Is the Internet of Things the future of commerce and payments?
Imagine a fridge that orders food based on your family’s consumption speed, which knows that you are running out of milk or eggs. A thermostat that not only minimizes monthly heating bill but even pays that bill. A car that pays for gas or electricity at the station as you chill inside, singing along to your favorite Ed Sheeran song. Or even more trivial situations like airline baggage tags that initiate payments for luggage, or automated shops without cashiers and counters, where you pay seamlessly when exiting.
It’s not a science fiction plot, more like a nearest future. Internet of Things is not a new mystical technology, but an evolution and transformation of the Internet itself. It enables a cooperation of surrounding everyday devices, both appliances we interact directly and seamless devices, which we may be unaware of. The next step is obvious: to make these devices more function-packed and autonomous to grant them the ability to operate without a human.
Internet of Payments
The change in payments landscape branches IoT into the Internet of Payments (IoP) by embedding digital payments into consumers’ daily lives through visible and invisible devices, wearables, cryptocurrencies, and micropayments. As of today, full-scale implementation of payment capabilities in connected devices does not exist. However, the early-stage developments of IoP include Amazon Dash Button, which allows buying goods from Amazon in one button push, not to mention wearables with NFC technology.
IoP is still in its evolution stage, where it needs the involvement of developers and production companies as well as banks and financial institutions to create a fully functional ecosystem which can enrich customer experiences and perform payments automatically on behalf of a customer in a secure and private manner. At the same time revenue models should shift from product offerings to services generating profits. And an emergence of new pricing models based on customer data usage, charges, and fees for the services. However, banking and financial networks and systems will also be valued by accuracy and quality of depicting users’ data usage patterns.
This is impossible without technological foundation, interconnected networks, and open APIs. Open banking initiative should significantly improve the speed of IoP adoption and establishment of standardized messaging protocols to ensure seamless interoperability of devices between multiple financial networks.
The changes will emerge within the next few years. Gartner forecasts that 20.4 billion connected devices will flood the market by 2020, including 90 percent of cars. Businesses will be the main adopter of IoT and, subsequently, IoP solutions, spending near $6 trillion on solutions. At the same time, businesses will have to educate customers on how to benefit from new infrastructure and solutions. And the leading force in this process will be the transformation of machine to machine communications into machine to machine payments with the help of AI.
Machine to Machine payments
Although machine to machine (M2M) communications and IoT may seem alike, they are not the same. Confusion is caused by the functional similarity of the systems – both refer to communications between devices without direct human involvement. In reality, IoT is a system (network) of interrelated devices that speak to each other between disparate systems. M2M, on the other hand, depicts isolated systems which cannot communicate with each other. However, when combined with AI, M2M interlinked devices gain the ability to speak with each other and external systems, as well as to make autonomous choices based on customers’ behavior, collected data, and a variety of scenarios involving financial transactions. In addition, giving payment a context based on usage data and analytics enables more profound methods of fraud detection and security, furthermore protecting customer profiles and personal data.
A further combination of IoT and M2M, artificial intelligence, Machine Learning, blockchain technologies and smart contracts, and digital systems like Pri-Num Digital Enablement Platform may lead to creating new opportunities for payment systems like predicting purchasing behavior and enhancing user experiences with the help of financial advisors and digital wallets. This is possible only if technology developers and devices manufacturers will work closely with third-parties, providers, processors, and merchants to ensure that connected devices can accept new payment methods in secure and private manner.