IoT: Role of Banking in the Developing the Internet of Things World

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The banking industry is being transformed by wearable devices and contactless payments. In the near future, intelligent objects will conduct trade autonomously.

Many bankers initially dismissed the “IoT” as a passing fad. The hype has now become reality, driven in part by persistent staff shortages.

The New Business Models

According to the Digital Banking Report, IoT growth remains one of the most significant predictions for the future of banking.

Experts at Citibank forecast that the “Thing Economy” will generate new business models, ecosystems and opportunities across multiple sectors, including financial services. In 2026, these opportunities continue to expand as the fusion of digital and physical worlds accelerates.

IoT commerce is already a reality and is growing at an unprecedented pace. This convergence offers tremendous potential for partnerships and the creation of entirely new products and services.

The Tip of the Spear: Embedded Commerce

Many financial institutions recognize IoT’s potential in consumer banking. Mobile apps and contactless payments form part of a much larger picture.

Amazon Go stores demonstrate retail applications that let customers “Just Walk Out,” settling payments via RFID tags or AI. These solutions are already training consumers to accept semi-automatic mobile payments.

Jim Marous, co-publisher of The Financial Brand and CEO of Digital Banking Report, describes these as the “low-hanging fruit” of IoT. He predicts that embedded banking opportunities will grow as institutions shift focus from transactions to deeper engagement.

The Bigger Prize

While in-car payments are already emerging, integrated finance represents the true promise of IoT. The technology now extends to wearables, voice devices and automotive applications. Marous notes that IoT can support broader financial engagement, including instant transfers, content distribution and the combination of healthcare data with financial services.

The Digital Vehicle Fingerprint

Next comes the automation of routine, repetitive payments. Citi Ventures portfolio company Car IQ is developing solutions that enable vehicles to connect directly with banks and service providers. Using sensor data, Car IQ creates a digital vehicle fingerprint for authentication and seamless transactions.

Banks and credit unions see the strongest prospects in B2B and commercial segments, where smart labels can be integrated throughout the supply chain.

Clothing with Embedded Microprocessors

These intelligent labels contain a microprocessor, identification module, antenna and beacon. When embedded in goods, they enable a new economy in which companies can integrate financial services directly into products, allowing autonomous commerce between devices.

Citi believes financial institutions are ideally positioned to lead and expand into the Thing Economy, potentially driving a dramatic increase in payment volumes.

Preparing for the IoT Banking Onslaught

Financial institutions must overcome challenges such as legacy management, cost, talent acquisition and, above all, cybersecurity to fully benefit from the Thing Economy.

Successfully addressing these issues could unlock value for consumers and IoT users ranging from $5.5 trillion to $12.6 trillion.

According to Citibank, new infrastructure — including advanced technology and strategic partnerships — will be required to authenticate and secure micropayments.

Know Your Customer (and Device)

Once infrastructure is in place, devices ranging from postage stamps to electric vehicles will execute unattended, programmatic transactions seamlessly. Trust, security and unique digital identities for each device are essential.

Financial institutions will need to enhance existing Know Your Customer (KYC) processes to verify both users and devices. These enhanced procedures will also enforce permissions and validate autonomous machine interactions. Biometrics combined with IoT devices already deliver higher verification standards than traditional methods.

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A Chance, Not a Threat — Bankers Say

Analysts remain divided on whether IoT will replace traditional banks. Mercator Advisory Group argues that banks will continue to play a central role even as third parties introduce new payment options.

Jim Marous emphasizes that acceptance and integration must begin at the leadership level. Both mindset and processes require transformation. Financial institutions must adapt quickly to evolving consumer and business needs.

Banks and credit unions should respond rapidly or partner with third-party IoT solution providers to remain relevant in the evolving ecosystem.

The IoT transformation in banking is no longer theoretical — it is clearly visible and accelerating. Change will not be simple, yet integration of new business models is unavoidable.

Traditional banks must take the initiative and shape their own future rather than react to external forces. Every day of hesitation allows competitors to gain ground.

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