It is estimated that, by 2020, approximately 20.4 billion connected devices will be in use around the world, all interacting with one another in a Big Data sharing network, which has become known as the Internet of Things (IoT). The idea behind the IoT is to create an interactive web of connected devices that can share data and adapt to it in real time.
Imagine the home of the future: you open your refrigerator in the morning to make breakfast and it analyzes what you have and what you’ve taken and orders the items from the supermarket you need. Your watch will track the food you eat and your body measurements and log them against your medical history. When you use your car to drive to work, it will prompt you to fill up on gas and can wirelessly communicate with the gas pump to complete the payment without you ever having to take out your wallet. This is the future of the IoT, and it opens an incredible amount of possibilities for the payment landscape.
The Increasing Importance of IoT
Once connected, IoT devices have unlimited potential for collecting data, running analytics, and anticipating the needs of consumers and industries. By now, almost all industries have become affected by IoT in some fashion. The number of companies adopting IoT into their businesses has risen quickly. Adoption in 2013 was 12%, while by the end of 2017 it had risen to 29%. Worldwide, the industries with the largest current use of IoT are the medical industry, energy, and utilities, although transportation and logistics have shown the highest annual growth rates thus far.
However, IoT will likely see the largest increase in its technology implementation by the consumer devices industry. Consumer IoT devices are already garnering public attention, like Fitbit wearables for fitness tracking or smart home technology such as “talking refrigerators” that can automatically order grocery delivery when needed. Other emerging areas of consumer IoT are connected cars and smart cities, which together plan to revolutionize the way we navigate, park, and interact with our built environment.
Advancements in IoT hold great potential for the expansion of the payment possibilities into yet unforeseen and unexplored frontiers. In fact, wearables like Fitbit and Garmin have already partnered with Visa and Mastercard to offer payment capabilities via their devices.
The Role of IoT in Payment
The biggest advantage of incorporating the IoT in payments for consumers is the possibility to have invisible, frictionless payments. With the IoT, devices can be automated to order new items, renew subscriptions, or make payments without any additional verification. Not only can customers pay for goods with just the push of a button or a wave of their device, but they also no longer have to spend as much time researching and selecting goods. IoT devices can track and analyze their purchasing behavior and personal preferences to intuitively suggest the goods or services they are most likely to want.
Businesses also benefit from this technology since they can use a plethora of data to enhance their payment processes. Having access to such large amounts of data can help businesses increase revenue by improving efficiency of data gathering and reducing analyzing costs. In fact, in a 2017 survey, 47% of IoT adopting businesses reported improved productivity and reduced cost as the biggest benefits of IoT.
Despite these benefits, payment via IoT is still plagued with a multitude of security concerns. With a great amount of data also comes a great amount of fraud potential. The foremost concern with using the IoT in payment is identity security. With multiple devices storing customer payment data and personal information, the chances of that data falling into the wrong hands increases. And if all of your devices are connected, all it takes is access to only one of them. It might be difficult for someone to hack your connected home appliances, but if you lose your smartphone or your wearable fitness tracker with payment data stored, the results could be disastrous.
Future Payment Potential of IoT
One way that businesses can combat security issues is through the usage of tokens in accessing IoT devices. These are usually made up of randomly generated code that is valid for a certain length of time. This code is then used in place of your actual payment data to make transactions. Tokens often authorize a device to make payments only for specific kinds of purchases or for purchasing from specific vendors. The latest example of tokenization being used to protect the IoT is the partnership between Visa and Mastercard to develop a cohesive tokenization program. Tokenization can offer security both for businesses and customers.
Another important facet to consider when implementing IoT devices into a payment system is the principle of interoperability. The true potential of the IoT lies in the ability to create chains of connected devices that gather and analyze data among themselves to produce a larger and clearer picture of the process they are used in. Many manufacturers of IoT devices are beginning to standardize their processes to produce easily connectable devices. However, it’s important for businesses to make sure that the software, sharing protocols, and access to databases can be standardized for all the devices used in a particular process. This not only provides the greatest efficiency from IoT, but can also offer new tools such as predictive maintenance, that can use real-time data on payment processes to predict scenarios during which problems may arise. It’s estimated that interoperability is required in order to enable at least 40% of the potential value of IoT technology.
For the payment landscape, it’s in the best interest of businesses to ensure that any IoT adoption strategy they choose will adequately protect payment security and facilitate efficiency across multiple connected devices. Implementing an IoT strategy that manages these two aspects well can bring companies increased earnings, greater customer trust and new opportunities.