The Internet of Payments – a new model

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

Today, more and more objects we use in our everyday lives are connected to the internet. No longer only a function of our laptops and smartphones, everything from household appliances to cars to watches are becoming “smart”, capable of communicating and carrying out independent actions on our behalf. As a result, the Internet of Things (IoT) is becoming more prevalent than ever.

However, IoT can only reach its full potential by also being able conduct financial transactions. For instance, if a car were able to enter into a car park and automatically the amount of time the car was in the car park was recorded, the appropriate charge calculated and invoiced and the payment made manually or automatically, both consumer and business would save time and costs. This concept of the Internet of Payments (IoP) could also apply to a whole spectrum of businesses and sectors, with great implications for the way we consume and companies conduct business.

While the groundwork has been laid and much of the infrastructure is already in place for IoP, there are still some challenges to overcome before it becomes a reality. The missing link is a fully operational commerce ecosystem, which SIX is working to implement, that can bring all the elements of IoP together to work seamlessly.

Initiatives that are already utilizing the principles of IoP include Amazon’s ‘Dash Buttons’, which for the last two years have allowed customers to purchase items using existing payment details at the single click of a button. In theory, any device can become part of the IoP by having this auto-ordering capability.

However, in practice, the process may not be so simple. In March 2018, a court in Germany ruled that Amazon’s one click purchasing buttons contravened German law due to the fact that consumers would not be given information regarding the final full cost before the transaction was completed and that there was a risk the consumer would no longer remember the exact product they had clicked the button to purchase. While the ruling is set to be appealed by the internet retailer, the dispute highlights that there are complex issues to be better understood and addressed before IoP can become a fully integrated aspect of our daily lives.

While offering a simple solution that is one step closer to automated purchasing, Amazon’s Dash Buttons are a retrofitted function on an existing purchasing method. In future, more elegant solutions can be incorporated in the initial design of a device or process to ensure that ordering or resupplying is much more precinct and provides a real value for the consumer.

Additional factors to consider are the provision of clear and transparent information for the customer during the entire transaction and effective encryption of their personal and payment data. Such mechanisms are an important preventive measure against potential fraud and will foster consumer confidence in the new technology. Measures can include integrated authentication ranging from personal identification numbers (PINs) to more advanced biometrics as well as device identification.

Data protection is also a growing concern. Consumers are becoming increasingly cautious about how much data they share and how it will be used. This could cause complications for any automisation of payments. ‘Pull-payments’ such as direct debits, which can already be automised, may be replaced with automised ‘push-payments’ which will need to be instigated by the customer, allowing them to retain control. The full range of these different types of payments will need an integrated platform through which merchants can process transactions securely and easily.

While we are yet to see exactly how the IoP will impact and shape consumer behaviour and market developments, the prevalence of connected devices will increase and the potential of IoP will expand with it. A survey by Gartner suggests that by 2020 there will be 20 billion devices, each of them with the potential to play a role in consumer purchasing and provide gains for businesses through opening up new channels for sales and services.

That’s not to say that every device with connectivity requires a payment function and to apply new capabilities indiscriminately may not make good business sense. But effective and tailored application in appropriate scenarios has great potential to generate additional revenue streams for businesses while also providing efficient and easy to use purchasing streams for customers, resulting in mutual benefits.

Crucially, the success of IoP system, and by extension, the companies implementing them, is how convenient and smooth the process is for the consumer. For example, the need to enter a PIN to authorize each transaction may present a stumbling block in the user experience. In addition, while today price is the most important factor dictating consumer choice over product and supplier, in future, with payment automisation on offer, the level of convenience may become the deciding factor. An important consideration for any business will therefore be how they can adapt most effectively to the new consumer environment to ensure they can maximise their market share and avoid losses.

The IoP world presents both challenges and opportunities for businesses. While it is becoming increasingly complex it is also becoming increasingly important that companies react and plan for its future in order to harness its benefits and avoid being left behind. Consumers may be more willing to part with their money than when dealing with hard cash but if businesses are not able to keep up with new innovations they may miss out on significant revenue.

A surefire way to stay ahead of the pack is to build strong partnerships with service providers who have the experience and know-how in this fast-evolving industry to be able to give advice and provide the right tools at the right time so businesses can make sure they are ready for the connected world that lies ahead.

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