By Walter Beisheim, Chief Corporate Development Officer, NokNok Labs.
Today’s technology-dependent millennial consumers demand seamless processes that allow them to evaluate and purchase goods and services as quickly and easily as possible. The smart watch has the potential to play a key role in meeting these demands. Indeed, the combination of wearable technologies and the payment process seems like an ideal match.
Approximately one in four of millennial Americans already wear a smart watch, while penetration rates in the EU and across Asia are higher still.It’s clear that the smart watch is no longer just the reserve of the geek or the early adopter; it has well and truly hit the mainstream.
With this widescale adoption of wearables, there has also been a flood of new applications, including a number that leverage the passive authentication capabilities of the devices. In essence, a smart watch is able to establish and authenticate a customer’s identity when they’re going through the payment process.
This low friction/high security environment is good for consumers, business executives and regulators alike. Here’s why.
The next logical step for mobile payments
Consumers are already sold on the idea of mobile point of sale payments.
According to analyst company, PaymentsJournal, in-store mobile payments are expected to overtake credit card payments by the end of next year, growing from 75 billion US Dollars in 2018 to over 500 billion US Dollars in 2020. More than anything else, it’s the convenience of mobile and wearable payments that makes them so popular, and it’s this ease-of-use that’s fueling future growth. Indeed, PaymentsJournal also estimates that over 60 percent of millennial and Generation Z consumers are now happy to share their bank account credentials with third parties, recognising that this speeds up the payment process for them.
Furthermore, consumers want all of their data shared across all of their services, and they want to be able to use any device for any transaction. This flexibility has recently been made possible by an emerging set of third parties that are providing payment services that were previously only available via traditional banks. This interaction between consumers, banks, payment service providers (PSPs) and merchants represents a massive opportunity that will make payment processes even more flexible.
The business advantage
Merchants want to utilise payment methods that are quick, secure and enhance the overall customer experience. The mobile-point-of-sale market is transforming the future of payment technology by introducing new devices from emerging PSPs that don’t need to connect to expensive and cumbersome legacy payment systems. What’s more, mobile-point-of-sale systems provide more opportunities to incorporate customer loyalty programmes and capture customer information, not to mention streamline the entire checkout experience.
Wearable payment technologies are catching on with consumers using public transportation too, as well as at airports and at many other fixed and mobile merchant terminals. This trend will continue to expand, including more devices, more payment types and supporting an even wider range of vendor technology.
While all this new functionality is good for businesses and consumers alike, it doesalso mean there’s more forthe regulators to monitor and police. This added complexity means they now have an even harder task ensuring that consumer data is adequately protected and that the risk of fraud is minimised.
The PSD2 factor
Point-of-sale solutions are only as good as the authentication platform that is behind them; and it is the capabilities of these platforms that regulators can focus on in order to ensure payments always remain compliant.
One example capability is biometric authentication,which is already being used to check and authorise a staggering number of transactions each day. Indeed, by 2021, biometrics is expected to authenticate more than 18 billion daily transactions. PSD2, which will be in full force by that date, insists that biometrics and other Strong Customer Authentication (SCA) processes are used for each and every transaction over 30€.
SCA works by mandating consumers to provide at least two independent authentication factors as part of the transactions process. Instead of relying on traditional credit card payments that typically verify the cardholder’s identity with a signature or via a PIN, SCA requires that each transaction is validated with biometric data and some sort of possession token.
This is where wearables come in.
A smart watch can provide all the authentication required to meet SCA requirements. A watch that is simply worn on a consumer’s wrist can passively verify that it is an identity token that meets SCA requirements. By adding a PIN-enabled app to the watch such as an Apple Watch,it can even be used as a fully compliant authenticator. All this capability is held on the wrist of a fast-moving millennial consumer.
While many PSPs and merchants will view PSD2 compliance as a major headache that requires massive investment, coordination and risk, it may actually be the impetus to makes payments simpler and quicker. With smart watches, PSD2 compliant transactions are as simple as a flick of the wrist, and that’s exactly what today consumer demands.