Why Apple Watch's Payment Partners Favor an Open Relationship

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The Apple Watch officially goes on sale today, bringing Apple Pay to the wrists of many consumers, but the device's competitors — a large number of increasingly sophisticated and far less expensive wearables — are also attracting the attention of Apple Pay issuers.

The companies working with Apple Pay and the Apple Watch are keeping their options open. While there is no doubt that many Apple Pay users willing to pay $349 and up for Apple's new smartwatch will try to use it at the point of sale, many consumers will prefer the subtler and cheaper fitness bands that inspired many of Apple Watch's features.

"We participate in Apple Watch and many other platforms, but as devices and customer needs in this space both evolve, we are looking at where the intersection is and how we can create a greater experience," said Tony Prentice, vice president of mobile payments for American Express.

Amex was a launch partner for Apple Pay, but it is also the payment method built into the new Jawbone UP4 fitness band announced last week. The UP4 is designed for a different market than what Apple is targeting, and at $200 it also falls well short of Apple's price tag. But like the Apple Watch, the UP4 is built with a Near Field Communication chip for purchases.

When thinking of the best use case for wearable payments, American Express envisioned a cardholder going for a morning jog and being able to stop at a convenience store to purchase water or an energy bar. The jogger may already be wearing a fitness band to track distance traveled and other workout activity.

"For us, a key thing with this form factor is that the customer feels like they can readily use it and get all of the security and rewards with the weight of American Express behind it," Prentice said.

Microsoft had the same idea when it launched its own $200 fitness tracker, Microsoft Band. The device comes with a Starbucks gift card and a Starbucks app, which displays a bar code on the band's screen. By displaying this bar code to a Starbucks barista, the user can purchase food and drinks without taking out a card or smartphone.

Royal Bank of Canada is also keeping an open mind about which devices to support for wearable payments. Other issuers such as Barclays and CaixaBank offer dedicated payment wristbands, and while these bands are cheap to make and lock users into using the issuer's card, RBC predicts that smartwatches will find a more welcoming audience.

If a wearable device with payments performs only one specific function, "it violates our principle of consumer choice," Jeremy Bornstein, head of payments innovation for RBC, said this month at SourceMedia's annual Card Forum and Expo in Chicago.

RBC, which controls about 25% of the Canadian card market, is currently testing a wristband offered by Bionym and MasterCard, but it is not betting on that device exclusively.

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

Wallaby Financial hasn't wasted time getting its name associated with wearables, revealing this week it has created an app for the Apple Watch. It previously developed consumer apps for Galaxy Gear, Pebble and Android Wear. PayPal also supports all of these smartwatch platforms.

Wallaby's Apple Watch app can alert consumers about the closest merchants to their current location, then provide a list showing which cards offer rewards for shopping at nearby merchants.

To that point, a wearable has to be an extension of an issuer's mobile wallet strategy, said Richard Crone, chief executive of San Carlos, Calif.-based payments consulting firm Crone Consulting LLC.

"Signing up for Apple Pay or Samsung Pay is not a mobile payment strategy for an issuer," Crone said. "The mobile wallet will manage the user interface for registering your preferred tenders and how they are accessed through the wearables. Most importantly, the [mobile] wallet, with its larger screen, will determine what card the wearable will default to."

As more companies design wearable devices, more opportunities will open up for card issuers and networks.

Adding payments to Jawbone's UP4 wristband support came about after the device maker determined that doing so would not add any burden to using the device for its primary purpose of fitness tracking.

"We wanted something small and comfortable and some companies require all sorts of technology that would add bloat to the system," said Jason Donahue, UP senior product manager for Jawbone. "We found the NFC capabilities would not add any size to our already-small product."

However, NFC is notably absent from Apple Watch's biggest competitor, Android Wear. The Google smartwatch platform supports cloud-based purchasing, such as ordering pizza through the Eat24 app, but most Android Wear manufacturers do not put in an NFC chip.

However, Google recently announced an update to its Android Wear platform that adds support for Wi-Fi, making it more likely that future Android smartwatches will be built with Wi-Fi hardware. Now that Google Wallet has become the default mobile wallet on Android smartphones, Google could find a way to bring its NFC wallet to Android Wear through future updates. Such a move would open up further opportunities for card issuers.

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