Cisco estimates that the number of devices connected to the Internet will skyrocket from 10 billion today to 50 billion by 2020. This will happen, in large part, due to the rise of the Internet of Things, which refers to the increasing number of devices used by homes and businesses that are connected to the Internet. The Wall Street Journal reported that items currently under design include smart door locks, toothbrushes, surveillance cameras, toys and other devices such as thermostats that can be monitored by smartphones. These developments promise a broad impact across industries, particularly in their ability to create new revenue streams for companies in the payments industry.
The economic consequences of the burgeoning Internet of Things is staggering. One Wall Street Journal report expects a $1.9 trillion economic impact from such factors as cost saving and heightened productivity. Gartner Inc. estimates $309 billion in additional revenue to product and service suppliers by 2020, stemming from the Internet of Things. Retailers will benefit because consumers may use smartphones to find products in their stores, and homeowners will benefit because they may, for example, use smartphones to check that the lights and air conditioning have been turned off in their homes.
Payment Services Companies
Payment services companies will benefit too from the Internet of Things. Corporations such as MasterCard, Visa, and American Express are poised to make major gains through increased non-cash transactions and greater access to data. The incorporation of Internet capability into more devices, such as the recently announced Apple Watch, will increase payment endpoints that allow payment services companies earn fees. According to a recent press release by Apple, Apple Watch users will be able to add their credit or debit card information to a secure chip that can be used to make purchases with many of the nation’s leading retailers, such as Bloomingdale’s, Walgreens, Macy’s, McDonalds, Staples, Whole Foods Market and 220,000 other merchant locations across the United States that have contactless payment enabled. A Bloomberg report projected a huge increase in the mobile-transaction market, with payments projected to reach $90 billion in 2017, up from $12.8 billion in 2012.
The transition to a more “cashless society” would be a major boon to electronic payment processors such as American Express and Visa, which are developing innovative ways to capitalize on potential gains from the Internet of Things. In July, Visa announced the opening of a new office to house over 500 employees, whose mission will be to ensure that every Internet connected device, appliance or wearable computer can become a secure place for commerce. The center will connect Visa technicians to clients in order to advance the payment experience in areas beyond the traditional plastic card.
One way in which payment processors may gain additional revenue is through a revolution in utility payment methods. Nest Labs, a household device maker recently acquired by Google, developed smart smoke alarms and thermostats that can be controlled remotely by smart devices such as iPhones. Were companies such as Visa and MasterCard to embed chips in these devices, which could be programmed with the user’s credit card information, they would earn additional fees through automatic electronic utility payments, as opposed to traditional bill pay.
In addition to payment processing firms themselves, tech companies are making strides to revolutionize the industry by developing payment-tracking systems that would tailor payments through a usage-based model. For example, service providers such as gyms could charge fees based on how much a customer uses specific machines. Libelium, a provider of wireless sensor network technology used in Internet of Things projects, recently launched a pair of sensors that can track information about consumer profiles and behaviors. The implementation of these sensors, called RFID/NFC and ZigBee, would facilitate payment processing based on location or activity duration for public transport, gyms and theme parks.
Not only are companies looking to tailor payments more specifically to the consumer’s individual usage, they are also looking to automate the process of in-store payments. For instance, through chips embedded in wearables, stores could access certain shopper information upon a consumer’s entrance into their shop. This would allow consumers to simply walk in a store, pick-up an item, and walk out—their cards charged automatically. Michael Chiu, a partner with McKinsey Global Institute, predicts that this checkout payment method would work well as it would make the customer experience more rich and engaging.
Easy Pay, launched by Apple Stores, is an early entrant into automating the payment space. Easy Pay allows shoppers to pay for goods using the information attached to their iTunes account. Stop & Shop supermarkets have joined in, providing customers with intelligent carts, which calculate purchases as items are placed in the carts. As these technologies continue to develop, payment mechanisms will become more seamlessly automated. Sensors embedded in physical objects—from shopping carts to check-out counters—and linked through wireless networks stand to provide a range of new opportunities to automate and customize the payment space.