RBC Learns the Limits of a Bank's Role in Wearable Payments

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As payments leave plastic behind, the pressure is on banks to stay in front of merchants and consumers. But in its pilots of payment-capable wristbands, Royal Bank of Canada is finding that there are some areas that banks should steer clear of.

"We don't think a bank should be in the business of manufacturing hardware. The early feedback was we don't understand fashion, but do understand what companies require for a secure payment," said Jeremy Bornstein, head of payments innovation at RBC.

RBC controls about 25% of the Canadian card market, giving it a significant scale. The bank is also deploying new technology early. In one test it is the first named partner for a biometric wristband offered by Bionym and MasterCard. In another, RBC built payment-enabled watches in partnership with local developers.

RBC is not abandoning smartphone-based payments, but Bornstein said he personally finds the wearable option compelling.

"My hypothesis is people want to choose personally what's comfortable for them. I don't want to carry anything ever. The band would allow me to do my own version of mobile," Bornstein said. "There is a higher friction when pulling a device out of your pants pocket, turning it on and entering a passcode, then tapping it."

Others are finding similar interest in using wristbands and watches for payments. In Europe, Barclays and CaixaBank also offer payment wristbands. Walt Disney Co.'s payment-capable MagicBand, which also functions as a hotel key and theme park ticket, is used by half of Walt Disney World patrons.

The use case for wearables is the experience. Issuers can offer contactless payments without requiring the user to take out a device or enter information, a process that's much the same as taking out a physical wallet and plastic card.

"Part of the test is to try to understand how consumers want to pay for things. The wristband is one concept," Bornstein said. "Our vision is any device that comes on the market that consumers use will be payments ready."

Building wearable payment apps with third parties also gives RBC more control over the customer relationships and the payments data, as well as its cloud-based security and card storage system, which enables cardholders to access multiple accounts.

RBC, which works with Bell Communications as a partner on its bank's mobile wallet, has not supported Suretap, the Rogers Communications-led mobile wallet in Canada. Bornstein did not address Apple Pay, noting it's not available in Canada at this point.

Apple Pay's reception by financial institutions has been a roller coaster. Apple has boasted about the large number of issuers that support Apple Pay, yet some banks have openly criticized Apple's costs and terms.

Linda Mantia, RBC's executive vice president of digital for payments are cards, recently suggested banks collaborate to counter the threat of Apple Pay and other wallets.

While not supporting third-party mobile wallets, RBC is also not necessarily looking to "work around" the initiatives via emerging technology such as wearables. The bank's goal is to provide and protect merchants'  choices on how to accept payments. That way, the merchant can decide based on expense and consumer preference, Bornstein said.

"We don't believe anyone else that's providing a wallet out of the gate will protect those interests," Bornstein said.

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