The credit card of the future may be a chip embedded in an accessory you wear
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Welcome to the world of wearable pay – technology embedded in wristbands, jewelry and the like – allowing you to pay just by waving or tapping the device on a point-of-sale (POS) terminal. While they’ve only recently started to become available, “anything you wear that you can put a chip in can be part of a wearable payment system,” says Patricia Hewitt, who heads PG Research & Advisory Services, which provides consulting services to the payment industry. “At some point, we might not be using plastic cards at all.”
These emerging payment solutions have resulted from the convergence of various technologies. First are so-called wearable devices. Generally, that means wristbands or watches, rings and other accessories equipped with computing power, such as sensors that can track and monitor anything from your heart rate to your sleep habits. In the case of payment, a tiny embedded chip with an antenna communicates with a POS terminal.
Pair the wearables then with contactless payments, which allow you to make a purchase without actually swiping or dipping a credit card. Your payment information is stored on the device and you just wave the contactless payment accessory close to a terminal – within an inch – or tap it.
“There’s a natural synergy between wearables and contactless payment,” says Kiki Del Valle, MasterCard’s senior vice president and group head of social networks and operating systems. Probably one of the most popular contactless payment systems is Apple Pay. Launched in October 2014, it allows consumers to make purchases via an app on their iPhones. Samsung Pay and Android Pay soon followed suit.
You can just run into a 7-Eleven, tap your bracelet, make your purchase and go.
|\u2014 Ari Gardiner|
These devices are equipped with what’s called NFC (near-field communication) technology. That allows two devices that are very near each other and are equipped with an NFC chip to exchange data, such as payment information. Thus, you tap your wearable against a POS terminal which detects key information embedded in the wearable device and then transmits that data to an app, your bank or a credit card network.
At the same time, however, wearable payment systems, like contactless payment in general, have been slow to take off in the U.S. In addition, while some big U.S. retailers, such as Target and Walgreens, have NFC-enabled terminals, most merchants don’t. Of 13.9 million POS terminals in the U.S., about 2.4 million are EMV-and NFC-enabled, according to Let’s Talk Payments. And 3.6 million are EMV-only enabled. “This is the very early days for these payment systems,” says Hewitt.
That’s despite the fact that in October 2015, the major credit card companies officially made retailers not using EMV-enabled payment systems liable for fraudulent payments. Short for Europay, MasterCard and Visa, EMV is a technical standard for smart payment cards storing data on chips and magnetic stripes and terminals that accept them. Some industry insiders predict that more merchants increasingly will opt to upgrade their terminals to be both EMV and NFC-enabled.
The wearable payment landscape
What’s available now? A variety of wearables are hitting the market. For example:
Smart watches. So far, that includes the Apple Watch, using Apple Pay, and the Samsung Gear S2, through Samsung Pay. These smart watches aren’t designed only for payment, of course, it’s just one of many functions. While the Gear S2 is available, a Samsung Pay-enabled version is currently being tested. Users with a Gear S2 Bluetooth model can download the software on a Galaxy phone, add credit or debit card information, and it will automatically sync up with the watch. You also can pay without having your phone with you, although, after five transactions, you’ll need to sync up your watch with your phone again. Samsung? recently announced a new model, the Samsung Gear S3, which will include proprietary technology that mimics the magnetic strip on a regular plastic credit or debit card, allowing you to use it on just about any terminal, even those that aren’t NFC-enabled. As for Apple, users initially need to have an iPhone that’s paired with an Apple Watch to add payment card details to Apple Pay. After that, there’s no need to have a phone with you.
Jawbone UP4 fitness monitor
Fitness bands. Users of the Jawbone UP4 fitness monitor can pay for goods using a linked American Express account at participating retailers. The Amex card is authenticated through the Jawbone app and customers just have to tap their wrist to pay. FitBit is expected to debut its own payment-capable wearable by 2017.
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Rings, luxury watch brands. Visa tested a payment ring prototype at the 2016 Summer Olympics in Rio that can be used to make purchases. And MasterCard announced technical and commercial platforms over the past several years which device manufacturers can use to create wearables and integrate issuers into their system. It also recently announced a partnership with Bulgari to allow customers to use the watchmaker’s “intelligent mechanical luxury watch” to make payments at merchants accepting MasterCard contactless transactions.
Bracelets and jackets. The PureWrist bracelet works with merchants accepting MasterCard contactless debit transactions. Embedded in the bracelet is a miniature subscriber identity module (SIM) card. Wearers load funds on it through an online platform and pay a small monthly subscription, plus, a fixed portion funds various charities. In 2015, Scottish apparel company Lyle & Scott introduced a contactless payment jacket in partnership with Barclaycard. The clothing sported a contactless chip in the cuff, allowing the wearer to make payments at terminals throughout the UK.
The so-what factor
What’s the real attraction for consumers? Convenience, according to industry experts. “You’re shopping and you have your hands full. You’re holding your kids. It’s so much more convenient than fumbling through your wallet for your card,” says Hewitt.
“You can just run into a 7-Eleven, tap your bracelet, make your purchase and go,” says Ari Gardiner, CEO of PureWrist.
In addition, there’s the matter of security. Wearables and noncard payment systems generally use tokenization (the same as EMV), a process through which nonsensitive data of no interest to a hacker is substituted for sensitive data. That keeps customer payment information private. “We perform an ID verification service, validating the consumer is who they say they are; then through the cloud we move those credentials into a secure area,” says MasterCard’s Del Valle. “So we use a token as a proxy for that consumer’s account number.”