Cleaner, Safer, Convenient: How Wearable Payment Tech is Changing the Way We Pay

As consumers across the globe shift to digital, there has been a dramatic increase in the adoption of wearable payment technology, with the industry set to reach $1.37 trillion by 2027.

Clubbed with higher Internet penetration and the growth of smart devices, the way we buy and sell is transforming before our eyes – and along with it, how we pay. Increasing digitalization combined with COVID-19-driven demand for contactless payment methods, is fueling innovation in the payments space. The latest in this niche, wearable tech, is on track to becoming positively futuristic.

Today, from watches, jewelry, and glasses to clothing, there are a plethora of wearable payment options that are growing in popularity. It comes as no surprise that customers are embracing this tech – it’s quicker, easier, convenient, and even stylish.

According to a recent report by Allied Market Research, the global wearable payments industry gained $285.47 billion in 2019 and is projected to reach $1.37 trillion by 2027.

The report also stated that the rise in adoption of cashless payments across the globe, better customer experience offered by wearable payment mediums, increasing demand for wearable devices, and contactless payment for secure and safer payment transactions have accelerated the growth of the global wearable payments market.

Adding to this is the pandemic, which has become a “huge accelerant” for contactless payment adoption, according to Mastercard Senior Vice President Ben Gilbey. In an interview with Jumpstart, he added that the first quarter of 2020 saw a massive increase, with around 70-80% of transactions going contactless.

According to the Salesforce Shopping Index, digital commerce revenues grew 20% globally in the first quarter of 2020, compared to 12% in 2019. The pandemic further saw consumers moving away from contact payments, and in particular, from cash to electronic payments.

“[There have been] very encouraging signs that contactless has not just seen a massive boost, but that this behavior is here to stay,” Gilbey says.

Jumping on the bandwagon, Mastercard on Tuesday, December 9, announced its partnership with MatchMove, a Singapore-based ‘Banking-as-a-Service’ provider, and Tappy Technologies, a world-leading wearable payment integrator. Through the partnership, the trio will introduce tokenization into a small, flexible chip that can be attached to a range of wearables such as watch straps or key-rings, enabling customers to make payment with a simple tap of the wearable.

While there are many people who are content using an Apple Watch or a Samsung Watch, there are also others who want to wear an analog watch and yet enjoy the convenience of contactless payments.

The aim, Gilbey says, is to “make it unobtrusive for the consumer. But again, bring the levels of convenience, frictionless payments, and safety and security to objects that people use every day.”

The convenience factor

According to a Mastercard study of 17,000 consumers in 19 countries, 91% of respondents in Asia Pacific were found to be using tap-and-go payments and 75% said they would keep using contactless after the pandemic is over, due to safety concerns.

Across the globe, 46% of respondents have swapped their top-of-wallet card for one that offers contactless. Meanwhile, 51% of people have made the switch in the Asia Pacific.

The consumers are either using contactless debit or credit cards, a smartphone, mobile or digital wallets, or scanning a QR code for contactless payments. Be it in Australia, India, China, or Japan, contactless payment is seen as “a cleaner, safer way to pay,” Gilbey says, adding that ATM withdrawals have been at an all-time low.

Globally, 82% of respondents view contactless as a cleaner way to pay, with 80% in Asia Pacific saying the same. Being 10 times faster than the other in-person payment methods, contactless payments enable customers to get in and out of stores faster.

According to a  Mastercard global 2020 study, in Asia Pacific, 46% of respondents say they plan to use cashless often.

As an increased number of consumers embrace smartphone payments – Apple Pay, Google Pay, Samsung Pay, or AliPay or WeChat Pay in China – in the last couple of years, there has also been an increase in the use of wearables. This increase, Gilbey says, has been prevalent in areas of health and wellness, on-the-go lifestyle, among people who are “technology nuts” and just for convenience.

“As we see contactless being adopted more and more in things like fast food, coffee outlets, and in particular, on transit, I think we’re going to see wearables become more popular, simply because of the convenience factor for the user – no longer any need to pull out your phone, to transact. [You] simply use your watch, your wearable, your sunglasses, your key fob, to actually transact,” says Gilbey.

Furthermore, contactless payment is also highly popular among women, particularly because they now have to carry fewer items when they are going out.

“In the future, we see every device being a payment device. Last year, we saw about $42 billion dollars of consumer spending on wearables. And $16 billion of this on smartwatches – most of which, whether Apple, Fitbit, or Samsung Watches – all included payments,” explains Gilbey.

How does the payment capable chip work?

Most of the wearables, such as a ring, bracelet, watch, or sunglasses, have Near Field Communication (NFC) capabilities. Once you link your debit or credit card, you can pay using the wearables in the same way that you would using a contactless card or mobile wallets.

MatchMove cardholders can add their MatchMove MasterCard to this chip by placing the wearable on top of a Bluetooth-connected adaptor developed by Tappy Technologies. You have to then download the Tappy app and load the card into the app, which then becomes tokenized via Mastercard’s Digital Enablement Service (MDES).

“That token is then provisioned into whatever wearable you place on the adaptor. After that, you don’t need the adapter – it’s a simple one time function,” says Gilbey, adding that you’ll only need the adaptor again if you want to change the card or add a new card.

From then, you can wear the device and simply tap and pay at any contactless-enabled terminal, just like any contactless card or digital wallet.

However, as this is a passive wearable – where you need to approve the transaction by entering your PIN code on the payment terminal (like with a card) – you will need to enter a PIN as a security measure.

Another limitation to the clasp tech is that if an online PIN is not available, these wearables can’t be used for high-value transactions as Consumer Device Cardholder Verification Method (CDCVM) cannot be performed.

“CDCVM limits, for example, I think in Singapore is around $100. That’s perfect for buying your Starbucks on the go or getting your soft drink, etc,” says Gilbey.

Security concerns

Explaining Mastercard’s MDES service, Gilbey says that it is a “single point of connection that allows consumers to securely store and use their payment credentials – credit, debit, prepaid, or even bank accounts – on their mobile phones through the tokenization process.”

Under tokenization, the customers’ 16 digits card number will be replaced with a surrogate value or a “token”, which is then used for online transactions, in-app purchases, and points of sale.

“It makes each transaction more secure by including a dynamic component with each transaction. Each of the tokens is unique to that particular transaction and unique to the device. So, this makes each and every transaction far more secure,” he explains, adding that the process is equivalent to an EMV chip transaction, but “translated into a digital device.”

The introduction of EMV (Europay Mastercard and Visa) chip tech on plastic cards and on devices has significantly reduced the amount of fraud.

But, what happens if a device or wearable is stolen?

In the case of Tappy, users can go to the mobile app and disable the wearable if it’s lost or stolen. In addition, the app provides consumers with a transaction notification when any purchases are made. “So, they’re always informed; they’re always in control of the wearable,” adds Gilbey.

Adoption for merchants and the future of wearable payment tech

When it comes to the adoption of the tech for merchants, Gilbey says that while there is work to be done, “across Asia Pacific, most issuers are now enabled for contactless payments with devices.”

While the issuers started off doing this for Apple Pay and Google pay, with technology and gateway adoption in place, it’s “easily extendable” into new mediums like Fitbit and Tappy.

“It’s simply about introducing new form factors – new devices – to consumers, giving them more control, the same level of security, but more flexibility, and more convenience,” Gilbey adds.

According to him, the wearable payments market is expected to grow exponentially, with the big players like Google, Samsung, and Apple looking actively at new devices. Along with these, there are also other players like Garmin, Swatch, Fitbit, and Tappy, who are now competing to provide a product that meets the diverse health, lifestyle, fitness, and payment needs of today’s consumers.

The wearable payments market is set to grow particularly in Asia, which is always a very early adopter of new technologies.

“We’re particularly going to see this be the case in Asia Pacific, with a growth rate of 20%, in markets like China, Australia, Singapore, and South Korea,” says Gilbey.

“In markets like Singapore and Australia, already one in four – approaching one in three contactless transactions – is now coming from some form of a mobile device or wearable. In the next couple of years, we expect half of those transactions,” he adds. “And we expect a significant number of those mobile or wearable transactions to be coming from wearables.”

Header image courtesy of Mastercard.

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