Payments on Autopilot

How the IoT and emerging technologies will change how customers pay — and live.

By Ed McKinley

As the Internet of Things (IoT) enables an increasing number of smart objects to “talk” to each other without human intervention, payments could slip into the background. Analysts agree that exchanging value could even assume a position similar to the status of household plumbing: You know it’s there, but it doesn’t require much thought most of the time.

Apps like Uber have already made paying more or less “automatic.” Just hop into the car and enjoy the ride without reaching for cash or a credit card upon arrival at your destination, says Tim Sloane, vice president, payments innovation, and director of the Emerging Technologies Advisory Service at the Mercator Advisory Group. Vacationers who stay at resorts using wristbands to tally expenses automatically also pay without much friction, notes Penny Gillespie, a Gartner research director. “It seems to encourage spending,” she says of the practice.

Effect on Daily Life

In the near future, the family budget will have to include payments that nearly go unnoticed as machines’ electronics, sensors, software, actuators, and connectivity make our wants and needs known to suppliers without asking us, Sloane says. “My washer could ask for more detergent,” he suggests.

“There are a lot of strange examples of IoT,” agrees Thad Peterson, an Aite Group senior analyst. “The important thing with the Internet of Things is to get past the ‘gee whiz’ stuff and look at the stuff that is really important.” A home thermostat, for example, can “speak” with a utility company, adjusting temperature to conserve energy and reduce bills, he says.

As smart machines proliferate, retailers could use the IoT to monitor systems at a business and replenish products when needed, notes Bryan Yeager, an analyst covering digital trends for the research company eMarketer. For example, Amazon could keep tabs on a printer, take note when toner runs low, and automatically order delivery of toner at exactly the right time. In other words, a computer in the printer communicates with a computer at the distribution center. Yeager explains that “it’s detecting the usage level in the device and integrating that into the ordering, not predicting based on past usage.”

In another example of the IoT, a customer could enter a store, pick out some merchandise, and simply walk out with it. Payment would occur automatically when the customer exits, and there’s no fiddling with cash, checks, cards, or mobile devices at the point of sale. Consumers can get that feeling today by ordering ahead, paying in advance on their phones, and showing up at the store or restaurant to gather their purchases, Yeager points out.

Despite the convenience, making payments through the IoT may not find a large, receptive audience anytime soon, warns Jeff Crawford, a senior manager at First Annapolis Consulting Inc. Mobile payments are taking off slowly even though the mobile smartphone has become ingrained in modern life. That does not bode well for IoT payments made by refrigerators that are running out of milk or automobiles in need of oil, he warns.

Chip Invasion?

Some purchases under the heading of the IoT seem much less jarring. With computers beginning to appear in watches, rings, fitness trackers, eyeglasses, and even articles of clothing, consumers can use the IoT at their own discretion, free of the fear that machines will usurp human authority in some scenario worthy of science fiction.

Banks could even stop issuing cards with chips and instead simply issue the chips themselves, says Gillespie. Consumers could use the chips as they choose, inserting them into anything that makes sense for payments. “Right now, the phone seems like the most likely suspect, but, in the future, it could be a chip that is worn however desired,” she says.

The smartphone is expected to get a boost as a payments vehicle in the early 2020s, when new tech standards take effect, Gillespie says. The standards, called 5G because they will create the fifth generation of wireless communication, have not been agreed upon, but many experts are predicting a quantum leap in speed and functionality.

Phones also have a head start on security, compared with putting chips into nearly everything and building in payments capability, Gillespie notes. For some time, companies throughout the payments industry have been working to prevent fraudsters from hacking into mobile payments made with phones. Building digital trust in IoT will take time and will require great effort, she says: “Not only does your partner have to be trustworthy, his technology has to be trustworthy.”

Unique Security

While some are pondering how the spread of computing power in almost any object will change the world, potential for disruption is looming in the high-tech use of humans themselves. Yes, that would be biometrics for authentication.

Authentication requires something you know, something you have, and something you are, explains Gillespie. A fingerprint is something you are, and it ties the phone to the phone user, but the bank doesn’t have a record of the fingerprint, she says. A remedy might exist, she suggests, if banks and telecommunications companies could agree to cooperate. In any case, fingerprints stored on the device appear more secure than biometrics stored in the cloud, Yeager says. And, as Peterson notes, fingerprints form the basis for Apple Pay, making it extremely secure; he also states that Samsung is introducing a phone capable of iris scans.

Meanwhile, a Canadian company has worked with a wearable that identifies its user based on heart rhythms, and banks are using voice recognition to authenticate representatives of corporate accounts. In Asia-Pacific, companies are using vein recognition for ATM access. “There are certainly some interesting experiments going on,” says Yeager.

Biometrics can even identify a person by measuring and recording characteristics of his or her gait and then comparing the records with a new reading of the walk of the person carrying the device, Sloane says. Using that method or other types of biometrics, a device could keep a constant fix on the identity of the user. That way, the consumer would not have to take any action for authentication; instead, the user is constantly identified. What’s more, measuring the gait could also detect early signs of ailments that include arthritis and diabetes, he notes.

Smart devices store so much data that they can perform tasks like estimating the time needed for a commute, even if the user hasn’t mentioned where he or she lives or works. The device would know from observing geo-positioning over time, says Sloane. Unprompted, a device could assemble data it has collected and then make a “decision” to remind a user sitting in a Starbucks to leave in 18 minutes for a meeting. Consumers might “freak out” that their phones are observing them so closely, but they can’t deny the potential advantages that brings, he notes.

Besides, society has long since acquiesced to the loss of privacy in a connected world, Gillespie says. She recalls a meeting in 2003 with executives who talked at great length about the “evils” of biometric payments. They feared the public would associate fingerprints with criminality and find surrendering the prints too invasive. Her message to the executives was that government would use biometrics and thus help condition the public to accept them. Eventually, Americans would embrace biometrics, she told them. “Information that is protected, guarded, and used in context is usually well-received,” she maintains. “Besides, we gave up all privacy with the introduction of the internet.”

Those still clinging to the remnants of privacy may make their last stand by keeping their whereabouts a mystery to machines, but the inaccuracies of geo-positioning also make the technology a bit ineffective for authentication, says Peterson. “It can get pretty vague,” he contends.

A stronger authentication method is the device ID, Peterson suggests. In an Apple Pay transaction at the point of sale, a tokenized credit card in the phone provides the credit card information for that account, the thumbprint that identifies the user, and a device ID that says the user owns the device, he says. “That’s pretty secure,” he notes.

Now, it’s merely a matter of getting used to computerizing just about everything and paying without giving it a second thought on the Internet of Things.  TT

Ed McKinley is a contributing writer to Transaction Trends. Reach him at [email protected].

The Curious Journey of Contactless Cards

Everything old becomes new again. Contactless credit and debit cards are making a comeback in Europe, especially in the United Kingdom, because consumers and merchants find EMV transactions too slow. The contactless cards, which users simply tap on or wave above a terminal, resemble the contactless plastic that failed to catch on in the United States a few years ago, says Thad Peterson, an Aite Group senior analyst.

Does that mean contactless cards might get another chance in the United States? Probably not, according to Peterson. America seems likely to skip contactless again, this time because the U.S. payments system will be moving from EMV cards to payments made mostly with smartphones and via the Internet of Things (IoT), he says.

Besides, most Americans have little or no experience with contactless cards. It’s different in places like London, where years ago the Oyster Card began to make riding the Tube beneath the city easier and quicker. Once Londoners became acquainted with using the card on the subway, retailers began accepting the payment for merchandise.