Financial API's, Financial Software, Fintech
Electronic payments are part of our daily life, enabling us to make purchases or transfers everywhere: an online subscription, an upgrade in a mobile app, the latest fashion items in a shopping mall, museum tickets or reimbursing money to friends. Paying is now a natural habit. What Fintech is silently saying today through wearable payments is that the payment process can also be more natural and payments can be redesigned for friction-free interactions.
What are wearable payments?
Wearable devices are connected, environment-aware devices that have biometric capabilities. They can be seen as part of two main concepts that are shaping the world today: Internet of Things or Connected World. The technological leaps in electronics within the last years and the ever growing Internet availability brought a fresh perspective on how electronic payments can be improved. As soon as wearables became a hit in the health industry, FinTech companies jumped at the concept. Bracelets, glasses, watches and jewelry all turned out to be objects that can replace the traditional card.
Connected. Wearables enable contactless payment processes through Near Field Communication (NFC). The device communicates directly to the network through inbuilt Wi-Fi/3G/4G connectivity or can use Bluetooth to connect to the user’s phone to finalize the payment. In this second, scenario Host Card Emulation (HCE) is the most common technology used.
Environment-aware. Devices have geolocation capabilities through GPS sensors, or other components such as cameras and microphones, which enable environment authentication (e.g. QR codes) as well as biometrics.
Biometrics. The advantage of wearables is the potential use of biometrics as security components in the payment process. Eye recognition or pulse patterns build a unique signature for authentication.
Fingerprints are still seen as unreliable. Jan Krissler, a hacker known as Starbug, recreated Germany’s defence minister fingerprint using photos of her right thumb that were taken at public events. While many examples have been referenced on the weakness of fingerprint authentication, this event alone raised many security questions due to the high profile nature of the victim.
Wearable Payments Today
Powering a wearable device with payment data became an important part of research and development from start-ups to banks or even large non-financial enterprises. Replacing an online transaction or chip and pin cards with fingerprint authentication on smartphones might not gain public trust too easily, but wearables approached things differently.
Google Glass has not taken off, but payments are built on top of it. Eaze, a Dutch company, is combining head gestures with Bitcoin to create a payment process called “Nod to Pay”. Major players are making strides with glasses from MasterCard to Intuit, but the technology is still an expensive option.
Bracelets and wristbands
Barclay introduced a contactless payment wristband called bPay. Through their existing infrastructure they managed to reach 300,000 enabled locations for bPay payments which were limited to 20 GBP for now. CaixaBank in Spain has created a similar concept using Visa contactless payment to enable and process payments.
On the merchant side, Disney invested $1 billion into MagicBand, a wristband that allows visitors to pay inside its premises as well as gain access to its facilities. The sheer size of the investment shows the company’s commitment to integrate future technology into its core business.
Time and payments
In the smartwatch arena, major players already have a say. PayPal released a payment app for Samsung Gear 2, using device tap for payment initiation, while Starbucks built WearBucks for Android Wear watches, enabling voice commands in payments. The company also created an API for developers, showing that it is planning to monetize the infrastructure and allow for more third party integrations.
Last but not least, leveraging its popularity, Apple’s smartwatch had a good entrance on the smartwatch market releasing ApplePay on its watches in early 2015.
Wristband and Heart rhythms
When it comes to wearable payments, one of the most interesting developments in the segment is Nymi. Bionym, the company behind the wristband created a solution that charts the wearer’s “unique cardiac rhythm” to verify his or her identity. The technology appears to be one of the most solid in authentication and banks are already signing up to pilot the solution in the market.
MIT has initiated yet another interesting technology start-up. RingTheory embeds the payment process in a ring. Pioneered for public transport, the system allows the user to tap the ring to pay for the trip. But the company sits on another concept that could probably spark an innovation revolution in payments later in the decade: 3D Printing. The rings are 3D printed, which could open a democratisation of the payment production process.
The top challenge remains the same
Regardless of the form, wearables have a main advantage: they are always on, always available, frictionless devices. On the other side, the main challenge in the payments field is security and wearables are not yet fully proven in the field. Consumers still feel more comfortable and safe using online payments or bank cards.
Considering Google Glass, but not exclusively, wearables have a high initial cost, whether in R&D or in production, which makes these devices not yet affordable for the average consumer. Lastly, high power consumption can be seen as an issue, especially for those devices that do not use the mobile phone as a proxy. However, battery life has increased significantly within the last years.
First prize for wearable in payments
As technology takes significant jumps from year to year, financial service institutions and the banking sector are aligning their interests in upgrading their existing technology with the new trends. Companies are adapting in order to compete with innovative FinTech and are unfolding new technologies to support an integrated product approach.
When speaking of wearable payments, we think of transactions performed in a short timeframe, from decision to purchase. While there is a large payments market out there, one caught our attention when it comes to wearable payments today: impulse purchases. Could the impulse buying market be the first prize leaders in wearable payments sector will receive?
Wearable payments and impulse purchases work perfectly together and the global market for this collaboration exists. Statistics show that in UK alone impulse spending averages at 1.2 billion GBP a year. Enabling this opportunity with technology could be the first step in wearable adoption and Barclay has already made its move with the 20 GBP limit for its bPay concept.
Will wearable payments grow?
Even if banks, Internet giants, or merchants invest in wearable payments, there is little evidence that consumers are willing to let go of the security and trust issues that come with it. No one can tell for sure what the future is, since most people are overwhelmed by the development wearables show from one year to another. Leaving the excitement of the “new” thing aside, tech developers’ focus should be more on technology rather than appearance, making the practical applications reach the highest potential of for wearables, so that the products launched would ultimately grow into trustworthy and cost effective solutions.