Guest blogger Jeff Crawford, Senior Manager with extensive experience in digital and mobile payments, discusses how the Internet of Things and connected commerce introduce new payments opportunities for existing players and new entrants.
Gone is the world where a watch just keeps time and a refrigerator simply preserves food. From wearables and smart speakers to smart appliances, connected cars and beyond, the Internet of Things (IoT) has gained the attention of consumers and businesses alike. At its most basic level, IoT is the network of “smart”, connected devices or products that enable new forms of communication and new experiences. The global IoT market is estimated to grow to $2.9 trillion with 20 billion connected devices by 2020.¹
IoT devices, combined with emerging payments capabilities, facilitate a connected commerce experience, providing consumers with a convenient way to transact by incorporating shopping and payments functionality into devices. For example, Amazon has enabled its customers to make purchases via its Echo devices using Alexa voice commands. Through the Groceries by Mastercard program, consumers can purchase grocery items through their Samsung refrigerators and have them delivered by the program’s grocery delivery services partners. Ford and ExxonMobil maintain a partnership to allow consumers to make Speedpass+ fuel payments through their in-car infotainment system.
The physical device is only one component of the infrastructure required to support IoT payments. It also must include a user interface, which is often a screen, but may also be a button, voice interaction, or geo-location. The IoT device must establish and maintain connectivity to a back-end platform that receives the data; this connectivity may be supported via Wi-Fi, Bluetooth or LTE. Payment credentials must be tokenized and maintained in a secure environment, either locally or in the cloud, and security is embedded through advanced authentication, often in the form of biometrics (such as voice command).
IoT payments require a coordinated effort through the device manufacturers, payment providers and technology integration partners. Visa and Mastercard are seeking to accelerate IoT payments engagement and enablement as part of the companies’ respective digital payment readiness programs, Visa Ready and Mastercard Engage. Both efforts have focused on facilitating secure payments across the value chain and connecting IoT device manufacturers to financial institutions. Discover and American Express have also linked payment tokenization platforms and security protocols to third-party products (namely, wearables) to enable their cardholders to take advantage of IoT-based products and services. Such market activity represents a logical progression for payment networks to push new use cases for their tokenization offerings.
As expected with any new payments technology, IoT payments have a heavy focus on security. Large chip manufacturers (including NXP and Intel) have entered the space, providing secure elements to store payments credentials. Other entrants focus on innovative methods of enhancing payments security. MagicCube, which names Visa² and Mastercard among its partners, offers device manufacturers a trusted execution environment (TEE) security platform to provide payments security in lieu of a secure hardware element or software-based encryption.
It was not long ago that consumers, issuers, processors and networks were responsible for maintaining and securing only a single payments device: the card. As smart phones, refrigerators, watches and cars, among other things, become payment devices, card volume should start to migrate from the physical card to digital payments via IoT devices. Issuers must focus on developing strategies to ensure their cards remain top-of-wallet for consumers who make IoT purchases. Card networks are likely to continue facilitating partnerships with device manufacturers to optimize use of the emerging technology.
For traditional card processors, there may be an opportunity to enhance the processing of solutions with features to support device management. For example, card processors might use a data field that tracks the device (card, phone, watch, refrigerator) and authentication method used to make a payment, thereby increasing the opportunity for more insightful customer analytics. There may also be opportunities for alternative, non-card payment mechanisms (real-time payments, blockchain/distributed ledger-based, and such) to take hold. We expect IoT payments to remain a key source of value, innovation and growth for both traditional payment providers and new market entrants.
I invite you to read more about Accenture’s capabilities and offerings in the IoT and Connected Commerce space.
Special thanks to David Cencula, who also contributed to this blog.
Jeff Crawford, Senior Manager, Payments