Predicting the Payments 'Tipping Point' For the Internet of Things

The technology is already here. But when will consumers adopt contactless and Wi-Fi-enabled payments en masse?

Predicting the Payments 'Tipping Point' For the Internet of Things

Predicting the Payments 'Tipping Point' For the Internet of Things

Charles Keenan

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

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When gauging which payment device may make the internet of things (IoT) finally go mainstream, one thing still can't be forgotten: Any new method still must offer a better alternative than credit and debit cards.

That's a tough hurdle. Phones, wearables and home assistants can all now handle payments, but to what degree will consumers use these devices to settle transactions, rather than pulling out an 'old-fashioned' plastic card, or pointing and clicking?

"A lot of the more publicized payment applications really do come across as gimmicks, because there often isn't a big problem to be solved in the first place," says Justin Griggs, group executive and product strategist at TSYS. "It's emerging technology in search of a problem, rather than dollars being deployed to solve a pressing problem."

That doesn't mean IoT and payments won't succeed, but it might take a little more time for large numbers of consumers to get used to the idea. For example, making a P2P payment with Google Home, ordering laundry detergent with an Amazon Dash button or waving a smart watch at a Starbucks terminal may not happen right away.

"Ultimately, people have forgotten many times already that we are in the significant hype curve in IoT payments that will die down over time," says Randy Vanderhoof, executive director of the Secure Technology Alliance, an industry group based in Princeton Junction, New Jersey. "That being said, I think consumer education and awareness — that there are new, convenient ways to pay — are going to continue to change the way people shop."

Infrastructure in place

This change is in part due to the foundation now in place, a mix of near-field communication (NFC) technology, tokenization and cloud infrastructure that could make IoT payments much more common in the years to come. Vendors are leveraging tokenization technology that has been adopted by pay wallets and the card networks.

"Third parties can tap into that infrastructure," Vanderhoof notes. "That is why you are seeing this plethora of new payment-enabled devices coming into the market. They are piggybacking on an infrastructure that exists today (for phones) that didn't exist before Apple Pay."

FitPay, a vendor that provides a payments platform for wearables such as watches and rings, argues that payments capability is now a must-have for IoT product makers. FitPay now has deals with companies such as Garmin, for its Garmin Pay service, Radius, for a keyfob, Wearatec, for digital smart claps on watchbands, and Token, for a ring used to authenticate identity.

Using artificial intelligence (AI) devices for basic tasks

"We are starting to see momentum build," says Michael Orlando, chief executive officer of FitPay, based in San Francisco. "Our client base and legacy players have recognized that in order to stay competitive, they need to add payment capabilities to their devices in one form or another."

Another positive trend is how consumers are increasingly turning to artificial intelligence (AI) devices for basic tasks. About 26 percent of consumers already use AI software for devices such as Google Home, Amazon's Echo/Dot (Alexa), Microsoft's Cortana and Apple’s Siri for smartphones and computers, according to TSYS’ 2017 U.S. Consumer Payment Study. The most common tasks were handling question and answers, music and entertainment and news and information.

Growing merchant acceptance

On the merchant side, increasing numbers of payment terminals that accept contactless payments could also help adoption of IoT devices. With the move to accept EMV, the new terminals required came with NFC readers. Now, about 45 percent of all Visa transactions in the United States take place at contactless-enabled merchants, according to Visa, and 95 percent of all new terminals shipping nationwide are contactless-capable. Merchants, from discount stores to restaurants to transit agencies, are increasingly ready.

"The acceptance environment is actually there today, and it's ripe for contactless payments adoption" says Daniel Sanford, vice president, consumer products at Visa Inc. "There are many compelling use cases for contactless payments, including transit, that will help make the benefits very real for the entire payments ecosystem in the U.S."

Repeatable use

IoT devices that will gain acceptance will likely be ones that make daily activities easier, experts note. "Inevitably there is going to be a set of use cases where IoT will pick up," TSYS' Griggs says. "They tend to be things that are routine where people can train themselves to a certain behavioral motion."

With IoT, Amazon's Dash button holds this promise, since it focuses on the reordering of household items. So might Token, the biometric identity ring that streamlines the process of everyday authentication to give access to a car, house or building (and make contactless payments using taps and knocks to prove an identity).

"It's about providing more capabilities that users want to have access to every day, with payments being one of those," FitPay's Orlando says.

The statements and opinions of the writer do not necessarily reflect those of TSYS.

Other Articles by Charles

Charles Keenan

Charles Keenan has written about payments since joining the American Banker as a staff reporter in 1997, a time when automated teller machines were appearing just about everywhere but people’s living rooms thanks to the relaxation of surcharging rules.

His work at the American Banker included writing about credit and debit cards, merchant processing, and bank stocks. He later freelanced for the Banker and industry publications such as Banking Strategies, Bank Director, Community Banker, and U.S. Banker. He also writes about investing, insurance and health care, and is based in Los Angeles.

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