An Internet of Things-connected future in prospect

By Urs Gubser, Head E-Commerce, SIX Payment Services.

The future is even closer than we think. The increasing pace of technological change means concepts formerly considered only abstract theories on a distant horizon are already nearly upon us.

In particular, the Internet of Things (IoT) means the type and number of devices connected to the internet is proliferating at an astonishing rate. No longer limited to laptops, phones and tablets, now a multitude of objects from washing machines to toasters, cars to fridges also have the capability to be connected. This opens up a whole new world of opportunities for consumers to make cashless or automated goods and new channels for businesses to the sell and distribute their goods and services.

Results from a recent study¹ reveal as many as 80% of Americans demonstrate a ‘strong interest’ in making purchases via IoT devices while 83% specifically recognise the time savings and ease of use associated with such mechanisms.

IoT in the retail market

However, the world of IoT can be complex to navigate for consumers and business. From the consumer angle, the biggest draw is the potential convenience: the ability to order and pay for things remotely or set up automated re-supplying, such as enabling a fridge to automatically re-order milk when supplies run low, saves time and hassle.

In the case of basic groceries, consumers tend to rebuy the same brands, so the automation of ordering and purchases via a smart-fridge is fairly straightforward and removes the need for the consumer to spend time and effort tracking and purchases such goods. In time, developments will likely allow for increased levels of control of when and how purchases, further personalisation and customisation, and a broader range of products to become available. For example, in addition to automated ordering of items such as milk, consumers would also be able to browse for and purchase more exotic or less everyday items via their smart-fridge.

The advantages for retailers are clear: these new digital channels will create organic demand for repeat purchases without the need for proactive prompting or advertising. Additional benefits range from inventory management to increased cash flow security, the possibility to discount surplus stock or automate delivery services. These new digital mechanisms of purchase also generate valuable data about customer behaviour which can be mined for useful information regarding customer service and potential future demand.

A new e-commerce ecosystem

The most challenging aspect of the IoT payments ecosystem is probably the logistics. Solutions available to businesses companies include Uber-like delivery services, local delivery firms or corporate services like Amazon. However, retailers are less likely to opt for Amazon as the internet giant is seen as a competitor which already has a strong market position, particularly within IoT.

One alternative is a new e-commerce ecosystem would bring together merchants with an IoT provider and a payment system, such as those developed by SIX. This would enable the delivery of goods and services as well as provide opportunities to harness the full potential of new digital capabilities and data being generated.

At SIX we have built up many years of experience successfully managing transactional data and ensuring smooth order flow. Developing an IoT payments system is a natural next step to take from the work we already do. We also see that the provision of such as system could hold great value for merchants, consumer and logistics providers.

In order to develop our capabilities in this area further, we have already launched an initial test case in Zurich: a trial fridge replacement mobile app. We are using the IoT commerce platform to understand how the technology will work, alongside local merchants and future IoT providers. This test case will be useful as we see that the same model could be applied to multiple sectors, such as replacing stationery items for businesses. Utilising a IoT payments scheme could provide significant cost savings as well as ensure that businesses run as efficiently as possible.

We also believe that machine learning and Artificial Intelligence (AI) will provide a solution to some of the practical challenges of IoT payment channels. For example, blockchain technology could be used to create a distributed ledger of transactions which would allow stakeholders to access transparent information about the workflow.

The advantages to businesses across different sectors of using automated payment systems using IoT and blockchain are clear in terms of efficiency and cost. Moreover, companies will gain greater access to their customers as these new channels will open up opportunities for communication and feedback, allowing for a more tailored and improved approach from manufacturers.

The pivotal role of payment systems provider

By 2021, experts predict there will be 28 billion devices connected to the internet worldwide, from cars to fridges, watches to other future wearable or computer chips embedded in the body. Each of this could have the potential to make and receive IoT payments. In fact, many already do. For instance, manufacturers such as Samsung and Trustonic have created fridge products which can order groceries. Consumers can access integrated embedded e-commerce solutions via mobile apps with Uber and Lyft.

With the infrastructure already in place, the crucial next step is the provision of a commerce ecosystem to process transactions and bring all the mechanisms together into a seamless whole that includes every aspect of the order value chain, from orchestrating the logistics to pay-out the merchants

SIX is also well placed to offer such services. For example, trust is an important factor in any platform for processing IoT payments. Based in Switzerland, SIX has a reputation for neutrality and trustworthiness built up over many decades through working with banks and retail customers across Europe. Providers who are also retailers, such as Amazon, could raise issues of perceived conflict of interest. Feedback from a recent survey² suggested as many as 65% of consumers trusted card issuers as enablers of IoT services over and above alternatives including retail channels, social networks and mobile device manufacturers.

As transformations prompted by the advent of the smartphone could barely be imagined a decade ago, it is difficult to fully grasp the potential possibilities opened up by IoT alongside other technological innovations such as robotics and artificial intelligence. What is sure is that we are on the brink of a revolution in the way we consume and interact with companies through these new channels with new and exciting opportunities for consumers and businesses close at hand.



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