Wearable payments: from hype to reality

5 August 2015

There has been much industry hype around wearable technology, but is this development still a long way off? Nick Mackie, head of contactless for Visa Europe, explores the next stage in the evolution of transactions, the concrete benefits of wearable payments, the obstacles standing in the way of change and a realistic timeline for widespread adoption.

If you step into the British Museum, you're able to stand just inches away from one of the oldest coins in the world - dating back to 650-600BC. Looking at the tiny coin, it's hard to believe these objects have been at the heart of the way people spend and manage their wealth for 2,000 years.

Recently, this was brought home when 5,000 Anglo Saxon coins were discovered buried in a lead-lined box in a field in Aylesbury, Buckinghamshire, UK. The find emphasised the lengths people will go to store and protect their money.

The importance of protecting money from potential criminals - from the highwaymen of old to hackers today - has been paramount since money's invention. However, what has completely transformed is the choice of methods available to spend and manage our money.

Up until 30 years ago, cash was largely the accepted way to pay. However, in 1987 - after 2,000 years of the predominance of physical money - the debit card arrived on UK shores. The dawn of the card payment ushered in an age of quick, convenient ways to pay, and the ability to purchase goods and access money became instant, safe and easy.

Since then, money has evolved at an unprecedented rate with innovative ways to pay proliferating at a far greater pace in the past three decades than the centuries preceding it.

We've seen the arrival of contactless that enables consumers to make secure, everyday payments with a 'touch'. The response has been overwhelming: one million Visa journeys are made on the TFL network every two days, the use of contactless terminals has tripled over the past year and 866 million Visa contactless purchases were made in Europe in 2014.

"Convenience is king, so a wearable payment device that offers a seamless user experience and has the potential to save valuable time could be of huge benefit to customers."

The engine that has driven contactless cards - near-field communication (NFC) - is now driving a new era of commerce using mobile payment technology. Last year, Apple's entry into the US market was a critical piece of the mobile payments jigsaw and, more recently at Mobile World Congress, Samsung entered the market with Samsung Pay, making mobile payments an unavoidable juggernaut in 2015. Even though mobile payments are relatively young, people have already started asking about the next logical step: wearable payments.

Pieces coming together

From a business perspective, the wearable market is attracting attention across multiple industries. For the consumer, it has gained prominence in the past year with retailers such as Amazon dedicating an entire section solely to the category.

It's still early days though. At the Consumer Electronics Show 2015, Qualcomm president Derek Aberle admitted that the wearables market is still in a period of "self-discovery" as companies try to work out the best combination of features and design to appeal to buyers.

Being early to market doesn't necessarily lead to success. A number of gadgets that have launched to much hype have come crashing down when consumers have realised they actually only want to invest in devices that enhance their lives in a practical way.

This is where payments come in. Having a quick, convenient and secure function (such as payments) that makes life easier, helps consumers see value in wearing a gadget, beyond the hype, and there are already options out there to do just this.

Take Barclaycard's bPay band that was launched back in mid-2014. The first of its kind in the UK, it offers a new way to pay for small-value transactions in shops, bars, cafes and on public transport - anywhere where contactless transactions are accepted. In addition, Visa has been working with CaixaBank in Spain to rollout contactless wristbands to users with active lifestyles. This enables them to make payments with a simple touch of the wrist.

There has certainly been excitement about these developments that represent the ushering in of a new age of payments. However, what are the concrete benefits for the consumer and industry in embracing the wearable revolution?

The wearable potential

For consumers, the most obvious perk of wearable payments is convenience. Convenience is king, so a wearable payment device that offers a seamless user experience and has the potential to save valuable time (minimising queuing times, for example) could be of huge benefit to customers.

Imagine if you could simply swipe with a wristband to make a payment and be sent balance updates to your smart wearable device in real time. Getting your early morning coffee or travelling on public transport would just involve placing your wearable device onto a reader, without having to fumble through your bag to take out your cash, card or phone. The very nature of a wearable is the fact it is on you at any time, eliminating friction. Thanks to technological developments, such as biometric sensors, wearables could streamline the payment experience further than ever before.

The benefits don't stop there. For organisations in the payment ecosystem - such as banks and vendors - wearables present a huge untapped opportunity (no contactless pun intended) for new and potentially significant sources of revenue. Developing and offering wearable solutions not only positions these businesses as innovators, but it also offers a unique opportunity to create an engaging and intimate relationship with the consumer, and improve customer experience.

Functions could include live bank balance updates to help with money management, and timely and relevant personalised offers tailored to the individual - ultimately, redefining the relationship between the bank and the consumer.

However, despite the benefits, there is no illusion that the shift from the familiarity of card and phones to a world of wearables will happen overnight.

The 'change' challenge

Winston Churchill once said, "To improve is to change; to be perfect is to change often."

In recent years, ways to pay have certainly changed often. However, no matter how close to perfection a solution may be or how clear its benefits are to the creator, change - and acceptance of that change - is never easy.

As with the adoption of any new technology, wearable payments still face doubt and scepticism. Jonathan Vaux of Visa recently blogged on exactly this topic, saying it can take years, even decades, for ground-breaking technologies to reach mass market. Take the phone, for example. It took 12 years from the first mobile phone call to the opening of the first mobile network in the UK. After that, it took another 14 years for mobile phone penetration to hit 50%. Today, there's an entire economy built around the mobile device.

Most technologies go through an adoption cycle that lasts anywhere between ten and 20 years, and a huge part of this is the mindset change, from industry and consumer perspectives.

When it comes to wearables, the cycle won't take quite so long. Yes, there are likely to be some technological and commercial obstacles to overcome, but thanks to the infrastructure already in place for mobile and contactless, mass market will be reached relatively quickly. Critical mass is still a couple of years away, but expect to see a steep incline during the course of 2015. From a consumer-mindset perspective, contactless payments have already paved the way for the concept of touching to pay and we're now at a point where there is real appetite for innovative payment options. Whereas there used to be an unfounded association that paying without a PIN wouldn't be secure, experiencing the high security level of contactless has alleviated consumer concerns. There is a perfect storm in the European market where openness to new payment methods is at a peak. It's now the role of the industry to strike while the iron is hot and collaborate to offer a choice of appealing, secure and convenient payment options that optimise this innovative wearable opportunity.

"No matter how close to perfection a solution may be or how clear its benefits are to the creator, change – and acceptance of that change – is never easy."

A collaborative future

To do so, new collaborations will be required to create the best product for the consumer. There have already been a number of once-unlikely partnerships to create user-friendly wearable technologies: Intel and Oakley create smart sports glasses, and Misfit and Swarovski linked up to create a watch that monitors sleep patterns.

There won't be a one-size-fits-all solution or blueprint that can be replicated to create the perfect wearable. Some wearables will benefit from a payment capability while others may not, but it's only effective collaboration - with companies that completely understand their own market - that ensures the development of products that deliver convenience, functionality and beautiful design, beyond the wearable hype.

From a payment perspective, Visa is in a privileged position at the centre of the ecosystem. It is working with a range of partners to ensure that the industry offers the cutting-edge innovation, convenience and security that the consumer demands. As this culture of collaboration and innovation continues and extends its reach to new players in a wide range of vertical industries, the day where it becomes mainstream to pay with a simple gesture could be closer than once thought.

By combining a high level of security with a more seamless and convenient payment method than ever before, there is a historic opportunity to rethink the consumer payment experience and usher in a truly wearable future.

With many years of experience in the creation and commercialisation of value-added tech service solutions, Nick Mackie currently runs Visa’s Contactless Product Team. He and his team are responsible for liberating the full potential of the contactless proposition.