Wearable payments: The next frontier?

mobilepaymentstoday.com

What problem is wearable payments trying to solve?

That's a question I've asked myself multiple times the past 12 months as that particular industry has continued to evolve. And the answer can't be easily determined.

Devices such as smartwatches, contactless wristbands, and smart clothing are products of a technological revolution straight out of "The Jetsons" and "Minority Report." They're changing the way we communicate with each other, how we monitor our health, and how we buy goods and services.

But is it all too much? The payments industry is having enough trouble convincing consumers to eschew cash and plastic cards in favor of smartphones. Adoption in that area is uneven, particularly for in-store mobile payments. 

Today, the industry is pushing payments through wearables and is doing so with the argument that it wants to give consumers choices. Some industry pundits are bullish on this idea. Others, not so much. 

"[Of] the motivators of why any of this is happening at all, the primary one in my view, is convenience and offering new vehicles for users," Karl Martin, CEO of biometric wearable device provider Nymi, told Mobile Payments Today in a recent interview. 

Options

Toronto-based Nymi is one of a growing herd of companies — along with firms like Gemalto and smartwatch and fitness band providers — that are heavily pushing wearable payments. 

In Nymi's case, it recently announced the completion of what it called the world's first biometrically authenticated, wearable credit card payment using one's heartbeat.

Nymi is working with TD Bank and MasterCard on the project. More than 100 TD users in Toronto, Ottawa, and Regina will be testing the Nymi Band's contactless payment functionality until the end of the summer as part of a closed pilot. Other participating Canadian banks are scheduled to launch similar pilots later this year, and Nymi expects several thousand payments to be made using the Nymi Band during this time.

Those involved with the project don't have any illusions that wearable payments will become mainstream any time soon. 

"I can tell you from our partners like MasterCard and others, I don't think there's a perception that wearables are going to be the way everyone does their payments," Martin said. "It's more along the lines of giving an opportunity for a broader range of options."

And the options in the market are coming fast and furious as we march into 2016. That's one reason why Aditya Kaul, a research director for technology-centric consulting firm Tractica, is bullish on the future of wearable payments. 

"Essentially, we see wearables as an extension of mobile payments, where the wearable will be a convenient option to pay, but might not be used on all transactions or replace the mobile wallet," Kaul told Mobile Payments Today. "In the case of fitness trackers, they can be extremely useful as they can solve the problem of carrying your wallet or mobile while going on a run or even to the gym. All the advantages of mobile, like wallets and loyalty cards, also apply to wearables, especially smartwatches." 

Utility

Apple's reluctance to give details about how the Apple Watch is selling has led many industry observers to question whether the company should have jumped into the smartwatch market in the first place. 

Of course, Apple's entry into the market was inevitable, thanks to success stories like Pebble. But it appears at the moment that Apple Watch is not a must-have tech accessory.

Kaul does not believe slow Apple Watch adoption spells doom for an industry that's still in its early days. 

"Apple not revealing numbers doesn't necessarily mean that they are bad," he said.  "Wearables have some maturing to do, and payments is one of the killer features that could drive sales forward. 

"If you look at payment bands [for] live festivals or Disney's MagicBand, there has been tremendous growth over the last few years and will continue over the near term."

Indeed, Disney created a benchmark in wearables when it introduced a contactless wristband for its theme parks and hotels that guests can use as a room key, theme park ticket and payment account, among other features.

The MagicBand actually solves problems many consumers would rather not deal with at a theme park, particularly the prospect of losing a wallet or purse while riding Space Mountain.

Can other wearables make such claims?

"The wearable devices that do well are the ones that have a good use case," Ben Jackson, director of the prepaid service at Mercator Advisory Group, told Mobile Payments Today. Jackson has covered the wearables market in the past for Mercator. 

Jackson pointed to the growing popularity of fitness wearables such as Fitbit and Jawbone, the latter of which now provides a device with contactless payment functionality thanks to a partnership with American Express. He believes these devices provide value to the growing number of health conscious consumers worldwide. 

As for the Apple Watch? Jackson believes it is currently on the path of another infamous device.

"I think Apple Watch is going to be like Google Glass in some ways," he said. "It'll have its devotees and people who find good uses for it, but for most people, it's not going to be [worth buying]. The added functionality it brings is not going to be worth the cost."

Even as some wearables experience growing pains, Tractica expects big gains for those devices capable of contactless payments. 

Tractica predicts that wearable payment transaction volume will grow from $3.1 billion in 2015 to $501.1 billion by 2020, representing a compound annual growth rate of 177 percent. This will represent some 20 percent of total mobile proximity transaction volume. 

In a recent report, Kaul advised readers to keep tabs on certain wearable projects that show the potential for future mass adoption; Disney and Nymi made his list, along with Barclays' contactless bracelet and efforts from Alipay in China, among others.