Breaking Down the Wearable Payments Ecosystem

Wearable payments are finally coming into their own, despite having been around for more than a decade. Traditionally viewed as a fashion accessory, they are now enjoying more mainstream adoption as a contactless, convenient, and frictionless method of payment.

Contactless and Near-Field Communication-enabled mobile payments have become an overarching trend within the payments market, driven by maturing smartwatch technologies, evolving tokenization platforms, and the convergence with other end verticals such as ticketing and transport, and fitness and health applications. In 2019, over 50% of all cards issued were of the contactless variant, lending contactless well to wearable payments. ABI Research also forecasts US$7.2 billion in global revenue from the sale of payment-enabled wearables in 2024.

The Contactless Payments Trend is Growing

Today’s market acceleration is pushed by several factors: a combination of technology maturity, consumer popularity, familiarity with contactless payments, and COVID-19—whereby contactless is being pushed as a safe and hygienic alternative to cash by the payment networks, merchants, government, and the World Health Organization. Wearable devices are primed to take advantage of this trend, with increasing choice and flexibility in terms of form-factors and available payment methods.

Ecosystem players such as wearable OEMs, silicon and IP providers, payment enablers, and financial application developers are all working to develop wearable payment experiences that are EMV-compliant, lightweight, interoperable, and intuitive UI. But most importantly, wearable payment technology can easily converge with other applications, such as loyalty and rewards, fitness and health, ticketing and transport, access control, etc., offering up new revenue streams and business opportunities for the various stakeholders.

This can be seen primarily by the growing adoption of open-loop payment systems in active devices such as smartwatches, which are outstripping closed-loop passive devices (such as silicon wristbands) in terms of shipment numbers over the forecast period. Regardless of device type however, increased merchant acceptance and growing consumer adoption serve to highlight the ease and convenience of wearable-enabled payments.

Apple, CPI Card Group, G+D, Idemia, Infineon, MasterCard, NXP, Qualcomm, and Thales Gemalto, are all pushing through innovative solutions in the space. There are increasing and lucrative opportunities that will continue to push adoption and usage, and showcase new applications, including M2M payments, pay on demand, micropayments, 5G for instant B2B payments, and beyond, such as access control and transit.

Alongside contactless, from a traditional payment card point of view, is the increased use of mobile payments. In many instances, mobile payment providers offer cross-device use, with wearable payments considered an extension of a mobile payment platform.

Future Outlook

Currently, the wearable payments market remains a niche offering. Payment-only wristbands are still mainly restricted to individual events and retailers in closed-loop applications. While they flourish there, vendors need to develop customized solutions on a small scale for future growth. The top market verticals include events, such as sports and concerts/festivals, as well as theme parks and large retailers. However, COVID-19 has forced many governments to impose restrictions on such events and close large facilities where consumers can gather en masse, which will impact the market in the short term.

That will, nonetheless, be offset by the current focus on the hygienic aspects of contactless payments. Smartwatches and open-loop payments (i.e., non-customized solutions) are key to unlocking mass market adoption, but still viewed as little more than a costly fashion accessory. Going forward, however, and with the maturing technology of smartwatches – along with eventual cost reduction and greater market competition – there is significant opportunity for growth and adoption for contactless-based payment form factors, whether in cards or wearables. Today, the benefits are starting to outweigh the costs, but as with any technology, there will be competing forces.