By adaptive - September 28th, 2015
Wearables are going mainstream and many industry observers say they're the future of contactless payments. But as Brendan McNally reports, there's a holdup at the register.
American Express generated some buzz last spring by announcing its partnership with Jawbone to provide contactless payments capability to its new UP4 fitness-tracking bracelet. It marked the logical next step in the evolution of mobile payments and is particularly well-suited for fitness types, particularly runners who might like to snag themselves a water or Frappuccino following a sweaty five-miler without having to lug a wallet or NFC-enabled smartphone with them.
If they jog by a Starbucks, everything would be fine with a smartphone, but if, instead, they take it into a corner bodega or even a 7-11, they're likely to find themselves out of luck and without a latte. Therein lies the whole problem.
There can be lots of frustration in the US for anyone trying to make a go in the contactless payment space. NFC-based technology gets roundly hailed as the future of mobile commerce because it's faster, more efficient, and touted as more secure to what's currently in place at most retail points of sale.
But even as widespread use of NFC is accepted as an eventuality here in the US, at least, there isn't much actually driving greater adoption by retailers. There was and still is an expectation that Apple Pay would push NFC acceptance over the top, but so far it has, at best, brought the ball forward a few yards for a gain but still not quite paydirt.
The holdup, of course, is the fact that, as outmoded as American retail payments technology is by world standards, it’s perfectly satisfactory as far as Americans are concerned. Many American retailers have not yet seen fit to in shell out a couple hundred bucks for these POS terminals, as consumers are not clamoring for them in large numbers.
The reason NFC terminals have been pioneered in Starbucks and fast-food chains is that for them, time literally is money. Japanese McDonald’s were among the earliest large-scale NFC adopters, as their bean counters realized in that industry that saving a second or two on a transaction could amount to greater sales and profits.
Some retailers have complained that the secure element of NFC-enabled purchases keeps them from knowing who their customer is, which stymies the building of incentive-based relationships with the customer.
Another factor against NFC payments is that Apple Pay charges banks more than other mobile wallet solutions. But in the end, NFC for all its obvious advantages over swipe-card technology hasn't offered a compelling enough use case for most retailers to want to go with it.
So on the face of it, it would seem that wearables, at least the payments-enabled ones, will remain hostage to the turgid fortunes currently being suffered by NFC-enabled smartphones. But this might not actually be the case.
Wearables have their own unique form-factors. Unlike smartphones, they are intensely personal devices, which one can say are merged with the user's body. To Itai Vonshak, Head of Product and UX for smartwatch maker Pebble, the argument for retail-enabled wearables is a no-brainer. “The use-cases of having something on you that can be used as your ID? Sure. That is one of the use-cases that the industry has its eye on. Again, it starts with the notion of less friction. It's easier to put my hand out than to take out my phone.” Vonshak wouldn't say when he thought the Pebble watch would have a payment capability, but indicated that it was basically an inevitability.
Carolina Milanesi, Chief of Research and Head of US Business for Kantar World Panel agrees: “Wearables seems to be a very good fit for payment simply because they are so very convenient and your average consumer loves convenience.” She adds, “While digital payments either through a contactless card or through a phone are great with wearables you have one less step to make – fumbling through your purse to find the wallet or reaching in your pocket for the phone.”
Despite the current murky environment for NFC-enabled commerce in America, Milanesi believes it will change once a couple of things happen. “I strongly believe as wearables become more affordable, and app ecosystems improve consumers will find they are a natural choice for mobile payment,” she says. “I think the lack of interest comes from the fact that while convenient, what we have done for years is not ‘broken’ and very important is the fact that these new gadgets are still expensive and the value proposition is unclear.”
In the UK, NFC-enabled commerce is gaining traction. Transport for London's installation of NFC-enabled ticketing for all surface and underground travel has help push it into the mainstream.
Now travelers using the Underground can travel the entire system using smartphones, wearables, or stickers, which can be readily topped up anywhere inside the system. As a result, Barclay's has begun offering NFC-enabled bracelets and stickers to its customers. With these payment options literally in hand, it may induce many smaller retailers to add an NFC capability to their POS terminals either proactively or whenever the time comes to replace whatever they are currently using.
Boston and a number of other American cities have experimented half-heartedly with contactless ticketing, but most continue to resist it. New York City has a 1980s-vintage swipe-card system for its subway system, so does Washington DC. It works well enough that they don't seem to feel any immediate pressure to upgrade it.
It's entirely possible that wearables may ultimately prove to be the agent that will cause NFC-technology to gain wider adoption in the US. 7-Elevens likewise might be relatively immune to the kind of evolutionary pressures that a mom-and-pop or a bodega might feel subject to. While a missed sale might not be anything to a 7-Eleven, it is to a mom-and-pop or a bodega.
How many sweaty, shirtless, jawbone-equipped runners, ready to drop a couple bucks, only to be turned away because the proprietor doesn't have the necessary NFC reader, will it take before the owner starts rethinking their business strategy? Probably not that many.
Lost business is lost money. It might not be that important to a large chain, but to a mom-and-pop, it's decisive. When tens of thousands of little grocery stores realize they're losing too much good business and decide to go for it and put down the several hundred bucks for contactless payments terminals, then the big retail chains will move next.
And as more consumer apps add wearable payment options, the early adopters will start asking to pay for more different kinds of services via these devices, applying even more economic pressure to retailers and restaurants to upgrade POS terminals in the belief that “if you build it, they will come” (and perhaps spend more) as the wearable market expands. But whether it will boost sales or just move them from credit cards to devices, only time will tell.
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