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Internet of Things and the future of payments

The internet of things (IoT) is already being used across many industries. It is ushering in an era in which ‘smart’ things can seamlessly collect, share and analyse data. It forces financial services, manufacturers and retailers worldwide to dramatically change the way they do business and studies that have assessed the growth potential for IoT agree that most businesses are already making substantial investments in the technology.

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Internet of Things and the future of payments

While adoption is still in its early stages, analysts believe it will continue to increase as technology becomes less expensive and more reliable, writes Urs Gubser, Head e-commerce, SIX Payment Services.

According to Oracle Retail 2025 study, artificial intelligence (AI), virtual reality (VR) and IoT present a host of new opportunities for businesses today to better anticipate their customer’s next purchase. In the study, consumers are found to be most willing to engage brands with new technology that allows them to have more control of their shopping experience.

The study reveals that 58% of respondents indicated a positive attitude toward the idea of having their grocer suggest a shopping list for their approval based on purchase history data. A 2016 retail research study conducted in the UK found consumers are primed for adopting IoT shopping technologies. 57% of the 2,000 consumers surveyed reported they would be ready within two years to use a system that ordered items automatically.

Managing complexity

For consumers, the major attraction of IoT is convenience. They are becoming ever more comfortable with digital shopping experiences and e-commerce is now the dominant trend in retail. Consumers who have digital assistants, such as Amazon Echo, have access to easy and seamless shopping where they can order and pay for things remotely, set up automatic payments so that, for example, their fridge will restock itself.

However, for businesses particularly those in the retail sector, one of the biggest challenges to drive sales under the constant pressure of IoT is the issue of complexity and integration – managing operations seamlessly, IoT providers and payment systems.

According to a 2017 benchmark report from Retail Systems Research (RSR), the IoT ecosystem comprises many hundreds of players offering one or two parts of the IoT elements which can confuse retailers. It is apparent that there is no single vendor in the IoT ecosystem that can do it all. So how do we prepare ourselves for an IoT-connected future?

Creating and maintaining connectivity and security

The prospect of a new IoT-driven e-commerce ecosystem involves retailers, IoT providers and payment systems delivering goods and services which take advantage of advanced technologies from machine learning, AI, drones, blockchain, to name a few. The IoT cannot be fully realised without a modern payments infrastructure that is interoperable and efficient.

In many cases, the infrastructure to complete IoT payments already exists. Product manufacturers like Samsung and Trustonic have released connected equipment, which can automatically restock supplies of customer’s regular groceries. Uber and Lyft have integrated embedded e-commerce solutions, which consumers can access via mobile apps.

Payment systems are the key component in the chain and the ‘glue’ that can bring everything together, linking various distinct systems and matching supply and demand into a seamless IoT. Payment technology providers facilitate micropayments between enabled devices and employ data analytics and machine learning while anticipating future needs.

SIX Payment Services (SIX) has worked together with local merchants and IoT providers to implement an IoT commerce platform in Zurich, Switzerland. The aim is to understand how the ecosystem between IoT, consumers, merchants and logistics provider needs to be coordinated under consideration of advanced technologies, for example using AI to automatically re-stock the refrigerator.

SIX anticipates that IoT will make a significant impact in e-commerce and that in turn will impact SIX’ merchants. Lessons from this initial test case can be used to implement IoT across multiple sectors. Manufacturers of all kinds will benefit from automated, remote payment options using IoT technology, which will remove layers of administration, complexity and cost.

One other issue and quite possibly the most concerning for both businesses and consumers alike is security. A most recent survey conducted by Gemalto reveals that 90 per cent consumers lack confidence in the security of IoT devices. This is not surprising given so much information and data is stored in the cloud and gathered from various smart devices. Many are wary of the risk of theft of data, loss of privacy, fraud, financial loss and damaged reputation.

IBM reveals that Blockchain is considered as the ultimate technology to ensure security and privacy in IoT payments. Payment system providers anticipate employing Blockchain technology to create a distributed ledger of transactions, which will allow stakeholder to always see where they stand in the order workflow and this should help prevent friction in the IoT payment process. As all legitimate devices are registered on the Blockchain, devices will be able to identify and validate each other, protecting against attempted fraud.

IoT technologies offer all the aids to businesses, which is good news and it will inevitably continue to revolutionise the payment industry and the consumer experience. The choice is, do we all embrace the change, seize the opportunity, or overlook the chance and potentially miss out on the benefits of this fundamental shift in technological empowerment?

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