Consumer Demands and the impact of IoT on the Payment Industry

by Steve Latham 0

IOT

We’ve come to assume security and expect convenience when it comes to payments. We now use phones, watches, and even cars to pay for things. The proliferation of Internet of Things (IoT) devices and advancing technologies like artificial intelligence are allowing end users to interact with devices much more seamlessly than ever before. These emerging trends are fueling the growth of IoT driven payments, introducing entirely new experiences previously unavailable.

First, let’s step back. What exactly do we mean when we say IoT? IoT is about more than simply connecting a device to the Internet. It’s about connecting to any physical device for centralized monitoring and control, real-time data capture, automation enablement and rich analytics. Add in the ability to allow payments through an IoT implementation, and things start to get really interesting. The Internet of Things has provided us with the ability to leverage nearly anything to initiate a payment transaction. The simple idea being, if the device is connected, we can consider using it to pay for something.

The growth of IoT enabled devices

The intersection of the Internet of Things with payments is going to have a tremendous impact when you consider the fact that more than 31 billion devices will be connected to the Internet by the year 2020. That’s more than five devices for every man, woman and child on the planet.

Increased investment in Smart Cities

What’s even more staggering is the growth of smart cities with 66 percent of cities investing in smart technologies according to a recent report by the National League of Cities (NLC). Additionally, the report named smart meters, intelligent traffic signals, wi-fi kiosks and RFID sensors among the top applications in this space. Consider the possibilities of enabling digital payments with smart meters for parking and utilities, and you can see the impact IoT can have on the payments industry.

Cities aren’t the only places getting smarter: homes and cars have been advancing at an incredible pace as well. Examples are popping up across a wide array of industries, including home appliances, automobiles, wearables and even clothing. Here are some other cases that highlight ways IoT leverages analytics and enables automation:

  • “Smart gyms” can track inventory and equipment such as towels, workout mats and clothing, allowing members to take this inventory with them when they leave the gym, automatically starting a rental and payment transaction for the time that the member uses the equipment.
  • Brick-and-mortal retail can leverage smart consumer check-in and inventory tracking to allow customers to walk in, fill their shopping cart and trigger a payment transaction when they leave
  • Mailboxes will be able to determine the cost of delivery using an integrated scale to calculate the weight for an envelope or package.

When we combine the potential of the Internet of Things with payments we’re delivering value back to the business and a better experience for consumers. I see three areas where this will have an incredible impact for each:

Consumers will get the frictionless experience they desire

Consumers are increasingly expecting technology to play a more involved role in their everyday experiences. Technology to ensure a more efficient and informed process has become the expectation, rather than the rarity. Consumers expect a frictionless experience, period.

Banks, retailers, healthcare facilities, and entertainment providers are just a few examples of industries looking to technology innovation to help address these consumer behavior trends. Merchants, IoT software firms, and device manufacturers are increasingly partnering with payment providers to provide an effortless payment transaction every time a shopper buys a product, a service or a subscription.

The frictionless experience extends into non-traditional shopping opportunities as well. Smart cars are enabling payments from vehicles too, making payments on-the-go a reality as well. Recent research estimated that Americans spend more than $210 billion on gas, parking, food, coffee and grocery pickups during their commute to and from work. It’s not hard to imagine them using an in-vehicle app to place orders for their morning coffee or meals and then just driving through a pickup lane to retrieve their food and drinks from the coffee shop or restaurant.

What will be required to make all this a reality? It will require the standardization of integration capabilities through the release of application programming interfaces (APIs) from payment providers. These interfaces will allow for device manufacturers and software engineers to easily connect “anything” for payment processing. Examples include Visa’s VTS (Visa Token Service), VDEP (Visa’s Digital Enablement Program), and VISA’s Ready Tokenization Program. Garmin was the one of the first to integrate with these services to light up payments on their devices, but now we see all kinds of hardware providers pursuing this opportunity.

Merchants and Processors will Capture Even More Data

It’s important to capture as much data as possible throughout the shopping experience, whether it’s eCommerce, on-premise, or subscription. This data collection helps enhance and personalize the customer experience, support marketing efforts, influence logistics, and in guide business decisions for developing future products.

IoT platforms can help capture data before, during, and after the payment transaction, allowing business owners to increase the overall IQ of the transaction itself. This type of data captured can include information about location, weather, browsing activity, trust level and even the customer’s heart rate.

As the Internet of Things grows, it only makes sense for businesses to use more and more of this transaction data to provide their customers with better experiences, products and choices.

Machine to Machine Payments

There is an emerging trend and opportunity to take advantage of the automation of payments transactions through the implementation of IoT. Let’s say there’s some event – running out of inventory or a customer arriving at a location – that could automatically trigger a payment transaction. The ease of facilitating these payments without human intervention would help promote the frictionless experience we mentioned earlier.

In turn, the payment process itself might trigger some other defined reaction such as an email receipt, a marketing campaign, or even a support ticket if a failed transaction is detected. Such event driven behavior could also push micro-bonus’ to employees who reach certain performance milestones.

As you can see, the list of potential use cases is remarkable. The combination of IoT with payments allows for automation across all these experiences and consumers will increasingly come to expect to pay with any ‘thing’ in a way they never have before.

It’s going to require a lot of coordination between all solution providers, but I’m confident that given the enormous potential impact, we’ll be ushering in this new phase of payments very, very soon.