May the Payment Be With You

Kris Carrera
Business Line Executive, Credit
Posted on November 10, 2016

wearable payments

Don’t Carry Your Wallet, Wear it

Are you ready for the payments migration to wearables?

Wearable devices on a fashion runway? Believe it or not, that day may not be far off. While most people are only familiar with smart watches, wearable devices are a rapidly growing market. As accessories once reserved for high fashion begin to combine with technology, consumers soon will find armbands, rings, bracelets, bags and glasses with payment capabilities.

Wearable technology is certainly nothing new; the first serious wearable wave came almost two decades ago with innovations like the Java ring, which held 6KB of RAM, enough for a few account numbers and URL bookmarks. Now, there are numerous, established tap-and-go chip-card payment systems around the globe. While these systems aren’t strictly for wearables, the opportunity is there; and a new flock of payment-enabled wearables is poised to make payments truly invisible – completely frictionless, with no user input beyond swiping your arm across a reader device. Your credit and debit card collection can remain stashed away in your wallet.

The need for frictionless payments

The growth of pay-and-go chip-card systems globally has been steadily growing, but remains isolated – reserved primarily for closed environments, such as college campuses and transport networks. Wholesale adoption has not been as fast as we wanted, especially in the U.S.

Tap-and-go is convenient, but not frictionless; the cardholder has to first locate the card and remove it, before tapping on the terminal. Admittedly easier than dipping a card into a reader and punching in a PIN, it remains clumsy nonetheless. Phones are another option, but they do not actually make a payment invisible, so why not just swipe your hand? Even the advent of the first mass market smart watches have not impacted the payment landscape much due to a combination of consumer reluctance and lack of merchant acceptance.

The numerous pilot schemes across Europe and Asia, primarily in metropolitan transport networks, have revealed a public with an appetite for tap-and-go payments. Additionally, universities, sporting events and theme parks have all demonstrated the capabilities, and that the technology is ready for everyday use. But the most we have seen are small-scale gimmicks, such as banks issuing wearable mittens so you can pay without letting go of your bags during the holiday shopping season.

In order to spread into the mainstream retail market, easy payments are not enough. Wearables have the potential to transform easy payments into truly invisible payments.

The fashionable way to pay

Many developments have been made in recent years to offer payment services in more imaginative ways. From enabled rings, watches and bracelets to designer bags, gloves, clothing and shoes – the wearable, digital enhancement market is growing fast. Additionally, solutions are now resilient enough to withstand the rigors of daily life, such as surviving a dip into the washing machine or swimming pool.

While these advances showcase the capabilities available, options that meet customer desires also are needed in order to address consumer needs. In the end, not everyone wants a payment-enabled designer handbag. glasses or sneakers. So, if the aim is to build payment capabilities into everyday life, we must be able to meet the wishes of everyday consumers. Sometimes, a wearable will be built into a winter jacket, sometimes it may be a bathing suit. A recent innovation embedded a payment chip into dog leashes so canine-lovers could conveniently pay for their morning coffee without the need to carry their wallet or purse.  Such ideas are necessary to embed the experience into consumers’ lives. In the end, the success of wearables will be determined by whether or not using them becomes easier than pulling out a wallet and safer than using a card.

Keep them safe

The whole point of wearables is that they are frictionless – no interaction or authentication needed. However, this implies that if you lose the device, you could potentially lose the money attached to it. That means financial institutions will need to establish good defense systems to keep everything safe. The first line of defense will be usage limits, including maximum transaction value and the number of payments per day. But financial institutions need to match the service they offer for credit and debit card losses with little or no customer liability once reported and stopped.

Given that consumers will likely own multiple wearable devices for different activities, the users will need to manage these devices through a phone or PC banking application. Wearables could be instantly turned on and off as needed, or configured to be only active between certain hours on specific days in a fine-tuned way. Again, different consumers will require the ability to link different account types to the wearable. Some may prefer a prepaid service with top-ups as needed, others may prefer a direct link to their debit account or credit line. And let’s not forget the need to geo-locate these devices in case they are displaced.

Getting under your skin

Wearables will soon become the cost of doing business. Customer demand for choice is nonnegotiable, but it is worth remembering that the infrastructure upgrade for these services is comparatively minimal, and complements already established payment environments.

The smartphone era has reached an inflection point where the focus is increasingly switching from handheld devices to wearables. Where the phone market was dominated by Google’s Android devices (85 percent), with high-end support from Apple’s iOS (10 percent), the wearable market is likely to be more open. Looking ahead, the natural evolution from wearables is the move into the world of trans-humanism, where enhanced digital capability is implanted.

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Kris Carrera
Business Line Executive, Credit

With over 25 years of international payments experience, Kris was responsible for the launch of the first successful cobranded card program. A leader in risk-based pricing and target marketing using predictive data analytics, she specializes in merchant services, credit cards and home equity. Kris has received Best Travel Card, Best Cobranded Card and Best Private-Label Program awards.