By Terrie Smith, Co-Founder and Global Ambassador of award-winning wearable tech platform, DIGISEQ, outlines how ground-breaking innovations in contactless payments are helping banks and issuers both cut operational costs and give consumers more choice in how they pay.
Contactless payment has truly come of age. It’s now responsible for more than 50% of POS payments worldwide, and as new services like Apple’s Tap to Pay come to market, the technology behind contactless is evolving to make it even more convenient, quicker and easier to use. And its wearable tech that’s proving to be the biggest evolution of all, representing another leap forward from cards and phones.
Mobile POS services like Tap to Pay are empowering millions of merchants worldwide, from small businesses to large retailers, to turn their iPhone or iPad devices into POS devices that can accept contactless payments, digital wallets, and any wearable tech item through a simple tap, with no need for dedicated POS terminals or hardware. By 2027, the total number of merchants deploying mPOS solutions is set to hit 34.5 million globally.
Although the pandemic undoubtedly drove more transactions through contactless devices, the continuing convergence of contactless and mPOS is great news for banks and issuers looking to capture more contactless transactions through their mobile banking apps and digital wallets. In the UK alone, 13.1 billion contactless transactions worth £165.9 billion were made in 2021, 26% and 46% higher respectively from 2020. Meanwhile, the proportion of card payments that were contactless continued to increase in December 2021 and reached its highest recorded level, accounting for 69% of all debit card transactions, and 56% of all credit card transactions.
As use cases grow, opportunities open up
As merchants in all sectors embrace mPOS solutions like Apple’s Tap to Pay, wearable tech is being introduced into more applications, use cases and places where, until recently, only cash could be used. But another factor that’s positioning wearable tech to gain major uptake is that contactless payment limits are rising, allowing contactless to be used for larger-value transactions at more acceptance locations. When the first contactless payment card was launched in the UK in 2007, consumers were limited to low-value purchases of £10 or less – perfect for fast food, coffees, and other items that could be bought on the go at quick-service locations.
Every subsequent increase in the contactless limit enabled people to use contactless to pay for larger-value purchases at a much wider range of in-store merchants. This opened up contactless to be used to pay for weekly supermarket shops, to top up petrol tanks, and used in other locations more accustomed to higher-value payments. Data from UK Finance finds that when the £100 threshold was introduced in October 2021, replacing the previous £45 limit, the average contactless payment value increased by around 30%.
Banks were wary of wearable tech – but times have changed
For many banks and issuers, misconceptions and myths over complexities and costs have held them back from fully exploring wearable tech. But this hesitancy could cost them new customers, and much-needed revenues from transaction growth.
Past experience of wearable tech has deterred some banks from trying it again. Perhaps the best-known example is the 2014 roll-out of Barclaycard’s bPay-branded wearable tech items, launched to initial acclaim as the next revolution in contactless. However, bPay was phased out later on after uptake failed to live up to expectations. Reasons for this included users being required to buy the items, insert chips into devices themselves, download an app, register the devices and fund accounts to make payments. This confusing and disjointed process was a huge obstacle when trying to attract new users.
But critically, Barclaycard refused to support Apple Pay which came to market at the same time, meaning bPay couldn’t be linked to it. The flexibility and convenience of Apple Pay and Google Pay immediately captured consumer imagination, allowing people to link all of their debit and credit card payment methods, in one wallet, on phones, and in smartwatches. And that meant banks lost out in the mobile wallet and wearable tech battles.
The time is now right for wearables
So, why is wearable tech ready to take off now, and why is it gaining such rapid traction amongst banks and other businesses? It’s clear that consumers are seeking more convenient, stylish and portable items that can make contactless payments. The past decade has shown how quickly consumers became comfortable with linking their cards to mobile wallets, to their smartwatches and other active wearables, but these items are limited by their battery lives, restricting their usefulness.
The evolution of wearable tech has enabled it to solve the battery life issue by jumping into passive items that don’t need a battery to operate. Rings, bracelets, and even items of clothing can be embedded with a contactless chip, linked to a cardholder’s bank or prepaid account, and instantly activated through their iPhone or Android device. As contactless technology gets smaller and cheaper, we’re now seeing wearable tech become more aspirational and more attractive to consumers, as can be seen by the fast-growing range of high-end designer fashion items that double as contactless devices. And it’s now far simpler, quicker and easier to get it into the hands of bank customers and give them more choice in how they want to pay.
Previously, any chip-enabled item requiring personalisation or provisioning with customer data would need to go through a costly, time-draining process of being personalised by the manufacturer before being delivered to the bank. The bank would then have to incur the time and cost of delivering the item to the customer. These days, consumers are increasingly impatient, and less willing to wait 7 to 10 days to receive their item in the mail.
An end-to-end solution that takes away hassles for banks
Today’s wearable tech solutions can handle payment enablement from start to finish, and at much lower cost, without the need for the bank to lift a finger. Over-the-air remote provisioning capabilities means payment data can be delivered to any wearable item directly via the consumer’s Android or iOS mobile device, wherever they are, allowing them to link their payment card to their wearable item, and start using it straight away. With over 2.5 billion Android users and 1 billion iPhone users as of 2021, there is huge potential for wearable tech to play a big part in users’ daily lives.
What’s more, banks get access to a treasure trove of real-time customer behaviour data, and can even send special offers and incentives in real time to customers to encourage spend at merchant partners. Meanwhile, consumers can receive instant transaction notifications to monitor their activity, with the reassurance that their contactless transactions are secured and tokenised in the same way as NFC mobile payments.
All these positive developments are driving the wearable payment devices market to grow at a CAGR of 29% between 2022-2032, with an estimated market valuation of US$13.43 billion just in 2022 alone. This is in tandem with the fast-growing Internet of Things network connecting payment applications across superfast 5G and Wi-Fi, access control and brand consumer engagement across an expected 41 billion devices by 2027. The potential for wearable tech to drive much more immersive bank-customer interaction and engagement is set to be a huge part of this growth.
For banks looking to streamline costs, and forge deeper connections to their customers, wearable tech is creating opportunities that are too valuable to ignore. It’s time that banks used wearable tech to get closer to their customers – literally.