The Internet of Things (IoT) has had a massive impact on the banking and finance industry — particularly on financial inclusion. Here’s how this technology is making saving, investing, and spending more accessible to underserved communities.
The Role of IoT in the Financial Industry
IoT financial services have become a massive trend in recent years. According to experts, its market value will reach $6.8 billion by 2028. Considering how time-sensitive online payments, stock trading, and asset management are, its popularity shouldn’t surprise anyone.
What’s more, experts believe there will be nearly 39 billion IoT devices in the world by 2025. Soon, this technology will outnumber humans at a ratio of roughly five to one. As it becomes more accessible to the average person, financial services will become far more inclusive. After all, traditional banks can’t meet everyone’s needs.
Why Is Financial Inclusion Necessary?
In 2021, over 80 percent of adults in the U.S. had a bank account and didn’t use resources like payday loans, money orders, or tax refund advances. At first glance, this percentage seems positive. However, the unspoken truth is that 20 percent of people don’t have an account or rely on alternative financial services.
Traditionally, the financial industry has been dependent on things all things physical — like how you have to visit in person to deposit cash. Even when the industry tried to modernize, it still relied on old infrastructure. For instance, someone can only deposit money or check their balance using their bank account.
Even though online banking options are more or less standard, it does no good to people who don’t live anywhere near financial institutions. People in underserved areas are left behind. At the very least, they don’t get the same opportunities as others.
On the other hand, mobile money is entirely digital and has no ties to existing financial infrastructure. Instead, it relies on network providers and operates independently. Think of all of the apps and websites that don’t require bank accounts to store, transfer, or invest funds — it might seem like an unremarkable feature to most people, but it can be life-changing to underserved populations.
IoT Makes the Financial Industry More Inclusive
IoT makes financial services accessible to people who don’t have an existing infrastructure. While online banking still relies on existing accounts and physical locations, many IoT technologies operate independently. As a result, people gain a lot more flexibility with their saving and spending habits.
Many banks require minimum fees just to start depositing funds. On top of that, a lot of them have arbitrary fine-print rules where they charge extra to close an account, use an ATM, or be inactive. Even if someone has a financial institution nearby, IoT might make more sense.
Ways IoT Promotes Financial Inclusion
In the financial industry, people use IoT in various ways. Here are some of the ones promoting financial inclusion.
1. Fraud Prevention
Although banks themselves are secure, it doesn’t mean people’s accounts are. In fact, the FBI’s Internet crime report says financial fraud cost older adults over $3 billion in 2022, an 84 percent increase from 2021.
An IoT device can monitor accounts in real-time, instantly sending reports if it comes across anything suspicious. If it has an extensive collection of behavioral data, it can operate with much higher accuracy. It’s similar to how traditional banks call an account holder when they notice unusual out-of-state charges, only more precise.
2. Real-Time Investment
Traditionally, investing has been unattainable for people who don’t have insider knowledge or special tools. With IoT, they only need a single device to get real-time updates on their stocks or news stories on impactful market decisions.
IoT promotes inclusion through personalization. For one, IoT data collection allows for dynamic credit scoring. If a device gathers and analyzes someone’s financial behavior, it can generate an accurate, up-to-date report. This simplification of the standard strategy makes maintaining a high score more achievable.
IoT devices also personalize services using recommendations. Depending on how someone invests and saves, they could suggest a specific loan type or offer custom credit cards. People will get much more out of each financial decision when the process is tailored to them.
4. Contactless Transactions
You can use IoT for all sorts of contactless transactions, whether you want to send, invest, or save money. It’s already a popular service worldwide — roughly 35 percent of people use a mobile wallet. Since people don’t need to have an account with a bank, they have much more flexibility when it comes to saving and spending.
More importantly, IoT-powered transitions are crucial for people on government assistance. A good chunk of the population doesn’t have a bank account, meaning some people can’t get critical aid.
5. Asset Management
People can use IoT sensors and wearables to get a real-time information stream on their assets. This technology is invaluable to those in underserved areas, whether they want to insure something or simply protect an investment.
IoT-Driven Financial Inclusion Has a Long Way to Go
Although IoT’s impact on financial inclusion is already so dramatic, there’s still a long way to go. After all, many people still don’t have reliable access to the internet or connected devices. For example, only 10 percent of adults had a mobile money account in 2021.
With the massive uptick in the number of IoT devices worldwide, financial inclusion will likely skyrocket soon. Still, people should be aware of accessibility and equitable strategies when developing new technologies.
IoT Could Permanently Revolutionize Banking
IoT is already a revolutionary financial technology, so it’s not a stretch to assume it will continue making waves. As more people get ahold of internet-connected devices, they can manage their finances with ease — there’s no telling what the future could hold.