New technologies are allowing us to reimagine the entire customer payment experience.
In the future, the only mandatory inputs for a transaction will be the merchant’s price and the customer’s acceptance. These will be configured to require minimum effort from a customer.
For example, at the most extreme with a low value payment, a customer could pick up a product and simply carry it out of the store to execute their payment. The banks that can provide the simplest and most secure experiences will be rewarded with customer adoption – with the invaluable data and revenue that will come with it.
Wearables are starting to gain scale and are well positioned to be the catalyst for this transformation. According to eMarketer, 63.7 million US adults will use smartwatches and fitness trackers in 2016. Penetration among US adults is expected to double by 2018, to 81.7 million users. These users are tech savvy and should be ripe for new payments options. Banks have already caught on to this trend. Misys’ research shows that 15% of banks already have or are currently rolling out wearable apps. 72% of banks say wearables are on their roadmap for the next three years and 66% say proximity payments are the most attractive capability of wearables.
Success in retail banking tech has been driven by improving the customer experience. If it makes life easier, as mobile banking or contactless cards do, customers will give it a try. Wearables will be able to repeat this feat for payments based on two key attributes. First, wearables can utilise proximity and geolocation to provide protected and convenient transactions. Second, wearables will be able to use biometrics to authenticate users. These attributes will ensure that wearable enabled transactions will be faster and more secure than traditional payment options.
So how can this work? Location and proximity can work in several ways. Geolocation can confirm that a customer is in the correct place for the transaction they are trying to make. Similarly, confirming a customer’s proximity to the correct smartphone will provide an extra layer of confidence that the user is who they say they are. Proximity to in-store beacons can also be used to prompt a transaction, enabling the scenario described above, where a pre-registered customer carries a product out of a store and seamlessly executes their payment.
The biometrics capabilities of wearables are still evolving and could take many forms. Two types stand out, plethysmography (a form of vein pattern recognition for which Apple already has a patent on Watch) and finger print scanning – but ultimately heart beat and brain wave biometrics could also be included. These will enable the worn device to authenticate a user at all times, providing excellent security for payments. For higher value payments, a physical touch may be required – but this could still leverage biometric finger print recognition to further reinforce security.
As each friction point is removed from the customer journey, adoption rates will increase. As retailers, consumers and banks become more comfortable with the adoption of new technologies, wearables are likely to sound the death knell for cards as wearable optimized payments will rapidly become a necessity for all financial institutions.
Alex Bray is retail channels director at Misys.