susmita A. Meshram, Pranita P. Deshmukh
- Alan McIntyre, Senior Managing Director for Banking Accenture
- https://www.americanbanker.com/news/the-rise-of-the-invisible-bank
7. https://customerthink.com/internet-of-things-iot-in-banking-examples-of-iot- solutions-in-finance/
8. OECD (2016), “Future technology trends”, in OECD Science, Technology and Innovation Outlook 2016, OECD Publishing, Paris.
9. https://irojournals.com/jucct/V2/I4/05.pdf
10. https://bctr.org/wp-content/uploads/2019/03/ingilizce_bitcoin.pdf
11. https://www.cnbc.com/2021/02/08/tesla-buys-1point5-billion-in-bitcoin.html
12. https://www.akbanklab.com/tr/guncel/basinda-biz/akbankta-ripple-uzerinden- sterlin-transferleri-basladi
13. Vemula Dineshreddy, G. R. Gangadharan, 3rd Int’l Conf. on Recent Advances in Information Technology, RAIT-2016, March 2016
https://www.researchgate.net/publication/289451535_Towards_an_Internet_of_Things_ Framework_for_Financial_Services_Sector
14. Vijay Kumar S, IJRAR June 2019, Volume 6, Issue 2 https://www.researchgate.net/publication/338622567_IoT_Applications_in_Finance_an d_Banking
15. Fadoua Khanboubi, Azedine Boulmakoul, Mohamed Tabaa, The 10th International Conference on Ambient Systems, Networks and Technologies (ANT), 2019 https://www.researchgate.net/publication/333118794_Impact_of_digital_trends_using_I oT_on_banking_processes
16. D PRASANTHI, B JEEVAN KUMAR, INTERNATIONAL JOURNAL OF INNOVATIVE TECHNOLOGY AND RESEARCH, Volume 7, Issue 5, 2019
