Wearable technology, like mobile payments, is something a lot of people would have expected to be a lot further along especially when the likes of Apple, Barclays and MasterCard are dedicating a lot of investment and research into the field.
MasterCard recently entered into a partnership with Coin to bring MasterCard payments to fitness bands, smart watches and other wearable devices. The first set of companies to work with MasterCard on this initiative includes Atlas Wearables, which designs advanced fitness trackers, Moov, a personal fitness coach on your wrist, and Omate, maker of smartwatches. Barclays even has its own range of wearables: a sticker,a fob and a bracelet. And Apple? Not much can be said for certain about the watch since the company is keeping schtum on any figures. However, according to reports, sales of the watch have fallen by a quite frankly incredible 90 per cent since the April launch. That, coupled with the fact that Apple is classifying the watch in its ‘other products’ category that includes Beats headphones and iPods suggests that the figures for watches are not ones that Apple wants to share with people.
The road to 2020
Mixed responses to wearables (except the fast-growing fitness tracking space) have led to the trend being repositioned as a long-term simmer that will come to a boil around 2020. Especially when it comes to payments. In November, Visa Europe’s head of Contactless, Nick Mackie, told PaymentEye, “We do think that contactless mobile payments will grow tremendously. In my view, I believe it is very possible that, by 2020, contactless technology will be the preferred way to pay for many Europeans.”
This appears to be in line with recent research conducted by IHS Technology, which found that the global market for wearable devices will increase over 270 per cent, from 91.5 million shipments in 2015 to 340 million in 2020, the wearable payments attach rate will reach 45 per cent of the market in 2020. The research firm also predicts that smartwatches, wristbands, fitness and heart-rate monitors, and other devices worn around the wrist are projected to account for nine out of 10 wearable shipments through 2020.
Festivals, sports and wearable trends
IHS found that in 2015 the events sector (i.e. sports matches, music festivals and theme parks) was the most popular use case for wearable devices into payments, with around 55 percent of shipments. When we spoke to Steve Daly, head of Radio Frequency Identification (RFID) at ID & C, last summer and asked him why festivals, he explained:
“By its very demographic, the festival industry is a great test bed for new technologies. It is the first place to go if you want to see how adoptable a new tech product can be. Using cashless has proven to increase revenues by 30-70 per cent, and in the current environment, festival organisers cannot ignore this.”
Sorry, we’re closed-loop
Wearables at these events were predominantly closed-loop, which IHS points out were more popular in the early stages of the market. These are great for single/limited environments such as festivals and theme parks (Disney uses them in its theme parks) and have also played an important role in transport – with the Oyster card system a good example in the UK. In the long term having a dedicated device or card is not efficient when it comes to repeated daily interactions.
Eventually open-loop systems such as contactless cards will be much more effectively because they are convenient not only in the sense that you need one less card in the wallet (something companies like Curve are trying to solve) but also because you don’t have to worry about topping up the account or having that embarrassing moment of being told by the barrier to “seek assistance” as a queue of angry Londoners forms behind you, all baying for your blood.
In 2015 closed-loop payments accounted for 82 per cent of wearable-device payments, but that is because, IHS says, the current popularity reflects the fact that they are quicker and easier to set up, compared to open-loop solutions. However, as the market continues to grow and public demands become more varied, open-loop solutions will proliferate. Open-loop solutions are forecast to account for 72 per cent of wearable-device shipments used in payments in 2020 and IHS says they are a “necessary step before the market can become large and sustainable “.
Obstacles that must be overcome
IHS underlines that whilst wearable tech is still in its infancy, there are obstacles that must be overcome if it wants to become a serious force in payments. These include:
- End-user acceptance of the technology – End-users need to be comfortable in using the technology. They also need to understand the benefits and advantages of using this technology.
- Staff training – It is imperative for staff to be properly educated and trained in using this technology.
- Resolving complex ecosystems – There are a lot different players in the payment ecosystem (including banks, processors, device manufacturers, transit companies etc.). Each company wants to maximize their revenue streams in this space. This can make negotiations long, complex and can delay deployments of the technology.
- Provisioning of wearable devices to payments systems – The provisioning of wearable payment credentials needs to be done in a safe and secure manner. Provisioning can take place during manufacturing, distribution or at the point of sale in retail stores. It can also happen using a mobile app that would connect to the wearable device via Near Field Communication (NFC), Bluetooth Low Energy (BLE) or a USB port.
- Payment infrastructure – An appropriate payment infrastructure must first be installed, in order to make a wearable payment. For instance, contactless point-of-sale (POS) terminals are required to complete a transaction via wearable devices, so growth in wearable payments is directly linked to the number of available terminals.
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