Smartphone vs Smartwatch for contactless payments
May 14, 2017
Smartphone vs Smartwatch for contactless payments

The convenience of contactless payments with a smartphone at POS is undoubtful. The paying process is simple and fast, secure and easy to understand. Without the need to retrieve a mobile device from a pocket you can proceed through the buying process. However, it may not differ significantly compared to pulling out the wallet with every card in it. So of the real advantages, in this case, is the smartphone’s ability to store not only bank cards but also coupons, loyalty cards and travel cards within the mobile wallet app.

As contactless payments with NFC-enabled smartphones slowly but inevitably take over the more traditional methods like cash and credit/debit cards, reaching the global market penetration of almost 40% this year, there’s already even more advanced and simple way to pay at point-of-sale. Wearables, or more precisely smartwatches, are even more appealing for making payments compared to smartphones as this method adds one more practical value. Having a smart device on your wrist, you obtain the ability to go for a run or to the nearest shop for a refreshing drink without carrying a mobile phone.   

Rise of smartwatch usage for contactless payments

Wearables as an independent mobile device category are relatively new, wearables with NFC module are even newer. Fitness trackers and smartwatches have long become personal trainers that can motivate users to meet daily activity and workout goals, and track additional data like heart rates, amounts of burnt calories and even sleep patterns. Various mobile wallet adoption researches suggest the rise of mobile wallets usage in the next years, so mobile devices manufacturers have the opportunity to help consumers adopt newest payment technologies. Especially when these mobile wallets grant users an opportunity of one-time registration and then one-tap payments for products and services. It comes no wonder that the wearables market is full of NFC-enabled smartwatches and fitness trackers from Apple (Apple Watch), LG, Motorola, Huawei and others on Android Wear 2.0, Samsung (Gear series), Garmin (Vívoactive 3), Fitbit (Ionic), etc.

Wearable payments technologies are evolving fast, considering that these contactless technologies do not differ much from the smartphones. Mastercard indicates that almost quarter or 175 million Europeans (24%) are ready to conduct contactless payments with a smartwatch, bracelet, ring and other types of wearable smart devices. BI Intelligence forecasts that by 2020, 62% of wearable devices will be enabled for contactless payments. And the usage of smartwatches rises in big strides. According to Juniper Research study, the global value of contactless smartwatches and smartphones payments is expected to reach $100 billion by the end of 2018. Statista reports the increase of wearables sales by almost twice in 3 years, with the penetration of fitness bands and smartwatches by 72% of all wearables with the amount of connected wearable devices worldwide reaching 830 million by 2020.

Challenges of widespread smartwatches and fitness trackers contactless payments adoption

Wearables have the ability to provide users with a digital identity, which would give access to credit and debit cards, driving license, car key, transportation pass and other everyday things. And mobile users are ready for the change, given smartwatches have the ability to disrupt and reform conventional payment methods like cash. However, wearables are still somewhat niche products for enthusiasts, even putting aside payments, because wearable technologies need to overcome a list of challenges and obstacles.

Most of the smartwatches and fitness bands cannot fully operate by themselves. In reality, they are a futuristic and featureful addition to a smartphone, with the limited ability of standalone operation. Most of the wearables require a smartphone or computer for the initial setup. And in terms of payments, they need the smartphone for storing all the necessary information like bank cards tokens in the digital wallet app and for transferring these data back to the wearable. So in the future the provisioning and authentication process should become easier and effortless.

The vast number of smartwatch systems from different electronics manufacturers is another challenge, as the lack of ubiquitous platforms restrains banks, developers, and 3rd parties. In result, even the most popular digital wallet may not be available or even compatible with the given wearable. Not to mention that in the current implementation, mobile wallet apps on smartphone and smartwatch are two different applications.

Similarly, the payment infrastructure should be broad and should support at least all popular devices. POS terminal enabled for contactless transactions and capable of supporting not only NFC payments (HCE) but also a variety of technologies (QR and bar codes, Bluetooth, Wi-Fi, secure elements) should be generally available. Only then will wearables gain widespread use.

Wearables such as smartwatches and fitness trackers form a perfect combination with mobile wallets and contactless payments to create a shift in banking services. The technology is already there, but it needs refinement so that consumers, financial institutions, and 3rd parties could benefit from its implementation. The adoption process is already running, but its pace relies on those who don’t want to miss the opportunity.