The internet of payments
We have become accustomed to the term Internet of Things (IoT) as more and more of us interact with an increased number of connected devices as part of our everyday lives.
Today, there are more objects enabled with Internet access than ever before - from smartwatches and kitchen appliances to vehicles. Intelligent devices can, in principle, do all sorts of things independently. But there is a problem; to act truly independently they must also be able to carry out financial transactions. The IoT can only realize its full potential by allowing devices to transact with one another – with the user’s agreement of course. For example, a connected car could communicate with the enabled payment automatically when entering a car park. This would record the time of entry and on exit issue an automatic invoice to the vehicle. Depending on the instructions of the user, this amount can then be settled manually or automatically, or it might even be possible that the car needs to ask for authorization over a certain amount. . This type of payment system can, in principle, be extended to all connected devices – and this in fact is what Internet of Payments is all about.
Check 1: Does the Internet of Payments already exist?
The answer to this is not as straightforward as it may seem. Elements of IoP have existed for some time, not least in the areas of the IoT in which SIX is actively involved. A large-scale implementation of payment functions in the majority of connected devices is not yet a reality.
Approximately two years ago, Amazon introduced the so-called Dash Buttons, whereby customers could order certain pre-defined products simply by pressing a button. By giving consumer this auto ordering capability, in principle, any device can become part of the Internet of Payments. However, in March 2018 a court in Germany ruled that the buttons (at least in their current form) contravened German law. The reason given for the ruling was that customers would not be informed about the purchase price of the product before the transaction was completed as the Dash Buttons have no display. In addition, when pressing the button customers may no longer be aware of exactly what product they once linked the button with. Amazon has not accepted the ruling and plans to appeal. The dispute however, has revealed that fundamental issues need to be clarified before the Internet of Payments can become a natural part of our lives.
Check 2: What are the concepts for the future?
The Amazon Dash Buttons are a simple solution, but not a comprehensive one. Rather than this type of retrofitting, payment functions should be considered at the earliest point in the development of a device. Above all, they must ensure that users always retain control over purchases that machines make on their behalf.
Effective encryption and regular information for customers during the ordering process are essential elements. Integrated authentication measures, from simple PIN entry to biometrics, prevent fraud and increase customer confidence in the technology. Companies should also recognize the limitations of the new possibilities as it makes little sense to integrate payment functions indiscriminately into every device. Used appropriately, they can generate additional revenue for companies while simplifying customer journeys.
Check 3: What impact does the Internet of Payments have on market development?
One thing is certain - the Internet of Things and the ever-increasing interconnectedness of the world will continue to remain a megatrend over the next few years. Gartner's technology analysts recently predicted there will be approximately 20bn connected devices by 2020. Each of them is theoretically an additional touchpoint in a customer journey. Even though it does not make sense to integrate a payment function into every single device, there is still a huge number remaining where this step promises enormous gains.
Today, price is often the determining factor of a purchase however in the future customers will increasingly choose the product, which in fact they do not have to choose themselves, because the decision will be made automatically. In other words, convenience will triumph over cost! In this new world, market share will be acquired not by price but through exclusive partnerships. Providers who are not prepared for the new consumer environment are likely to suffer serious losses.
The success of the Internet of Payments (and the companies behind them) depends on the convenience it can offer to customer. The user experience is not simplified if x-digits of a PIN number must be entered to authorize each transaction.
Data protection will also play an important role. For merchants, pull-payments such as direct debit are particularly interesting because it can be automated very easily. However, customers are becoming ever more cautious about providing their personal data. Therefore, in the future, push-payments, which are instigated by the customer and where they retain full control, will be automated too. Through these developments, merchants are likely to face a variety of payment methods in the future which means that solutions that can master the entire spectrum of payments and enable secure management via an integrated platform are vital.
The world of payments is becoming ever more complex and this is both an opportunity and a risk. The fact that the payment process no longer requires a physically wallet often increases the willingness of customers to spend. However, if merchants fail to adapt to the new technologies that power the payment process they run the risk of losing segments of their customer base to the innovators.
Building strong collaborative relationships with a professional service provider which has a broad spectrum of experience in different markets and industries and can provide sound advice provider can be of advantage as we move rapidly to an ever more connected and enabled world.
Urs Gubser, Head E-Commerce Strategy at SIX Payment Services