IoT has been influencing how payments are made, and the impact is not going to slow down any time soon. Let us see what role IoT has to play in payments and commerce.
The IoT market size is anticipated to grow at a CAGR of 16.7%, from USD 300.3 billion to USD 650.5 billion, from 2021 to 2026. The next several years will also be marked by the significant proliferation of connected devices, with Statista projecting that there will be over 19.1 billion IoT devices by 2025. Within the banking and financial services sector, the IoT market size is projected to be 52.1% from 2022-to 2031.
There are several different factors contributing to the IoT market, including blockchain technology as well as 5G networks. While blockchain in the IoT is not expected to become a standard, it may be a tool employed by certain companies in the future or for use within specific solutions. On the other hand, lightning-fast 5G networks will catapult opportunities within the IoT space. Not only will IoT providers aim to support 5G networks, but this standard will improve cellular solutions overall.
IoT makes devices smart, which has serious implications for the FinTech and payments industries. Smart devices can be incorporated into financial services to not only disrupt retail banking but to create a subset of IoT, known as the Internet of Payments. This would encompass all transactions within the payment systems associated with connected devices—all this goes on to show the great potential that IoT has of disrupting the traditional payment infrastructure.
In terms of retail banking disruption, the results are similar. Smart devices can speed up and streamline financial transactions while also improving security and identity management. Beyond that, we can see opportunities within car insurance, for example, where smart devices can track vehicle mileage, maintenance, and performance, and rates can be more usage-based. This has implications for both health and real estate insurance, too. New IoT infrastructures can create a more accurate and standardized experience for financial transactions.
IoT to Streamline Payments
In recent times, we have seen how IoT has been digitally transforming payments. Payment processing companies are leaving no stones unturned in a bid to enhance their products and services with IoT.
Here are some of the key ways in which IoT is streamlining payment experiences for consumers.
Shifts in Consumer Behavior and Expectations
The long and short of it is that consumers expect technology to make their lives easier. Not only are they comfortable with technology’s presence in their lives—they expect it. This translates to an expectation of frictionless experiences in every area of life.
The coming years will be all about well-informed customers. They will have the upper hand in making purchases in the commercial sector. The audio and visual mediums will also help customers connect with the respective platforms. Customer centricity, customer listening, and customer co-creation will lead to brand growth.
Based on the shifting consumer expectations above, the IoT presents big opportunities to streamline remittances and move towards invisible payments. Smartphones are now ubiquitous, and wearables are moving in that direction, making digital payments more plausible than ever. While mobile phones play a big role, consumer sentiment is still seesawing here. As per a report, by 2025, the volume of non-cash transactions in the global market is forecasted to surpass the one and a half trillion mark. On the surface, this is disheartening to banks, payment processors, and those FinTechs that are focused on pushing a digital wallet agenda; however, it’s not the end of the story. Younger consumers do believe in the enabling power of mobile payments.
Amazon Go is a perfect example of IoT payments in action. These convenient stores facilitate an invisible payment experience by allowing shoppers to simply select their items and leave the store. Computer vision and machine learning software track items selected (along with anything put back on the shelf) to calculate the total purchase amount, which is then automatically deducted from the customer’s Amazon account. It’s about as seamless an experience as one can expect and is largely judged as a success in creating a checkout-less experience. In fact, others are so convinced that Amazon is using IoT to pioneer the shopping experience of the future that they are trying to replicate the technology and get a winning edge. While the jury is still out on how people will adopt digital payments, IoT carries a lot of promise in terms of doing away with the inconvenience of carrying cash.
A big part of the IoT’s success in payments is capturing the right data. Connected devices can make it easier to capture not only transaction data but data tied to events and experiences before and after payment transactions. Data may run the gamut from geolocation to internet browsing activity to the weather or even biometric data. This data can then be used to enhance and personalize the customer and payment experience moving forward. It can also support marketing campaigns, inform logistics, and add insights to business models and future product development.
IoT and 5G
5G technology is based on a new core network, and radio communication system referred to as 5G New Radio. With improved wireless connections globally, it also promotes multiple access points for connectivity technologies, including Wi-Fi, fixed-line, satellites, and cellular. In short, 5G will have the capacity to cut lag by connecting more devices at higher speeds. While this new seamless user experience will power smart devices on a small scale, the smart industries and cities are in for a large scale transformation.
The hope is that adoption will grow, spurring more network rollouts. Users would be able to access more multimedia content, including 3D video and augmented reality. Additional use cases involve larger-scale initiatives like smart grids, factory automation, and other critical communications within industries.
IoT and Blockchain
As a decentralized ledger that is cryptographically secured, blockchain technology allows the secure transfer of data between parties. This can play a role in scaling the IoT, which currently has systems that rely on a more centralized architecture. Data is sent from the device to the cloud and then back to IoT devices again. Given the exponential growth rate of IoT devices in the coming years, a centralized system may actually hinder scalability and also have more vulnerabilities in security. One-off verification and authentication by third parties could prove to be a high-cost and inefficient endeavor when it comes to payments.
Smart contracts in blockchain networks, however, may enable more autonomy within IoT. Devices can function securely via agreements that would only be executed when certain requirements are met. This removes the third-party middlemen from the transaction equation, improving automation, scalability, and cost savings. It also quashes data theft or hacking attempts; the decentralized, cryptographically secured network makes it very difficult for data or network security to be compromised. Click here to talk to our experts and know more about where IoT is taking payments in commerce in 2022.