A History of Payments: The emergence of wearable payments

We recognise the importance each payment type holds. That’s why we’re profiling each of the main payment types, for our fourth instalment of 'History of Payments' series, we're looking at the emergence of wearables

Luc Gueriane, Moorwand CCO

The History of Payments Wearable Payments

When we think of payment ‘types’, our minds often jump to the ones which have been in circulation the longest – cash and cards being the main ones. But exponential leaps in technology over the last two decades have meant emerging methods are beginning to gain ground, and fast.

As we’ve mentioned previously, the world is home to more than 200 alternative payment methods. Which gives us an idea of just how much variety the payments industry holds.

Here at Moorwand, we recognise the place each payment type has in the wider ecosystem. That’s why we’re endeavouring to profile each of the main payment players through our ongoing series: ‘A History of Payments’. Crucially, we want to dispel common myths, review the headway they’ve made since they started out, and highlight their individual benefits.

You can find our first, second, and third installments here, which take a look at the origins and developments of prepaid, credit, and debit cards. Now, for our fourth installment, we want to break down wearables.

Worldwide, Gartner thinks end-user spending on wearable devices will rack up to $81.5 billion in 2021, an 18.1% increase on $69 billion in 2020. And in January 2020, Reports and Data said annual sales of wearable payment devices would quadruple by 2026. It’s a burgeoning market, and one with huge potential still to realise. Yet, it’s also a market we can often forget about when talking ‘payments’.

What are wearables?

 Wearables are wide in scope and design. Generally speaking, they can refer to any item you wear on your body. The difference being, they will be tech-enabled, be that with Near Field Communication (NFC) – i.e. the capability to make contactless payments – or embedded with a heart sensor to track your fitness levels.

Items counting as ‘wearables’ can include anything from wireless earbuds, VR/VAR headsets, smartwatches, smart jewelry – such as rings and bracelets – or pieces of clothing. Even children’s wearables can now have payments installed into them.

Akin to a credit, debit, or prepaid card, wearables are embedded with an NFC chip which connects with the card reader at the point of sale. In this connection, the purchasing party is verified, prompting the transaction to be approved.

The growth of wearables is synonymous with the rise in contactless payments. The UK contactless payment limit is set to more than double this year, from £45 to £100. There was also  a 16% increase in the total value of contactless payments in the UK in October 2020, compared with the same month a year earlier, according to UK Finance data. With the value as well as number of contactless transactions on the up, it’s clear products facilitating these sorts of payments – like wearables – will only continue to grow in popularity.

Pre-pandemic, Mastercard data from the third quarter of 2019 found the Dutch were European leaders in wearable payment devices, making up 33% of the technology’s adoption across 26 European countries. The card-issuing giant said the Netherlands’ head start on the rest of the continent “has to do with the fact that contactless acceptance is nearly ubiquitous across the nation”.

A timeline of wearable technology

We can date wearable technology back centuries to weird and wonderful inventions such as the abacus ring of the 1600s, the Victorian’s air conditioned top hat, or more recently the roulette shoe – a 1960s invention which saw a computer embedded into men’s shoes to tell them which number to bet on.

But wearables as we think of them today didn’t start appearing until around 50 years ago. In 1972, Pulsar unveiled the first ever LED watch. Its calculator watch shortly followed, starting at a price of $300.

In the 1980s, portable computers and gaming watches emerged. Then in 1998, a consortium made up of Ericsson, Intel, Nokia, Toshiba and IBM developed the first consumer Bluetooth headset, which was launched in 1999 – the same year Bluetooth version 1.0 was invented.

The first smart watch was invented by Swiss firm Swatch, launched in 2004 with the help of American IT giant Microsoft. Called ‘The Paparazzi’, it marked the first watch to be able to connect to the internet.

Apple went on to launch its own smartwatch some ten years later, in 2015. Its first iteration had Bluetooth and WiFi capabilities, could pair with the iPhone, and had a heart rate sensor. It was also designed to be compatible with Apple Pay, which the company unveiled one year earlier, in 2014.

In 2017, Swatch launched ‘Swatch Pay’, which contained Swatch’s own contactless payment technology. That same year, Fitbit unveiled its ‘Ionic’ smartwatch. By 2019, NPD data showed some 16% of the US adult population owned a smartwatch.

But smartwatches are far from the only subject of contactless innovation when we look back at the last decade. Barclaycard invented the first contactless jacket in 2015 with the help of Lyle & Scott, through its rival to Apple and Google Pay – ‘bPay’. Using this technology, it also partnered with UK retailer TopShop to unveil a line of ‘fashionable’ contactless wearables, such as phone cases and keychains.

Some vendors specialise in one contactless-enabled object. For example, K Ring launched the world’s first contactless payment ring, powered by Mastercard. NFC-enabled bracelets have also made their way into the UK market, some of the first specifically designed for commuters. Barclaycard trialled its own back in 2014, claiming to be one of the first to market.

In addition to launching for the mass market, wearables have also been adopted for certain events in lieu of cash. Tovi Sorga payment bracelets were deployed for the 2019 FIFA Women’s World Cup tournament, for example. And ofcourse, for some time now, theme parks such as Disneyland and Universal Studios have issued wearables to cut queues and simplify access to rides for its customers.

Prior to the pandemic, the number of wearable payment transactions grew eightfold in Europe throughout 2019, according to Mastercard. And now, a year on from the pandemic, this momentum is only multiplying.

Munich-based Smart Payments Association (SPA) decided in April that 2021 will be a pivotal year for wearables. In its position paper ‘Wearable Tech 2021: The Future Is Now’, it said: “Wearable payments increased by 365% between 2017 and 2020, with a quarter of Europeans planning to buy goods and services using the technology in the future.”

Pros and cons of wearables

Perhaps the biggest benefit of them all when it comes to paying with a wearable is convenience. They don’t require a consumer to fish out a card from an overcrowded wallet, and they actively discourage people from carrying around cash or cards.

When you use a wearable device to pay, as opposed to using a card, you can pay via a secure wallet which encrypts your card details. Wearable devices can be locked too, unlike cards in a wallet, or cash.

With contactless terminals on the rise, acceptance of wearables is at an all-time high too. Adding to their convenience. The global contactless payment terminals market was valued at $13.23 billion in 2019. It has been growing at an exponential rate. In 2017, the number of point-of-sale terminals worldwide accepting contactless devices shot up 41%. By 2026, data suggests global industry shipments of such terminals will reach 15 billion units.

But there are some drawbacks to wearables. An obvious one being their battery life, like any electronic device. As well as their price. Unlike a card, which is often issued to customers for free, wearables can cost hundreds of pounds. This means poorer customer demographics are often fenced out from the payment method.

For some users, privacy is a concern when using a wearable device. A 2019 TNS study of 3,000 adults in the US, UK and Australia found security to be a major concern standing in the way of broader wearable payments adoption. Some 68% of Australians, 64% of Americans, and 63% of Britons said security concerns would stop them from using a wearable device to make a payment.

What next for wearables?

According to Allied Market Research, the wearable payments market is projected to reach $1.37 trillion by 2027. Such growth projections are based on the expanding contactless payment/terminal markets, and the M&A interest in the sector of late.

In December 2020, Google’s $2.1 billion acquisition of Fitbit was approved by EU regulators. Whilst fitness firm Peloton made a series of acquisitions in March 2021, one of which was focused on wearable devices.

“The future is wearables – where all items consumers wear every day can be used as a payment device,” Benjamin Gilbey, Mastercard’s senior vice president for digital payments and labs in Asia Pacific, told The Drum late last year.

“How much more convenient life is when you don’t have to keep reaching into your wallet for your card or keep having to take your phone out!”

Discover more insights from Moorwand by reading our other articles.

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