Smartwatches may not be popular enough or have enough screen real estate to usurp smartphones as the next major mobile payment device, but there is a strong potential for the two technologies to work in tandem.
One of the more compelling aspects of mobile payments is the instant feedback smartphones provide to the shopper. Google Wallet, for example, causes the phone to vibrate when the payment begins and displays status updates on the screen throughout the transaction, eventually providing a full digital receipt.
There is potential to shift this entirely to a smartwatch, but it may be more user-friendly to split these two tasks, using one device for payments and the other for feedback.
The "second screen" concept comes from television, movies and video games. It plays to the growing habit consumers have of keeping a smartphone accessible for communication even when they should be laser-focused on the program they're watching.
For example, the film "Despicable Me" had a companion app that allowed viewers to see translations of the gibberish spoken by the small yellow Minion characters. In video games, the pirate-themed Assassin's Creed IV: Black Flag has a companion iPad app that lets players leaf through their treasure maps and manage their fleet without having to pause the game itself.
For mobile wallets, the appeal of dividing the payment and feedback tasks makes the most sense for mobile wallets that rely on QR codes, since the shopper can't see any immediate feedback on a phone's screen when it is pointed toward the merchant to scan.
Mobile wallet providers typically try to provide some limited feedback through the scanner itself. For example, the scanners used by SCVNGR's LevelUp merchants light up in a user-selected color to indicate the transaction is going through. Afterwards, the shopper can look at the screen to see a full receipt.
The addition of a smartwatch addresses this pain point by giving consumers a second screen to view for the entire duration of the payment. For example, consumers with a Pebble smartwatch can display a LevelUp QR code on the watch's face. Consumers can see information pop up on the smartphone's screen while the watch face remains pointed toward the scanner.
Steven Pham, the developer who created the LevelUp smartwatch app using the LevelUp API, says the phone has to be in communication with the smartwatch only at the start of this process, but the phone can stay in the user's pocket.
The watch downloads the QR code from LevelUp's smartphone app. After the merchant scans the watch screen, the LevelUp server "sends authentication to your phone," Pham says. "A notification that you paid [appears] in real time."
Pham, who is a student at the University of Massachusetts studying computer science, says 500 people have downloaded the smartwatch app so far.
It may seem cumbersome to transform a single-device payment process into one that requires two devices, but it demonstrates an opportunity to keep the consumer engaged with the mobile app.
Some card issuers are experimenting with the use of alerts to allow consumers to change their payment method during a transaction; mobile wallets could do the same thing if the screen stays visible to the consumer during the payment process.
Another benefit of the "second screen" for mobile wallets is trust. When trying any new technology, consumers may be nervous about whether it works as advertised. Mobile wallets that rely on Near Field Communication are at a disadvantage because the NFC signal can be blocked by unexpected factors, such as a new battery cover. Sometimes the merchant's terminal malfunctions. Any extra information a mobile wallet provider can display, even if it's through a separate device, can go a long way toward building confidence in mobile payments.
Bailey Reutzel contributed reporting to this article.