How Wearable Technology is Changing Digital Payment Habits

Wearable devices have changed how we monitor our health and are now set to transform payments.

What started as calculator watches back in the 1970s, ushered in the digital era of fitness trackers in the early 2000s and ultimately smartwatches in the 2010s.

Consumer demand for convenience, personalized experience, and security has increased the popularity and adoption of wearable technology and is slowly advancing toward digital payments.

In this post, we’ll explore the impact wearable technology will have on our digital payment habits and what’s in store for the future.

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What is wearable payment technology?

Wearable payment technology allows customers to make contactless payments with devices such as smartwatches, fitness trackers, rings, wristbands, keychains, and so on, that can be worn.

Like contactless debit and credit cards, wearable devices are enabled with near-field technology (NFC) or radio frequency identification (RFID) that facilitates contactless one-tap payment with a flick of your wrist.

Customers can use these wearable devices to purchase products and services without the need to carry physical items like debit/credit cards and smartphones. Because the technology is built to work with one single contactless tap, it is speedier and more efficient compared to a card-initiated payment.

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How does wearable payment technology work? 

Customers need to link their wearable devices to their digital wallets, such as Apple Pay and Google Pay, which store their bank account or debit/credit card information. It can be done via a smartphone or an app.

Wearable technology relies on secure tokenization that allows for the safe transmission of sensitive payment data into the wearable device, which can then be used to make payments.

The first step is to activate the payment facility on the device via phone or an app. Customers can then turn their devices on to the payments interface and process payments by bringing their wrists near the payment terminal.

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What are the benefits of wearable payments?

While convenience is the top benefit of making contactless payments with wearable devices, there are a lot more benefits in store for customers and businesses offering them. Here are some of them:

1. Ease of use

Customers do not need to carry extra items like a card or a mobile phone to make payments. This eliminates the hassle of extra steps like pulling a card out of a wallet or phone out of pocket. Users can make payments just with the device they have worn. Plus, The process in itself is rather quick and seamless, with no friction.

2. Contactless payments

NFC technology is built to process payments from the range of a few centimeters without having to touch any interface of a Point Of Sale (CPOS) terminal. This is desirable for customers who prefer hygiene and safety which has been a priority since the onset of COVID.

Also, digital wallets are a popular method of payment and their integration with easy-to-use wearable technology will drive the adoption of contactless payments. Businesses that facilitate wearable payments will benefit from it.

3. Personalized experience

A lot of data goes into the process of integrating wearable technology into digital payments. Wearable devices collect data from users to process the transactions, data like user behavior.

Businesses can obtain unique findings about users and come up with customized offers and products for their users and benefit from them.

4. Enhanced security

Smartwatch payments do not just work by bringing them close to the payment terminal. There is an extra biometric security for wearables like facial recognition or fingerprint required to confirm a payment.

Also, wearable devices encrypt the payment data transferred from the phone/app to ensure the data is secure and cannot be read by other parties. Such enhanced security minimizes the risk of identity theft and other payment-related frauds.

5. Valuable benefits and rewards

Merchants have a chance to attract more users with new benefits linked with wearable payments.

For example, you can incentivize people to make wearable payments with early access to new products or services and attract more engagement. You can also reward people for meeting their activity goals and come up with gamified programs for higher user engagement.

6. Early-mover advantage

Customers are always on the lookout for new and emerging trends, technologies, features, and devices. Businesses that adopt the latest technologies and trends, like wearable payments, can gain a competitive early-mover advantage by appealing to customers eager to try innovations.

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Examples of wearable payments

Wearable payments are not just limited to smartwatches, which is why the technology is set to change the face of digital payments in the future. Here are other examples of wearable devices integrated with payment capability:

Devices with user interface

Smartwatches and fitness trackers fall in this category as they come with a touchscreen and audio-visual output, offering an amazing user interface. There are tons of smart features in such devices with multiple use cases. Integrating payments into those devices brings out the essence of convenience.

Devices without a user interface

The next frontier of wearable technology has no user interface such as rings, bracelets, jackets, keychains, etc. They are smart devices capable of processing payments and do not work like a typical device, i.e. they are non-interactive but can process NFC-enabled payments.

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Impact of wearable payments on consumer habits

The increased adoption of wearable devices and wearable payments will lead to a shift in consumer habits that can ultimately be a boon for your business. Here are the expected changes to help your business benefit from it:

Increased Frequency of Small Transactions

Wearable payments are designed for quick transactions which will ramp up low-cost purchases like everyday essentials, recharges, memberships, and more. You can come up with low-cost offerings or subscriptions that can be purchased via wearable devices feasibly and increase sales.

Increased Impulse Purchases

Because wearable payments are easy, accessible, and quick, customers are likely to make unplanned purchases. Your business can benefit from offering such non-friction payment methods to encourage more sales.

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What are the risks of adopting wearable payments?

You must be wary of the risks wearable payments may come with to safeguard your business.

• Technical - Just like any other technical device, a wearable device is prone to glitches and errors. This can lead to failed payments or chargebacks.
• Security - Without stringent security measures and protocols in place, you and your customer’s sensitive data can be at risk. Ensure adherence to all security protocols for maximum safety.
• Theft - Loss or theft of wearable devices activated for payments can trigger unauthorized transactions that your business and payment gateways should be able to detect and prevent.
• Early stage - The IoT and wearable payments infrastructure is still in its early stage and requires a lot of approvals to drive adoption globally.

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Security measures required to enable wearable payments

Here’s a list of the security measures your business needs to safeguard against payment fraud:

• Tokenization - Tokenization can help replace sensitive card data with encrypted tokens that cannot be read or used by fraudsters.
• Biometric Authentication - Biometric methods like fingerprints, facial recognition, or voice identification are unique to each individual and act like an extra layer of protection that cannot be replicated.
• Near Field Communication (NFC) Security - NFC technology works only when the wearable devices are in permissible proximity to the payment terminal.
• Two-Factor Authentication (2FA) - Wearable devices clubbed with an extra layer of verification like a pin or a prompt can maximize security.
• Remote Lock and Disable Features - Remote control via a phone can disable a wearable device in case of theft or glitches.
• Secure Element (SE) - Secure elements like tamper-proof hardware components can store and process payment data securely.
• Encryption of Payment Data - Encrypting payment data is a must for secure communication between devices and payment terminals.
• One-Time Use Codes (Dynamic CVVs) - Single-use authentication codes are an extra security layer for wearable payments.
• Transaction Limits - Adding a cap for wearable payments helps mitigate risks and unauthorized transactions.

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Where is the wearable payments industry headed?

Let’s discover some emerging trends in the future of digital payments:

1. Surge in health apps/services - Wearables are linked with health and fitness use cases, which will increase integration and demand in services such as gym memberships, medical treatments, or wellness subscriptions. Automation is the next step.
2. Increased use cases - Wearable payments will become a major part of our lives integrating with everyday transactions like retail, toll payments, public transport, and so on.
3. Environment consciousness - With heavy demand and availability of a variety of wearable devices customers will have a preference for devices made of sustainable materials.
4. Digital assets adoption - Wearable devices will in the future also support cross-border payments as well as the purchase of cryptocurrency and digital assets.
5. Gamification - While merchants will try to maximize loyalty program offerings, technology companies will come up with interactive features like gesture payments, augmented reality, and more.

Better and expanded integration of wearable devices with technologies like the Internet of Things (IoT) and Artificial Intelligence (AI) will connect and facilitate interaction with smart appliances, and vehicles alongside retail.

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Conclusion

Wearable technology is growing in popularity and the convenience and efficiency it offers will bring rapid adoption. Businesses willing to stay ahead should adopt a payment solution compatible with wearable technology.

Payby can help you keep up with customer demand with its smart, secure, and adaptable payment solutions.

Get started with Payby today.