In 2001: A Space Odyssey, “Hal” the on-board computer says, “I’m sorry, Dave. I’m afraid I can’t do that,” and refuses to let Dave back into the main spacecraft. This is a nightmare scenario around artificial intelligence that has been discussed recently by Stephen Hawking, Bill Gates and Elon Musk. An intelligent machine takes over and makes a decision that jeopardizes a human life.
Intelligent machines are no longer the stuff of science fiction. But we’re a long way from the general intelligence of Hal. We are however beginning to see the rapid development of the Internet of Things. In this sensor-rich, data-driven environment, historically basic machines will start to interact with their environment and make decisions for themselves. In this world, your washing machine will purchase detergent or your air conditioner will order a new filter. In the not-too-distant future, this will feel as normal as ordering a ride from a stranger using a smartphone.
Connected commerce is in its infancy, but payments providers need to start preparing for its coming of age. Cisco estimates there will be 50 billion connected devices by 2020. That’s about five times more connected devices in the world by decade’s end than there are credit cards today, according to Nilson Reports. The convenience of completing transactions without having to think or act is a compelling value proposition for busy consumers looking to simplify their lives.
Results from Accenture’s 2016 North America Consumer Digital Payments survey show that early adopters, who are primarily millennials and mass affluents, are intrigued by connected commerce. Thirty-five percent of mass affluents and 30 percent of millennials are interested in using wearables as payments devices and in device-initiated payments. Their interest is hardly surprising. Millennials are digital natives, and as a group tend to be digital pioneers. In addition, device connectivity starts at the higher end, so mass affluents are the ones purchasing products equipped with the first wave of connected commerce capabilities.
A look at how other technologies matured over time suggests that connected commerce will break through beyond early adopters in the next few years. The evolution of the Internet in the business-to-consumer environment is a good example. First, companies scrambled to purchase a domain. Then they published static sites. The next push was to use the online channel to provide basic customer service less expensively. The eureka moment came when companies developed ways to monetize this channel. It took a while, but when online commerce was born, it reshaped whole sectors of the economy.
We can expect a similar impact from connected devices. This means that there will be more and more use cases for connected commerce services—many of which we cannot even imagine today. Not all of them will involve machine-initiated decisions. The success of the Amazon Dash buttons that allow you to order specific branded items with a single push of a button comes from their simplicity and connectivity, not their intelligence.
When developing a connected commerce strategy, payments providers need to start with understanding the customer. This means deep ethnographic research to understand the role that connected payments could play in consumers’ lives. It also means strong analytics capabilities to understand revealed behaviors and patterns in data. As new use cases evolve, processing and security will also need to evolve to make sure a car isn’t paying for the gas of the guy at the next pump. For micro-transactions that currently don’t make economic sense, new commerce models such as blockchain and cryptocurrency may offer low-cost connected commerce solutions.
We are heading toward a world where payments become embedded in transactions that either we initiate or that are initiated by smart machines. As contextual data gives us the ability to personalize and tailor experiences and to make them elegant and seamless for consumers, the payments industry also needs to evolve to be a key enabler of this world. If we get it right our lives will become simpler, but what goes on behind the curtain will become a lot more complicated.
If you are interested in the impact of connected commerce on the payments industry, I encourage you to explore further reading on the topic: