Banking technology is undergoing a period of rapid innovation. The financial technology industry (fintech) is developing a suite of technologies to improve every feature of the financial services industry. Large banks, insurance companies, and other financial services intermediaries are being pushed daily to innovate or lose market share. These innovations are expected to incrementally improve security, speed, access, and customer experience, but what hidden convergences will become massive breakthroughs? While we can never be certain of the future, in this six-part series, we will examine the future of banking through six distinct lenses…starting with the convergence of wearable technology and point-of-sale.
Wearable Technology and Point-of-Sale Defined
As wearable technologies and point-of-sale technologies rapidly converge, it’s important to understand where they started. So, what are they exactly?
Wearable technology (aka wearables) is defined as any technology that can be worn on the body, including clothing, accessories, eyewear, earpieces, and jewelry. Generally these devices connect to the Internet or a personal network to share collected information.
Point-of-Sale (aka POS Systems – sometimes referred to as mPOS for mobile) are systems designed to take payment and associated information at the point of purchase. POS systems have been around for a long time. POS systems are not a new invention. In fact, the very first POS system was a type of mechanical calculator invented in 1623, followed by a commercial calculator in the late 1800s. After transitioning through a “secure” cash register phase, POS systems now commonly manifest as credit/debit machines or similar alternative readers such as Square, PayPal, or Apple/Samsung Pay.
The Sector Opportunity
In the United States, total mobile payments — comprising in-person payments, remote purchases, and peer-to-peer transfers — will nearly triple in five years, from $52 billion in 2014 to $142 billion in 2019, reports Forrester Research. The in-person portion will rise from $3.7 billion to $34 billion. If the in-person transfers do increase 10x by 2019, the technologies that facilitate the in-person transfers will greatly benefit. To be sure, many customers will continue to pay for items with cash and credit cards over the next three years, but some experts think that mobile or wearable wallets will soon replace traditional payment options:
- Jörn Leogrande of Wirecard says, “Consumers will soon pay ‘on the go’ with a mobile wallet – either on a smartphone or in the form of wearable technology. Because wearables are worn directly on the user’s body, they can immediately pay using near field communication (NFC) technology. It is this ability to marry application scenarios and functionality that has made wearable technology so successful.”
- Christopher Liechty, VP of Marketing at Bank of American Fork says, “That isn't to say our customers are not all over their smartphones and online banking, because they are. To make certain we don’t underestimate the changes, we need to put everything we've got into moving toward digital. With some of the digital technologies like MX and Apple Pay, people are right at the cusp of changing their behavior.”
- David Kaplan, Managing Editor of GeoMarketing, the media and content arm of Yext says, “Your phone really is becoming your wallet by location. Beyond predictive analytics, we're always looking at adoption of mobile wallet.”
- Nick Mackie, Head of Contactless at Visa Europe, said, “At Visa, we envisage that contactless technology will become a standard feature on many wearable devices by 2020; We see huge potential in the wearable payments space, which is growing in popularity – especially among the tech-savvy millennial market. Wearables take all that’s great about contactless – the speed, convenience and simplicity – and make it better still.”
You Are Being Watched…But This May Benefit You
Over the next twenty years, nearly every personal movement and action will be recorded by wearable technology and broadcast/analyzed by your network of service providers. Sound a bit scary? It certainly could be – but it’s also nothing new. Companies have collected and monitored consumer preferences via retail and advertising platforms for years. Consumers rarely push back against this monitoring because they enjoy the benefits of the free platforms more than the perceived loss of purchasing activity privacy.
However, personal wearables and the associated Internet of Things (IoT) will monitor and record a much wider array of personal data– and this presents a problem. Consumer excitement about the benefits of a new technology doesn’t always correlate to consumer trust. As PwC mentions in their wearables report, consumer excitement for bank wearables is 52% but trust for bank wearables stands at 33%. Currently there is no solution for fully securing wearable devices, transmissions, and stored data. Consequently, any single point of failure could expose private personal data to bad actors. Without trust and security improvements, long-term wearable technology adoption will lag. Nonetheless, as benefits improve, consumers again may be willing to trade their trust and privacy concerns for convenience.
Wearable/POS Technologies and Potential Benefits from Head to Toe
Here are a three wearable technology sectors that could build trust and provide enhanced consumer benefits in the next five years:
1. Location Tracking. Location tracking (via GPS) is core to identity verification, fraud prevention, and security. Matching GPS location on a phone, wristband, bracelet, earring, shirt, button, or shoe would help a payment provider authenticate identity at a point of sale. Multiple device verification could provide an added layer of identity security before a signal is submitted via NFC technology.
2. Gesture Tracking. Smart jewelry companies like Ring enable wearers to send texts, control home appliances, pay bills, or connect with a merchant payment solution in real life — all by tracking custom gestures. Wearable projection glasses, virtual reality glasses, microchip infused contact lenses, and microchip infused nail polish could enable a keyboard function for virtual screens, give you the ability to draw virtually in three dimensions, or provide real-time feedback for holographic or real-life interactions merchants.
3. Digital Signage and Biometrics. Thumb print verification technology is already commonplace on phones, computers, and websites. As touchscreens and home buttons improve, this technology will become ubiquitous. In the future, phone sensors and cameras may be able to perform retinal scans. Both of these identification technologies could act as an authentic virtual signature. In addition to thumb prints and retinal scans, sensors in your shirt could monitor your physiology. Such a device could send mood and exercise data to an insurer, giving the user discounts for feeling positive and healthy.
Fintech firms, banks, merchants, and designers are continuously working on new ways to improve the payment experience by integrating technology into wearable devices. For the technology to be fully adopted, however, these teams must deliver trusted security, speed, device efficiency, and user-friendly application design.