The concept of the Internet of Things (IoT) is already quite familiar to us. More and more, interconnected devices are becoming a part of our everyday life. Nowadays, almost every kind of device can be equipped with Internet capability, from smartwatches to kitchen appliances. In principle, intelligent devices can do just about anything on their own. But there is a major a stumbling block to this: often, in order to act autonomously, it is necessary to spend money. The IoT will only be able to realize its full potential if we allow devices to transact business with each other – only to the extent that consumers permit, of course. For example, when an automobile that is connected to the IoT leaves a parking garage, it could pay the parking fees itself at IoT-connected parking ticket machines.
This prospect raises four fundamental questions:
1. Is an Internet of Payments in our near future?
Elements of an Internet of Payments have already existed for some time now, but comprehensive implementation of payment functions in networked devices is not yet possible. A couple of years ago, Amazon introduced “dash buttons,” which allow pre-defined articles of a given brand to be ordered at the press of a button – laundry soap, for example. Essentially, this makes the washing machine a part of the Internet of Payments. In March 2018, however, the District Court of Munich ruled that the buttons in their current form do not comply with applicable German law. Consumers are not informed of the product’s purchase price before concluding the transaction because the dash buttons have no display. Furthermore, at the moment the consumer presses the button, they might no longer know exactly which product version they had linked to the button. That brings us to the next question.
2. How secure would an Internet of Payments be?
Consumers must always retain the control over purchases made by devices in their name. Effective encryption and consumer information during the ordering process are key elements here. Integrated authentication prevents misuse and builds consumer confidence in the technology – there are lots of possibilities here, from simple PIN codes to biometrics. Device manufacturers should therefore plan in payment capability right from the start rather than upgrading later on. But, at the same time, they should recognize the limits of these new possibilities. It doesn’t make much sense to indiscriminately integrate payment functions into just any device. If implemented thoughtfully, however, such payment capabilities have the potential to generate more sales for companies while simplifying the life of consumers.
3. How is the development of the Internet of Payments affected by the issue of data protection?
Data protection plays a key role. Merchants are particularly interested in pull payments, such as the classic direct debit scheme, which are very easy to automate. But consumers are becoming more and more cautious when it comes to disclosing their personal details. In future, push payments are therefore also to be automated. Push payments are triggered by the consumer and allow consumers to retain the full control over their own data. These developments mean that merchants will be confronted with a wide range of different payment modes in the future. Consequently, solutions that can cope with all the different payment modes and provide for their management via an integrated platform will become ever more important.
4. What effect would the Internet of Payments have on the development of markets?
This much is certain: IoT and the ongoing networking of the world is a megatrend that is here to stay. This fact will also influence consumers’ behavior. Today, price is very often the deciding factor behind consumers’ purchase choices. In the future, consumers will be more likely to go with the product that they don’t even have to choose, because it happens automatically. Since the payment process is often now uncoupled from the physical action of reaching into a wallet and handling actual banknotes and coins, consumers are generally much more likely to spend. In other words, convenience trumps thriftiness. In this kind of scenario, market share will be gained less through pricing and more through exclusive partnerships.
Such exclusive partnerships could be facilitated by a platform such as ThingsBy7, which SIX is currently testing. Merchants place their products and services on the platform, where the suppliers of IoT devices then have access to them. SIX, as a neutral party, links the two groups together, coordinates with logistics partners and processes the payments among the various players.
ThingsBy7 was one of 13 start-ups that participated in the “Prototype to Product” batch in the F10 Fintech Incubator & Accelerator between January and August 2018. It concluded with a Demo Day, where 200 visitors voted ThingsBy7 as the best start-up.
More information at thingsbyseven.com
Urs Gubser, Head E-Commerce Strategy at SIX, started his career as a software developer in securities trading. He gained professional experience in New York and Hong Kong. Working in the Asian metropolis, he became interested in the business of payment transactions. After spending 17 years abroad, he returned to Switzerland in 2015 and joined SIX. Urs Gubser holds an MBA from The University of Manchester in Great Britain.