The rise in the Internet of Payments: payment networks need to evolve

The growth of connected devices, better known today as the Internet of Things (IoT), is accelerating at an unbelievable rate, leading to the rise in the Internet of Payments.

By 2020 there will be more than 50 billion connected devices (6.6 per person on the planet), up from just under 23 billion devices in 2016. The variety of devices and what they can do for us will become even more diverse – according to Javelins Director of Payments, Michael Moeser.

Probably the most important capability that these connected devices will deploy is making purchases on our behalf. This phenomenon of connected payment devices is quickly developing into the Internet of Payments, or IoP.

We are already seeing deployment of Internet of Payments-enabled devices today from basic Amazon Dash Buttons to sophisticated Samsung washing machines that can order their own detergent when running low on supplies.

While some of the devices (e.g., Amazon’s Alexa) will be actively instructed by humans, others will work in the background (e.g., a connected car ordering fuel to be delivered to it while you are at work). In the near future, we will see driverless cars navigate themselves to the dealership for maintenance, pay for the service and return home.

Powering payments for these connected devices will be digital payment networks such as credit cards or ACH.

Implication: Payment networks will need to evolve and use their token services

As consumers add more devices that can make purchases, the payment infrastructure will need to evolve to keep up with the data and management capabilities necessary for Internet of Payments. Consumers and businesses will expect their payment provider, be it Visa, PayPal, Chase, Mastercard, or Alipay, to answer questions such as “Which device made a particular purchase?”

The card networks’ tokenization services can address this issue by generating device-specific tokens to answer such questions. Not only will networks need to be able to connect purchases to particular devices, they will also need to be able to manage them.

For example, how should the network respond to two devices attempting to make the same purchase? Should the merchant, the network, or the financial institution manage this step? Given the tokenization services offered by the networks, this is definitely an area of opportunity for them.

Recommendations:

• Payment networks and providers will need to develop new capabilities for the management of Internet of Payments. Just as banks and card networks have updated their services for recurring payments, they will need to leverage their tokenization services to help consumers in the evolving Internet of Payments landscape. The banks and networks will need to offer Internet of Payments device management that can leverage the token services they offer to identify individual devices, manage them, and report on their usage. The management services will need to evolve beyond simple conflict resolution (two devices attempting the same purchase), as well as provide the customer with a forecast of when devices may make a purchase and the ability to pause future purchases if a consumer desires.
• Act sooner rather than later. In an era when connected device ownership is set to skyrocket, there is an opportunity for banks, card networks, and others to own the Internet of Payments. Since owning multiple connected Internet of Payments-enabled devices will become commonplace in the next two to three years, the organization that takes the lead in managing their connected payments will be able to reap the benefits of this Internet of Payments trend.

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