Dutch success in wearable payments calls into question the role of transit
In many nations, transit fare payments are seen as a key first step toward the adoption of mobile and wearable payments. In the Netherlands, this wasn't the case.
For the Dutch, contactless transit is not yet the norm and in many cases, such systems are still in pilot. Much of the adoption of wearable payments has to do with a combination of contactless terminals being nearly ubiquitous and the desire for flexibility in how consumers want to pay.
As a result, Dutch consumers conducted the most wearable payment transactions among the 26 European countries on the Mastercard network in the third quarter of 2019.
"In our country [The Netherlands], the ability to use wearables has been greatly enabled by an ecosystem change. In 2012 the main banks decided to go contactless, so now 99% of all terminals accept contactless," said Arjan Bol, country manager for the Netherlands at Mastercard.
The exception are the outdoor unmanned automated fuel dispensers, Bol said. Overall, Dutch cardholders accounted for 33% of all wearable payment transactions on the Mastercard network in the third quarter of 2019, followed by U.K. cardholders who generated 18% of wearable payment transactions.
In third place were Swiss cardholders, with 8% of wearable transactions; and the Russians took fourth place with 7% of transactions. These four countries accounted for two-thirds (66%) of wearable payment transactions in the quarter; the remaining 22 European countries generated the balance of transactions. Mastercard included both active wearables that use a battery, such as a watch or Fitbit device, and passive wearables that do not have a battery, such as bracelets and rings.
While a number of European markets, including the Netherlands, have seen astronomical growth in contactless payments, much of the media’s attention has been focused on transit use cases. In the case of the U.K., the London Underground brings in 53,000 new contactless users each day.
There is also a major cultural difference that plays in the favor of Europeans, especially the Dutch, using contactless and specifically wearables payments compared to American cardholders, said Richard Crone, principal of Crone Consulting.
“Restaurant pay-at-tableside has been the norm for decades in Europe, even before EMV," Crone said. "In the U.S. market we give our card away to the wait staff and they return with the bill and the card. That would never happen in Europe. They bring the terminal to you so you can choose how to pay which gives contactless an opportunity to shine. Plus using a wearable like an Apple Watch at tableside is just cool. It’s hard to that in the U.S. when that infrastructure just doesn’t exist.”
In addition to the cool factor, Bol highlighted on a key driver of rapid wearable payments adoption is ease of use — people will only change their habits if it is easier to pay. However, as in the restaurant example, the infrastructure has to be there to support it and the user experience needs to be seamless.
"Payments are no longer a one size fits all. People want to have the flexibility in how they pay, based on the situation," Bol said. "For example, when I go on a run I don't carry a wallet and want to use my Fitbit to pay for a coffee."
While rapid adoption of wearable payments does play in the favor of electronic transactions at the expense of cash, it also raises security concerns that need to be addressed. In a contactless environment, there are maximum allowed values per transaction and daily cumulative values before a secondary form of authentication is required (such as PIN). It also provides the entry for biometric authentication such as a heartbeat.
“Wearable payments magnify the need for card controls to keep the consumer informed and secure," Crone said. "They also open the door for biometrics, which can make the wearable payment device more dynamic and powerful."
On a global level, the most wearable payments in the third quarter were made in Australia, followed by the Netherlands, with the U.S. coming in eighth place. All other countries in the top 10 were European.