Fitbit Banks on Wearable Payments to Boost Smartwatch Sales

After Fitbit announced that it is developing a smartwatch during its 4Q 2016 earnings call in January (2017), more details were brought to light. The smartwatch will include several features, such as a built-in GPS chip, a heart rate monitor, the ability to pair with Bluetooth headphones, a four-day battery life, and, interestingly, the ability to make wearable proximity payments. Initially, the device release was scheduled for 2Q 2017, ahead of Apple’s normal fall announcement, but production delays ultimately pushed that back to 3Q 2017. When released, the smartwatch is expected to have a price tag of US$300.

Fitbit’s move into the smartwatch market comes at a time when the company’s sales have taken a hit, with just 3 million devices sold in 1Q 2017. This is compared to 6.5 million devices in 4Q 2016 and 4.8 million in 1Q 2016. Part of the weaker 1Q 2017 sales could be due to customers waiting for the impending smartwatch release, but this does not negate the fact that Fitbit sales have fallen, which in turn will place further pressure on its smartwatch strategy. The company is hoping that the release of the smartwatch will help to boost sales again and diversify the company’s revenue by allowing it to capture a share of the smartwatch market.

In May 2016, Fitbit announced that it acquired Coin, a payments startup company that developed a universal smart credit card that holds every credit card owned by the user on one device. The acquisition included intellectual property and engineering personnel from Coin, specifically those related to the wearable payment platform, but not the existing products that are no longer being produced. Instead, Fitbit is using Coin’s knowledge base of NFC payments and how to leverage the technology into wearable devices, to allow its new smartwatch to make contactless payments. Previously, Coin announced that it was working with Atlas Wearables, Omate, and Moov, as well as MasterCard, partnering and associating itself with a variety of established payment ecosystem players. Fitbit is hoping that by offering a wearable payments feature on its new smartwatch, it will rival other companies that offer similar technology in their wearables, including Apple Pay and Samsung Pay.

Wearable OEMs are keen to find new levels of consumer stickiness in order to encourage continued device usage. The average life expectancy of current wearable devices leaves a lot to be desired, and OEMs are hoping to address and improve device life via additional app integration.

Payments is an application that is largely viewed as the next wearable killer app. However, the addition of payment enablement alone could prove a limiting strategy, with a significant risk that wearable payments could become another novelty factor where interest and use will deplete over time.

Payments are only now starting to capture the attention of industry players as a necessary part of a retail journey, which is one that has been largely neglected. Today, the market is moving from a process that simply facilitates a payment to one where payments are considered an integral part of the consumer purchase journey. Furthermore, payments are now considered to be another valuable interaction point from which merchants can interact with customers via the integration of additional services; most prominently, loyalty and couponing.

Fitbit’s announcement is great news for the wearable payments industry, but it is going to prove to be a tough market, as it is not only competing against devices and solutions fielded by OEM giants including Apple and Samsung, but against the banking and financial establishments that will continue to issue payment cards.

Consumers need motivation to choose one payment device over another. In addition, new wearable payment devices must provide more than just the “cool” factor to really stamp a place against entrenched payment cards, which users trust and are now accustomed to using.

For ABI Research, the simple facilitation of a payment on a wearable device will not capture the imagination of the masses, and as a standalone application, it will not be the killer app to ensure continual wearable usage. Nonetheless, payment enablement will prove to be an important stepping stone to a greater payments strategy, which will encompass additional and aligned services, tailored to an individual’s tastes and behaviors. Launching adjacent services that can couple with Fitbit’s payments app will allow its users to decouple from smartphones and wallets and provide a platform where continual usage and added value go hand-in-hand.

Any OEM offering wearable payments will require a significant differentiation factor to stamp any type of authority within an already well established payments space. It will be future expansion strategies, built around an initial payment platform launch, which will ultimately define whether wearable payments can hit the right differentiation notes or whether a wearable payment is simply another short-lived novelty wearable function.