It’s too soon to know how the futuristic Internet of Things (IoT) — the array of Web-connected devices and home appliances — will handle payments, but older concepts such as Near Field Communication and prepaid cards already have an advantage.
NFC came into fresh prominence 18 months ago with the arrival of Apple Pay, but the technology had long languished earlier as companies tried and failed to use it as the foundation for their own mobile wallets.
“We’ve been participating in NFC technology for almost two decades, but the market wasn’t ready,” said John Rego, vice president at On Track Innovations (oti), a company that’s had a longtime focus on NFC.
But that's changing now that everyday items from jewelry to kitchen appliances are being designed with wireless connectivity in mind.
“Some of the early use cases we’ve seen for connected vehicles and appliances, and wearables like clothing and jewelry are harnessing NFC for payments, and it looks like this could be a big growth field for us,” Rego said.
Oti supplied NFC technology for some high-profile contactless payments pilots a decade ago that failed to ignite much interest. The Israeli company mothballed its major contactless card-based payment initiatives but it stayed active with NFC, providing technology for contactless payments through vending machines and parking meters, for example.
Oti is involved in developing payments technology for several IoT projects, but Rego said he can’t disclose details.
“It’s interesting that NFC has been around a long time, and we’ve always believed it would be foundational to mobile payments, but at times over the years we got tired of asking where and when it would happen. Now we’re starting to see a resurgence of development in several directions,” Rego said.
Prepaid cards, which also have seen demand rise and fall with economic trends ever since the alternative financial service concept caught on in the mid-1990s, also could see renewed growth from the IoT, some experts say.
“Prepaid cards could become more important with the rise of the Internet of Things because some consumers may not be comfortable with the idea of adding a payments element to a general-use object like their refrigerator or their car, with a direct connection to their bank or credit card,” said Ben Jackson, a director with Mercator Advisory Service. “Prepaid or closed-loop cards could provide an extra layer of security and control for payments within the IoT in a lot of environments."
The processor Total System Services, which owns the NetSpend prepaid business, is already exploring opportunities to serve the app-based economy. It is currently focused on the "gig economy" enabled by apps like Uber and Lyft, but it also sees promise with the "digital accounts" favored by millennials, said Chuck Harris, president of prepaid card marketer NetSpend, at the company's analyst day last week.
"Prepaid cards have a fantastic opportunity here," Harris said. "It is one of the few financial products that anybody can get. You don't need a bank account, you don't need a credit score — you must not be a money launderer or terrorist to obtain one, but that seems to be a fairly low bar — and it leverages the rails of MasterCard and Visa, so it has trust and confidence and universal acceptance."
Randy Vanderhoof, executive director of the Smart Card Alliance, said it’s not surprising NFC is finding a footing in some early use cases for connected devices, and agrees prepaid cards could see an updraft from IoT development.
“NFC has broad application across many industries for the IoT, and prepaid cards also might see development through the IoT, in solving the problem of linking an individual to a device in the IoT where authentication could be more difficult, given different environments and use cases,” Vanderhoof said.
The Smart Card Alliance recently formed the Internet of Things Security Council, which aims to explore the implications of payments security around the IoT, among other goals, Vanderhoof said.
It will likely take “quite a few years” for the IoT to fully evolve, so there is still a chance that newer payments technology will leave existing products behind as business models evolve, Vanderhoof said.
“It’s way too soon to know which direction payments will go in the IoT, or what standards for it will eventually look like, but the early innovation is starting now and we believe it’s not too early for different industries including payments, health care, transportation and government to begin to collaborate on standards and best practices,” Vanderhoof said.