Wearables take even more contact out of contactless payments
While contactless payments of all types have seen an increase in adoption, wearable devices are well-suited to become a primary driver of new usage in 2021.
As the pandemic progressed, the payments industry saw a rapid adoption of contactless payments in the United States. According to a Mastercard global consumer survey, 79% of participants said they prefer to use contactless payment methods due to safety and sanitary reasons.
For decades, cash has had the advantage of constant liquidity and convenience, especially for small purchases. It’s why we have the phrase “cash is king.” However, the impact of COVID-19 resulted in a steep decline in cash usage. In the first quarter of 2020 financial institutions, retailers and consumers across the world adjusted their behavior to adhere to social distancing guidelines. This shift created a need for contactless transactions, ultimately enabling wearable devices to take the payments industry by storm.
Through near-field communication (NFC) technology, wearable payments link a user’s smart device to a credit, debit or prepaid card, eliminating the need to touch public surfaces and point of sale (POS) terminals. NFC technology only activates when there is minimal distance between a smart device and a payment terminal, ensuring that consumers only pay for their purchase. Additionally, wearable devices are proven to be up to 10 times faster than traditional payment methods due to the removal of verifying a user’s identity with a PIN or signature during the transaction process. The transaction time for a chip-enabled card can take up to 45 seconds, but wearable devices can complete a transaction in as little as 10 to 15 seconds.
Throughout the pandemic, consumers have grown accustomed to the style, speed and security of the “tap and go” payment method, creating positive perceptions about cashless transactions. The Mastercard survey states that 74% of participants will continue to use contactless payments once the pandemic subsides, proving that wearable payments are here to stay.
In addition to being functional, the devices are ornamental. Wearable payments can be utilized through a variation of smart devices, but the most popular forms take the place of rings, watches and key fobs.
Europe's KBC Bank conducted a year-long contactless payments trial among 1,000 customers using one of the four NFC-enabled devices — smart ring, bracelet, smartwatch, and key fob. It turns out smart rings (34%) are the most preferred wearable for contactless payments, followed by smartwatches (21%) and key fobs (18%). Having attractive, desirable devices can be as much a driver of adoption as pure function. That’s why prestige brands such as Apple, Tesla and others can command premium prices over competitors offering items with similar functions but less cache.
As consumers continue to adopt wearable devices, the payment method will expand in established markets and ignite interest in new markets. According to TMC, the wearables market is on track to reach nearly 400 million units this year, maintaining double digit growth.
The pandemic may have served as a catalyst for rapid growth in contactless payments through wearable devices. It’s the combination of form and function, however, that will push wearable payments into further growth in 2021 and beyond.