Nearly four years ago, U.S. Bancorp debuted a medical bracelet that could also make payments. The product was short-lived, but the bank is taking a fresh look at the advancement of wearable technology in recent years and its potential for payments and other financial functions.
"Back then when we did the test, you had to tell the merchant that you were going to use contactless payments," said Dominic Venturo, chief innovation officer at U.S. Bank. "Some folks had a desire to have a medical ID, but it wasn't a logical extension to have payments. It wasn't the best marriage of different things."
Things are different today, he said. Although contactless cards are no longer fashionable, the launch of Apple Pay and the upcoming Apple Watch are changing that dynamic. The rapid development of smartwatch platforms such as Android Wear and Pebble, both of which can run payment applications, are elevating the potential of wrist-based payments in consumers' minds.
"It's still an early adoption technology, but there's no longer just one player," Venturo said.
Before launching a new wristband payment pilot, U.S. Bank is testing how different wearable devices can be used in and around point of sale terminals. It's also figuring out what other financial services should be included with payments on wearable devices, such as account alerts, balance inquires and money transfers.
The bank has built wearable apps for most of the technology that is commercially available, and is considering how a user would engage a point of sale terminal, an ATM or a self-service kiosk. There are challenges in terms of usability and interoperability, since most wearable computing devices rely on Bluetooth instead of Near Field Communication to communicate between devices. The upcoming Apple Watch will have NFC, but the non-NFC watches available today are considerably cheaper.
"There are pros and cons to this. A band is a convenient place to receive an alert or to view information or to tap a payment, but there are some challenges in interaction with wearable devices," Venturo said. "With a card or an NFC-enabled mobile phone, you can lean over near a terminal for a swipe if you're not close. A band or a watch is part of your arm. How much can you bend over to use it?"
Other banks are building wearable payments apps. In Canada, RBC is testing a wristband that uses a consumer's heart rhythms to authenticate users. In Europe, CaixaBank and Barclays offer bracelets that can execute payments.
In the U.S., most of the wearable payments applications are being built by non-banks, such as PayPal and Walt Disney Co. PayPal has released apps for every major smartwatch platform available today, and Disney reports rapid adoption of its payment-capable MagicBands, which also function as theme park passes and hotel keys.
While banks likely don't need to have wearable payment apps in the market right now, it's important to make wearables part of a long-term strategy, said Rick Oglesby, a senior analyst and consultant at Double Diamond Research.
Wearable device adoption is expected to accelerate over the next few years. Global wearable device shipments will increase more than 400% by 2017, reaching 116 million units, up from 27 million in 2014, according to Juniper Research.
Smartwatches will be the primary driver, Juniper said, forecasting more than 100 million smartwatches will be in use globally by 2019, with a host of product launches over the next year. Wearable computing accessed by glasses will be slower, with yearly shipments remaining 10 million until at least 2018, Juniper said.
"The big mover for wearables will be Apple Pay embedded in the Apple Watch," Oglesby said. "Since most banks are already participating in Apple Pay, they shouldn't need to do much else in the short run. It will be quite a while before consumers are using wearables to make purchases."
Banks do need a long-term strategy for wearables that heavily aligns with their digital wallet strategies, Oglesby said. "Operating system owners will have a tremendous advantage in the digital wallet space, and wearables will only accentuate that advantage, so it makes sense for the banks to be partnering with the likes of Apple, Google and Amazon before a third party fills that gap on the bank's behalf."