Are Wearables a Viable Modality for Mobile Payment?

Sep 30, 2016

Powerful players want to make today’s mobile payment process even easier by using a smart watch instead of a smart phone.  What should retailers keep in mind as this development unfolds?

Clearly, mobile payment is a concept that consumers – especially younger shoppers – are starting to embrace.  In the typical use case, the shopper takes out his or her smartphone at checkout, pulls up the mobile payment app, waves or taps the phone against the retailer’s payment terminal, and the charge is applied against the debit or credit card that the shopper has on file. 

But now the plot thickens with the increased presence of consumer smart watches.  What does the introduction of wearable payments mean for retailers?

First, retailers need to understand that this is becoming very real very quickly.  Industry players have been arguing for a couple of years now that wearable technology would be a natural – and even more convenient -- vehicle for mobile payments, and finally there has been action to match the talk.  Wearable vendors and banks have been piloting and launching an interesting set of solutions that employ multiple types of NFC-enabled form factors, including fobs, rings, and stickers in addition to smart watches and wrist bands.

However, if there’s anything more nascent than mobile payments, it is mobile payment via wearables.  Currently, this is considered an early niche market, with gradual growth projected as the industry works through the following issues:

  • POS terminal infrastructure – Near field communications technology is used for wireless signaling by the wearable. Installation of NFC-capable payment terminals is proceeding more slowly than expected, with critical mass not expected for another four years or so.  However, those retailers that can already accept NFC-based smartphone payments should be prepared to also process wearable-based purchases.  So checkout staff should be trained accordingly.
  • Wearable devices – The presence of NFC-enabled wearables is also very limited, although Apple, Samsung, and Jawbone are major names that have publicly committed. Device selection is expected to expand over the coming months.
  • Consumer comfort with wearable technology – This will increase steadily as apps evolve, prices drop, and highly secure biometric authentication becomes the norm.
  • The frictionless payment process – How easy is too easy?  Financial institutions are wrestling with the idea that wearable solutions may remove too much friction from the payment process, luring shoppers into spending more than they can afford.  The ideal solution will balance convenience with just enough data and notifications to result in an informed purchase decision.

Wearable payments may start slowly, but retailers should not be caught off guard.  While some industry experts expect smartphones to always dominate the mobile payments process, Frost & Sullivan believes that wearables will match (and maybe even leapfrog) smartphones as a strong payment modality by 2020.1   Be prepared.

 

An initial version of this post resides on the Samsung blog site.

1 “The Wearable Future: Revolutionizing Digital Payments,” January 4, 2016, Frost & Sullivan.


Jeanine Sterling

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