How the Coming Internet of Things Era is Reshaping Payments
By Michelle Evans, Head, Digital Consumer Research, Euromonitor International
To put the current development of IoT into context of another more recent phenomenon, social media, this is the stage of development in which MySpace was attracting the earliest adopters in this burgeoning landscape. Simply stated, there are many more iterations of the IoT universe until this concept reaches public consciousness.
Most of the progress has been for industrial scenarios, but nonetheless this wave has the potential to disrupt how consumers browse and pay in the coming years. From a consumer perspective, much of the benefit today involves making life easier. Many of these innovations are more subtle in nature. They may autotomize a process or remove friction from another. None are revolutionary themselves, but slowly they are changing consumer behavior.
In a broader perspective, these advancements are driving a shift towards a digital-first universe with internet-connected things beginning to influence commerce actions for today’s most connected consumers. In time, these connected things could become even more important to brand marketers, merchants and payment providers looking to bridging the physical and online worlds of commerce.
While a majority of digital commerce occurs through computers or smartphones today, IoT is introducing more form factors to the marketplace. These plethora of things, including connected devices, appliances, clothing, fashion accessories and sensors, have the potential to disrupt commerce and emerge as new tools for executing payments.
The recent rise of digital commerce has led to the payment transaction being pushed further into the background.
These connected devices, appliances, clothing, fashion accessories and sensors, have the potential to disrupt commerce and emerge as new tools for executing payments
With consumers embracing these smart devices for both browsing and buying, the path to purchase has become increasingly more digitized and the payment itself has become a commodity in the experience. Unlike never before, the payment transaction has become just a period at the end of the commerce sentence.
There are a few factors that pushed payments into the background, but the ascension of the smartphone to its status as one of the most popular consumer devices on the planet has been a major force behind this disappearance act. Given the challenge of being able to easily enter payment details on small-screen devices, numerous companies attempted to eliminate friction along the path to purchase and reduce the steps to payment. Digital wallets, which store personal payment information in the cloud to eliminate steps at checkout, is one way players have attempted to remove friction.
In more recent years, consumers have also started shifting from type to voice interfaces as voice-enabled personal assistants found in smartphones, computers and wireless speakers gain traction. Executing voice payments requires consumers to store payment and delivery details into their respective platforms before shopping. By having such information on file, a consumer can make purchases by uttering a few simple phrases. In this case, payment is made without the consumer ever having to use a physical wallet or mobile phone.
Automated purchases are when payment almost entirely disappears. Amazon, the world’s largest online retailer, enables consumers to order consumables by a tap of a button through its Amazon Dash service launched in 2015. The second installment of this program led to the introduction of the Amazon Dash Replenishment Service, which is a platform for manufacturers to incorporate this system into their own products in one of two ways. Either a manufacturer builds a physical button into their hardware for shoppers to use when re-ordering products or the technology can measure consumable usage and enable re-ordering to take place automatically.
The latter is an example of what IoT will do for commerce once it is fully developed and integrated into consumers’ lives. Given that many durable goods products require continuous replenishment, such as detergents, fabric softeners or printer ink, there is an opportunity to automate the ordering process. Subscription services started to do this by measuring how frequently families ordered specific items from a retailer based merely on purchase history. In the IoT era, consumption could be more accurately measured by the durable goods itself; giving way to machine-aided commerce. Some commerce sectors will likely become almost entirely automated.
Consumption is on the cusp of becoming more predictive in nature as the IoT era takes shape. In this next stage, the relationship between the connected consumer and the product or service will change. Brands will be able to anticipate the consumer need and fulfill it without requiring the consumer to take any conscious action. As commerce becomes more passive, brands also will have fewer opportunities upon which to influence a consumer’s purchase decision and engender a lifetime of loyalty. Undoubtedly, passive consumption brought forth by IoT will change the way consumers browse some products and services and in some cases completely eliminate the payment transaction altogether.