Gone are the days when “Cash or card?” was an exhaustive question. In today’s payment landscape, contactless payments come in all shapes and sizes. The use of wearable payment devices is skyrocketing – and it’s easy to see why.
Using debit cards and credit cards as a payment method has big drawbacks:
- Payment fraud like skimming and phishing, resulting in unauthorized transactions.
- Loss or theft of cards that are easily misplaced or targeted by thieves.
- Slow payments that involve wallets, fumbling with terminals, and typing in codes.
Wearable payment devices allow users to pay with the flick of a wrist and use advanced security measures to keep transactions and the devices themselves safe from fraudsters.
But do these wearables really offer more convenience and security than traditional payment options – or are they just a consumer gimmick?
In this article, we explain how wearable payment technology works and how secure these devices are. We explore today’s wearable payment systems, argue why the future of payments is wearable, and share why businesses should adapt to wearable payment devices.
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How do wearable payment devices work? NFC and two-way communication impacts on payments
The majority of mobile payments use NFC technology, short for near-field communication. This technology is built into our smartphones, ticketing systems, and the EMV cards from financial institutions Europay, Mastercard, and Visa – which are used for over 95% of global card-present transactions.
The NFC payment market is set to increase at a compound annual growth rate (CAGR) of 35.9%, growing from USD 25.8 billion in 2022 to USD 507.1 billion by 2032, consulting firm Allied Market Research forecasts.
Forecasted NFC payments per device in 2032
Source: Allied Market Research
And how do wearable payment devices work?
Wearable payment devices either use NFC or, sometimes, RFID technology. Both are short-range wireless technologies that use electromagnetic induction for data communication.
But while RFID-enabled devices automatically identify and communicate with point-of-sale systems, NFC chips allow for manual, two-way data transfer – enhancing a device’s payment capabilities and security.
Two-way communication is crucial for the modernization of B2B payments, enabling a more efficient feature-rich payment ecosystem. Think of checking bank account balances or accessing digital wallets through a payment terminal.
Many RTP systems use two-way communication for messages like “request for payment” and “confirmation of payment” to enable real-time B2B payments.
Because such functions are crucial for businesses’ payment systems, we’ll focus on NFC wearables with two-way communication capabilities from here on.
6 reasons why the future of payments is wearable
Advancements in payment technology and the integration of biometric authentication have made contactless transactions more convenient and secure than ever. NFC technology is ubiquitous and wearable payment devices now include everyday objects like smartwatches, wristbands, and fitness trackers.
Unsurprisingly, the wearable payment device market is growing at a compound annual growth rate (CAGR) of nearly 15% – going from USD 46.3 billion in 2022 to a whopping USD 184.4 billion in 2032, according to consulting firm Data Horizon Research.
Projected growth of the wearable payment device market
Source: Data Horizon Research
Does that mean we’re all paying through wearables in the not-so-distant future? Or is the above forecast just an inflated number based on the temporary popularity of Apple Watches and Fitbits?
While the adoption of NFC wearables plays a part in it, there’s more to contactless payment than being an add-on to smartwatches. Nor is it as simple as convenience – though wearing a Google Pay-enabled payment ring does sound incredibly convenient.
No, the widespread adoption of payment devices is driven by bigger trends. Below are the 3 major reasons why everyone will wear payment wearables in the future.
1. Growing adoption of NFC wearables
Yes, the increasing popularity and adoption of wearable devices like smartwatches and fitness trackers is a major driver for wearable payments. As more people incorporate these devices into their daily lives, the ability to make payments becomes a natural extension of their functionality.
The global smartwatch market is projected to grow from $33.2 billion in 2022 to USD 130 billion in 2030, according to consultancy Vantage Research. Fitness trackers like Fitbit and Garmin, too, are seeing increased adoption. Valued at USD 73.34 billion in 2023, the market size for these wearables is expected to reach USD 338.42 billion in 2032, according to consulting firm Allied Market Research.
2. Usage convenience over phones
If NFC is already available on your mobile device, why not just use those for contactless payments instead of a dedicated wearable?
Andy Boothman, founder of DressCode, the company that launched the CashCuff wearable payment device, believes wearables fill a niche. “We love our phones, but there are times and places where it’s just not good to be having a £1,000 bit of equipment around.”
According to Boothman, “There’s a desire among consumers for something more convenient. Some of the form factors are amazing: the technology, the security, is absolutely first-class. There really is a lot of activity in this space.”
3. Enhanced payment security
If contactless payments are so simple, how secure can wearable payment devices really be?
The main argument for the safety of using NFC wearables is their short communication range. Readers need to get within 4 cm to communicate with the wearable, making it difficult for potential attackers to intercept any data.
Besides this forest layer of safety, an additional number of security features protect financial data and ensure secure transactions:
- Encryption and tokenization of the transacted data helps protect data even if it’s intercepted.
- Secure element chips used with Apple Pay provide a tamper-proof hardware layer for extra protection of data, as one industry insider argues.
- Biometric authentication ensures only the authorized user can initiate transactions. More and more wearables incorporate biometric features like fingerprint, facial or heart-rate recognition.
Even when a wearable device is lost or stolen, it cannot be used to trigger transactions without consent from the authorized user. This makes wearable payment devices potentially more secure than other payment methods, including EMV payment cards.
4. Integration with other devices and functions
Wearable payment devices often combine multiple functionalities, such as fitness tracking, communication, and payments, into a single device. This versatility makes them increasingly attractive to consumers looking for all-in-one solutions and seamless user experience.
As more of our appliances become connected through the Internet of Things (IoT), interconnectivity and payment integration through wearables becomes increasingly useful.
Integration with IoT devices will prove the beating heart of the digital transformation, according to consultancy McKinsey, enabling $5.5 to $12.6 USD trillion in added value. 2030. Wearable payment devices open up new payment channels between IoT devices and their users.
5. Shift towards contactless and digital payments
Following the pandemic, 82% of businesses updated their transaction methods, according to data from Mastercard. This shift towards digital and contactless payments, accelerated by hygiene concerns following the COVID-19 pandemic, aligns perfectly with the rise of wearable payment technology.
Already, contactless payments account for one in every two in-person transactions globally – up from the one-in-three ratio seen in years past by Mastercard. Electronic payments in B2B transactions are expected to reach 80% of all payments by 2025, data from news outlet PYMNTS suggests.
This surge is reshaping how businesses interact with each other and their customers, and how they manage their payment systems. In this changing payment landscape, wearable payment devices will become more prevalent.
6. Businesses embrace wearable payments
As people come to demand contactless payments, more merchants upgrade to contactless POS terminals that support NFC payment devices. Over 75% of all point-of-sale (POS) terminals in the U.S. are contactless-enabled, according to payment processor Host Merchant Payments. In Europe, too, the contactless ecosystem is rapidly expanding.
These businesses strategically embrace wearable payment technology to enhance customer experiences by eliminating the need for physical currency and concerns about pickpocketing or payment fraud. Instead, NFT wearables promise more efficient and seamless customer interactions. Finally, wearable contactless payment devices collect all kinds of consumer behavior data – making them appealing to merchants looking to optimize sales.
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