The Internet of Things is ushering in a new era for payments companies and manufacturers. The rapid expansion of the Internet of Things (IoT) offers an opportunity to facilitate payments beyond mobile phones, cards, and point-of-sale terminals, on a broad and diverse ecosystem of internet-connected devices.
- More transactions could eventually pass through connected devices than smartphones. We estimate there will be 24 billion of these devices by 2020, with 5 billion of them being consumer-facing. This represents a massive expansion of touchpoints where payments could be enabled.
- Card networks have developed a basic framework to enable commerce in everyday devices. Visa and MasterCard are creating the underlying infrastructure to support the standardization of payments integration and stake themselves out as the key connected payments gatekeepers. Their payment platforms are universal, allowing digital payments to grow without being tied to the success of a particular manufacturer.
- Consumer-facing IoT companies have much to gain from enabling payments in their devices, including improving the value of the device, being able to cross-sell products through the device, and laying the groundwork for future opportunities to earn incremental revenue. For payments companies, connected payments offer a new revenue stream and an opportunity to gain market share ahead of competitors.
- Wearables, connected cars, and smart home devices will be the top devices for connected payments.
- Wearables like the Apple Watch have already integrated payments functionality as an essential use case and can be used to make both online and in-store payments. We forecast that 62% of global-shipped wearable devices will be payments-enabled by 2020. Wearables allow people to make payments without reaching for a phone or wallet.
- Internet connection within cars will become ubiquitous over the next decade, and the integration of payments will rise in tandem. We expect 381 million connected cars will be on the road in 2021. Connected car payment pilots have been spearheaded by Visa and retailers like Pizza Hut; these pilots place an emphasis on loyalty integration.
- Smart home products help device makers collect data about usage and performance, which can then be used to help consumers automate the ordering of essential goods and even manage their credit card accounts. We estimate 3% of smart home devices shipped in 2016 will have payment capabilities. By 2020, we estimate that will grow to 10%.
The rapid expansion of the Internet of Things (IoT) offers [...]