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IoT Solutions for Fintech Providers

S7Clear® — Tue, 21 Mar 2023 17:50:27 +0000

Applications for IoT in fintech and how financial companies can use this trend to gain a competitive edge over their competition.

With a $25 billion growth outlook in the next couple of years, the Internet of Things will soon force fintech companies to rethink their operations. Among the spheres that will fall victim to the most disruptive changes are payments, security, customer experience, infrastructure and internal operations.

In this article, we will explore the existing Applications for IoT in fintech and how financial companies can use this trend to gain a competitive edge over their competition.

The Benefits of Fintech and IoT Integration
The primary benefit of fintech IoT is instant data collection and processing. IoT sensors in finance represent a source of valuable data – insights on users’ behavior and preferences. Using this data, fintech companies and service providers can offer:

increased customer service better risk management and decision making
improved security Moreover, smart wearable devices provide increased mobility and convenience.

The internal business application of fintech IoT solutions allows providers to improve their business efficiency through process automation.

The Internet of Finance
How Can We Use IoT in Finance?
Retail banking is one of the spheres that can benefit from fintech IoT adoption. Just like brick-and-mortar retailers, they can use smart devices to improve their customer service and streamline internal operations.

Citibank was among the first to adopt Beacons in their operations, allowing customers (with the use of their smartphones) to unlock the doors to their ATM lobbies during off hours (instead of with a card).

Here are some more ideas on how banks can use IoT solutions to offer enhanced customer services:

Contextual service
Beacons and other context-aware smart devices can help bankers improve their customer service. For example, they can welcome their customers as they approach or enter the branch or send them personalized messages.

Immediate support
Alternatively, smartphones can also be used as Beacons to notify the account managers when a customer enters the branch.

Indoor navigation
One of the primary Applications for Beacons (indoor navigation), can also come in handy for helping customers find their way around the branch. Thus, customers can specify the reason for their visit and get instantly assigned to the right specialist.

Queue management
In addition to helping customers navigate on-site and find the right representative to speak to, smart devices can also serve as an electronic ticket. It can provide information about the specialist they are assigned to as well as instantly notify them when they are up next.

IoT-based security solutions can be a gamechanger for fintech providers, making financial operations safe and transparent. A number of wearable devices offer biometric authentication methods for wireless payments and money transfers. For instance, Nymi offers an enterprise-grade security solution based on biometric data.

Payments and commerce represent another promising IoT sphere in fintech. In addition to improving the security of such transactions, wireless payments are faster and more convenient, compared to traditional card operations.

Wireless transactions using smart devices can serve as a foundation for self-checkout services across a number of business domains. A similar concept is being developed by Amazon in its self-checkout stores.

The use of IoT devices in insurance is often overlooked. Yet, they can help service providers implement dynamic pricing models – the so-called usage-based insurance. Thus, some providers are already testing smart devices that track vehicle performance and maintenance to adjust their plans accordingly.

Similar solutions can be applied to real estate and even health insurance.

How to Implement IoT Solutions in Fintech

The Development Process and Pitfalls to Consider. The main challenge in using IoT sensors in finance lies in the fact that you need to take into account both the specifics of IoT development and the pitfalls of starting a fintech company.

As a result, the implementation process should include the following aspects:

Concept and Audience
As with any other product, be it an IoT solution, fintech startup, or something completely different, your first step should be to validate the concept and conduct thorough research on your audience. It is always better to know if your product will find its niche before you invest thousands of dollars and months of hard work into building it.

That is why you need to verify the demand for your product and define its unique value proposition. As soon as you see that there is a specific need that can be catered to, you can move on and build your solution.

Data
When building IoT solutions for fintech, you need to, first of all, define the type of data you will collect and its processing methods. Storage security is another question you need to keep in mind (especially now, as the data protection policies are stricter and more explicit than ever with the introduction of GDPR).

One of the best practices to comply with the regulations is to limit the collection of data that is not absolutely necessary for your business and set clear requirements for data processing and storage within your organization.

Hardware Design
Designing custom hardware can be a challenge. Not only do you need to come up with a design and set up the manufacturing processes, you will also need to convince your users buy it (in addition to the smart devices they are already using). Although this approach is a surefire way to monetize your product, it requires significant marketing efforts.

That’s why the best choice is to consider integrating with one of the existing solutions (wearables, beacons, or enterprise IoT solutions). However, if there are no hardware solutions available that can provide you with the collection of required data and a user experience that you need, then you should invest in building your own custom device.

Software Development
IoT software development is no easy task. A typical solution will consist of up to 7 software layers, including communication protocols, APIs, cloud infrastructure, data collection and analysis algorithms, and of course the consumer-facing app itself.

Moreover, your technology choice, as well as the target platform and inner architecture, should be selected based on the type of product and its purpose.

Integration
At this stage, you should consider hardware and software integrations. Your device should work in perfect sync with the application and the backend infrastructure. If you already have an existing internal system, then make sure it works with the new product as well.

Moreover, there are dozens of third-party APIs and solutions you can integrate with. For example, you can add some tools for analytics, advertising, or customer support. You can even use third-party frameworks to personalize your user experience with smart suggestion algorithms.

Ongoing Improvements and Support
It is a common misbelief that once you’ve brought your solution to market, you can sit back, relax, and start counting the revenue. Not only should you start marketing your product, you should also work on making it better, based on the initial users’ feedback.

Constant support and reliability are especially important for fintech products. If there is a system breakdown, you risk losing your clients’ trust (and in some cases, the outcome might be even more serious).

Looking into the Future of Finternet
Financial service providers have always been slow to innovate. Decades-old organizations need to rethink their operations and rebuild them from the ground up if they want to compete with the industry newcomers.

As IoT (and, most importantly, the data it provides) is an undeniable advantage in this arms race, we will undoubtedly see more Applications for fintech and IoT integration very soon.

Yet, IoT development is a complex and technically challenging undertaking. That is why it is important to have trusted technology professionals by your side. Regardless of whether you decide to grow the expertise in-house or hire an outside technology provider, deep domain expertise in IoT, as well as solid understanding of financial technologies, is a must.

10 innovative FinTech business models

S7Clear® — Tue, 21 Mar 2023 16:32:10 +0000

With heaps of venture capitalist money flowing into the FinTech ecosystem, “challenger” banks are threatening to wipe out banking behemoths faster than Blackberry was taken out of the cellular telephone market.

Let’s look at 10 innovative FinTech business models that are leading the path of disruption.

1. Alternative credit scoring

Many self-employed people with a steady source of income do not pass conventional bank loan screenings due to strict and outdated credit scoring criteria. Credit rating FinTech companies such as Nova Credit are taking a new approach by considering alternative data points like social signals and percentile scoring amongst similar borrower groups. All these qualitative factors combined with an intelligent and self-learning algorithm can lead to better lending decisions over time. For example, if there is a way to determine negative profiles based on social presence before loan disbursement, then a lender can avoid having to deal with loan recovery.

2. Alternative insurance underwriting

In today’s world, two individuals with the same weight and height, both non-smokers and who don’t drink alcohol will be given the same life insurance premium. However, one person might be an exercise freak, while the other might be a couch potato and more likely to die of diabetes. These faulty premium calculations happen because of averaging out (called normalizing in actuarial terms) as risk premiums currently don’t account for factors that aren’t quantifiable.

As with alternative credit scoring, FinTech companies such as Carpe Data are building variable premium computing mechanisms with alternative data points such as social signals, lifestyle, and medical history. Combined with intelligent and self-learning algorithms, these InsureTech companies can determine whether or not to give insurance, provide different terms and conditions, and offer alternative payment options (for example, co-pay options).

3. Transaction delivery

Data is the new oil, and managing it better can give immense insights into the needs and wants of the customer. FinTech startups in the transaction delivery space are creating free products, such as expense management apps, in order to collect customer data and then cross-pollinate that data with the rest of the group to map the potential of the customer to pay premiums, invest in real estate, buy mutual funds, etc. The business model involved in these types of FinTech companies is commission based, for example, on reselling third party financial products.

4. Peer-to-peer lending

Peer-to-peer (P2P) lending is when an individual borrows money from other individuals. Similarly, peer-to-business (P2B) lending is when a business borrows money from one or multiple individuals. These lending models are making it easier for investors to get better returns than those offered in debt markets by giving their money to pre-approved and vetted borrowers. FinTech companies such as Funding Circle create platforms to match borrowers with lenders and usually take a fee from the borrower’s repayment.

5. Small ticket loans

Banks and other lenders typically don’t want to underwrite smaller ticket loans because of the low margins and high costs involved in setting up and recovering them. FinTech companies in this slice of the market (such as Affirm) are delivering impulse buy mechanisms (buy now & pay later, or BNPL) and one-click buy buttons on e-commerce websites to enable customers to buy quickly without having to enter any form of authentication or credit card details.

These loans will typically be underwritten at 0% interest so that almost anything can be purchased outright with the option to pay in instalments. How is the money made? By sharing customer data with the original equipment manufacturer (OEMs) as they will benefit the most from the increased affordability of these devices. Combining this with algorithms that will determine customer demographics ensures highly-customized marketing offers. Think of sharing of your data with them as the interest on the loan.

6. Payment Gateways

Payment gateways are platforms that enable shoppers to pay for a product or service on a merchant’s website. Today, there are countless payment methods such as debit cards, credit cards, digital wallets, and cryptocurrencies. Typically, banks charge enormous fees to handle transactions from all these different methods, but FinTech companies are integrating all of these payment methods into convenient apps that online merchants can easily afford and integrate on their website. Typical users of these payment apps would be businesses selling either their physical products or services to end users, ex. Stripe, Alipay, iZettle.

7. Digital wallets

Digital wallets can be seen as a combination between a no-frills bank account and a payment gateway. With this business model, a user can pre-load a certain amount of virtual money into their wallets and use this virtual money to make either online or offline transactions with merchants who accept digital wallets as a payment mechanism.

A digital wallet business model typically involves giving users the convenience of making payments for a small fee that is typically charged to businesses in the form of a merchant discount rate (MDR) and via the float that they would make on the money lying unpaid in customer/business accounts. Typical end users of wallets would be businesses selling either their physical products or services in stores to end users, for example Venmo, Square Cash, Google Wallet, etc.

8. Asset Management

Ever heard of buying stocks or mutual funds without having to pay a commission fee? FinTech companies like Robinhood are enabling investors to trade for free in exchange for their data. They forward this data to high frequency traders who can then influence the price of the asset. Even though the investor might pay a slightly higher price for their asset, the difference between the amount they save from trading fees and the slight increase in price is still positive.

9. Digital banking

Imagine your traditional brick and mortar bank going completely online — no physical office, no bank tellers, no mail. Challenger banks such as N26 are offering no-frills individual and business bank accounts through a complete digital infrastructure. The business model here is almost identical to that of a bank with physical branches except that with the huge cost savings in manpower and real estate, customers can greatly benefit from reduced rates.

10. Digital insurance

As with digital banks, FinTech companies operating in the insurance industry are taking all of the traditional services to the digital world. Offering life and health insurance with better underwriting practices, these FinTechs can price their premiums at variable rates depending on the customer, thereby offering aggressively cheaper coverage compared to traditional insurance companies. These types of insurance, together with personalized marketing, can create business possibilities that insurance companies have only begun to explore. Lemonade, for example, is operating in the house insurance space.

Hyper automation will replace manual work Hyper automation refers to the introduction of AI, deep learning, event-driven software, Robotic

Process Automation (RPA), and other technologies and tools that improve decision-making efficiency and work automation capabilities.

RPA, which makes it easy for companies to deploy software robots such as chatbots at scale, is already a major component of digital transformation, but technology is constantly enlarging its boundaries. RPA’s core function is to allocate the handling of workflow information and business interactions to robots, thereby automating and standardizing business execution. High repeatability, clear logic, and solid stability are the key criteria to validate RPA tech feasibility. In future, RPA will become more deeply integrated with AI, improving its effectiveness in dealing with more complex business scenarios, and further streamlining financial service provision.

RPA is already at work across middle and back- office operations, automating financial processes and accounting reconciliation for financial institutions. Areas where RPA is being deployed include process automation for accounts receivable and payable, fund appropriation at shared finance and accounting service centers, work hour adjustment and review, automation of financial recording, reporting and treasury processes, and period-end accounting and settlement.

Replacing manual work with automation not only improves efficiency, but also reduces human errors, and allows businesses to respond to fluctuations in demand. While already well established among leading financial players, we expect RPA to penetrate more deeply throughout the industry. Accounts payable processes, for instance, have the potential to be 60 percent automated using robots that mirror human actions for basic paperwork and decision-making.

Unlocking future competitiveness

These key technologies and trends are becoming increasingly intertwined and integrated, giving massive impetus to fintech and financial industry innovation. As it stands, it is niche financialsub-sectors that are most adept at harnessing technological innovations to launch applications, generate value, and shape the competitive landscape. In future, traditional financial institutions will need to bring their considerable resources to bear to stay on top of the gathering wave of financial industry disruption.