Will mobile payments give way to wearables?
By Kirsty Tull, director marketing and communications, BillPro.com
Twenty years ago, the idea of paying for your groceries with your phone seemed more like something you'd see on Star Trek than at your local market. But unless you have been living under a shell, you will be aware that most everyday items can be bought without ever taking out your wallet.
Paying for purchases with your mobile phone is hardly as common as using your debit card but in 2015, revenues from mobile payments topped $450 billion. Projections place that number closer to $1 trillion just three short years from now.
And from here, things only get more futuristic. Payments can already be made via items you wear – from watches to jackets. But are wearable forms of payment really the way of the future?
Challenges for one, challenges for both
Wearable payment devices and mobile payments are tightly linked. Mobile payments have paved the way for the versatility of wearables. But even though mobile payments are getting some heavy adoption, they still face hurdles before contactless mobile payments become as ubiquitous as credit cards.
According to a study by Auriemma Consulting Group, 27 percent of users who have a smartphone capable of mobile payments, like Apple Pay, Android Pay and Samsung Pay have used one of these services to make a payment. Even more surprising is the report that 32 percent of credit card holders in the U.S. have loaded their credit card into one of these payment platforms.
These are impressive numbers from technology that's still relatively new. But given the claims that mobile – and by extension wearable - payment technologies will replace your wallet, you have to wonder: Why haven’t they done so already?
Two of the biggest challenges are directly related to the usability of the technology. Basically, not every merchant accepts mobile payments, and there is no real benefit to the consumer to use their phone over their card. Why use your phone to pay when you have to carry your wallet around anyhow? Especially when you get no additional benefit from its use.
Wearables face many of the same struggles.
Give me a reason
As more merchants implement POS systems that accept contactless payment, the potential for wearables becomes greater. But the underlying systems themselves may be holding wearables back, thanks to a lack of standards for contactless payments.
This is why apps for a single business – like the Starbucks app with integrated mobile payments – have been successful. There is no integration with an outside system to weigh them down. But in the face of wearable payments, the one-business-one-app world breaks down. Consumers won't want to wear one wristband for Starbucks, another for the grocery store and a payments-enabled ring in case they need to stop for gas. This defeats the underpinning flexibility that wearables offer.
But there is a bigger challenge for wearable technology – the question of why. Why should I use a wearable payment device instead of taking out my card, or even my phone? Many of the current examples of use, like grabbing a drink while on a bike ride, are really edge cases. They don't represent a mainstream use case that will incite behavior changes in consumers.
For wearables to be the go-to payment method, they must offer something more. There must be a compelling reason to use your wearable instead of taking out your credit or debit card. Whether that's a payment system that reduces friction in the purchase process, or added value like automatically using a loyalty card along with your payment, wearables must bring more to the table if they are going to disrupt the status quo.
Wearables that work
But that doesn't mean there aren't early adopters. Many companies, trying to get in early on producing wearable devices, have already produced rings, bracelets and more. In the U.K., men's apparel designer and retailer Lyle & Scott, in collaboration with Barclaycard, launched a contactless payment jacket. The chip, in the cuff of the garment, enables wearers to make payments without even needing to take out their phone, let alone their wallet.
A perfect example of a wearable with a compelling reason to exist is the Disney MagicBand. These wristbands go beyond payments – they are your ticket into the parks, your pass to get on rides faster, even your room key if you're staying on the Disney property. In addition, you can use the wristbands to make purchases, eliminating the need to carry a bag while you’re just out having fun. You want to use it, because it makes your life easier, and your vacation more relaxing.
Security can also be a compelling reason for wearable technology. The Rio Olympics had many concerned about athletes falling victim to various crimes, including theft. To prevent this, Visa developed a contactless payment ring that it gave to the athletes it was sponsoring, and also linked pre-paid cards to payment bands and smartwatches at the Games.
Despite the challenges, they face, wearables are clearly the next evolution in payment technology, and there are solid examples in the market today of wearables that drive the industry in the right direction in both form and function. Once wearable technology has found a purpose beyond the quirky new toy, it's highly likely that it will make carrying a wallet a thing of the past.