There will be 28 billion connected devices in the next three years, a vast expansion that poses both opportunity and pitfalls for companies that want to embed payment capabilities.
Aite's new report on the impact of connected devices highlights multiple categories for IoT integration across manufacturing, energy and utilities, healthcare and retail.
The report estimates that payments in IoT will not happen immediately, but with payment-enabled IoT devices ramping from .01% in 2018 to 3% in 2026, this will conservatively create over US$400 billion in transaction volume.
Much of this volume will come in the future. The near term opportunity is forecast to be the “connected car” and the automotive ecosystem, with the automated fuel dispenser seen as a prime candidate for conversion to IoT connectivity.
“There is real potential for significant change at the fuel pump because of EMV and the problems inherent with converting Automated Fuel Dispensers (AFDs) to EMV. This is a really logical place for IoT to play a major role,” said Thad Peterson, senior analyst at Aite and author of the report.
Automobiles are about to take center stage. Writing for PaymentsSource, Scott Blum, a vice president and Total Merchant Services, writes the intersection of mobile technology and connected cars can up the "cool" factor for automotive marketing.
And automakers are responding. Visa is collaborating with Honda's innovation lab to produce payment use cases that are both near term to address in-car payments for gas and other purchases related to driving while examining the long-term potential for driverless cars.
Mastercard has partnered with General Motors to incrementally add more payments to GM's Onstar onboard computer. Improving customer experience at gas stations will see an increase in importance at the liability shift for EMV for gas stations approaches its October 2018 deadline.
Aite additionally explores the next iteration of the Internet, the connection of billions of devices without human intervention, exploring the dimensions of IoT, the myriad commercial and consumer use cases, issues and opportunities relating to IoT in the payments space and the likely trajectory for connected devices over the coming years.
“It does get kind of mind-boggling, but it’s the interconnectivity between the connections that really matters," Peterson said. "In five years, we can expect virtually every single node on a system to be connected, becoming the Internet of Everything and that’s when it gets to be really amazing."
While many IoT transactions will occur in an environment that is void of physical cards, the research doesn’t indicate that the card networks will be disintermediated.
Peterson’s conversations with card networks indicate that they are far from obsolete and expect to remain relevant for some time, “They are working really hard to stay in the center of this thing and rationally and frankly that's probably a logical solution, certainly in the near-term,” he said.
It is expected that the vast majority of IoT payments activities in the next three years are going to be card on file, which begs the question, what about the other cards since there is no such thing as share of wallet in a single card wallet?
“If you’re an issuer you’re going to have to fight for number one position which may change the landscape a great deal,” Peterson said.
However, the transaction landscape isn’t going to change overnight and much of the activity around IoT transactions will not be new forms of payment. Peterson adds, “If I’m ordering ahead for food that's basically the same thing as getting it in the store, so is not an incremental transaction. A lot of this is going to be simple replacement,” Peterson said.