Why you won’t be paying with your wristband

Nike has reportedly called time out on its FuelBand, failing to get enough scale among its millions of customers. Payments companies are watching closely.

Smart watches, Google Glass and a plethora of wearable devices are supposedly destined to usher in a whole new era of mobile computing. But are they going to be as dynamic as smartphones when it comes to changing customer behaviour? The jury is still out on that and despite the bullishness from some quarters the overall narrative is still largely untested.

So far, the appeal of wearables has largely focused on the health and fitness side of things. Devices like Fitbit, Nike’s (under-threat) FuelBand and Samsung Electronics' Galaxy Gear and Gear Fit promise to deliver a comprehensive picture of one’s health. The health analytics does hold considerable appeal and this year’s Consumer Electronics Show (CES) devoted a lot of time in extolling its virtues.

However, health isn’t the only vertical keeping a close eye on wearables. The watches and bands that could potentially become the frontline health diagnostic tools of the future just might have a role to play in revolutionising the world of mobile payments.

But to do that wearable devices need to be something most of us want to carry with us at all times.  

PayPal certainly thinks it’s possible, given its decision to partner with Samsung on the Galaxy Gear 2 smartwatch.

The Galaxy Gear 2, is Samsung’s first wearable smartwatch powered by its Tizen platform, and it showcases PayPal’s application that allows users to make payments at local stores, save and redeem offers and receive payment notifications while on the move.

With Google Glass set to make its debut this year, Dutch start-up EAZE is looking to strike gold with its ‘Nod To Pay‘ service -- a Bitcoin enabled wallet that works on Google’s wearable device.

The service is activated with the command “OK Glass, make a payment”. Glass then scans the QR code of any Bitcoin enabled Point of Sales (POS) application. The transaction details appear on the display of Glass. The user then only needs to nod twice to confirm the payment.

EAZE also provides a POS application for businesses -- available on iOS and Android -- with which they can accept payments.

From niche to mainstream in 60 seconds

On paper, this frictionless payment option seemingly combines the best of what wearable technology and virtual currencies have to offer in terms of payments innovation. But there’s a catch.

Ovum senior analyst Gilles Ubaghs says that while these technologies hold substantial potential they are unlikely to change the status quo in a hurry. According to Ubaghs, wearables just aren’t attractive to payment players without a larger user base.

“The chief challenge of wearable technology is that it remains relatively untested, and even though it offers varying degrees of promise -- depending on who is being asked -- it will lack the scale to make payments economically viable for some time to come, “ Ubaghs said in a blog post.

“More likely, these wearable devices and platforms will serve as adjuncts to broader mobile payment platforms rather than replace them outright.”

The adjunct scenario does seem the most likely. The wearables trajectory is unlikely to follow that of smartphones and converting the niche appeal into to a mainstream must-have will be a long road.

Ubaghs warns that the development of newer hands-free and other payment mechanisms means that the payment market could potentially sidestep wearables entirely.

According to Ubaghs, the prospect of payments moving away from a device-specific environment to a more cloud-enabled environment -- utilising beacons and Bluetooth -- could make wearable devices irrelevant.

The other danger, according to Ubaghs, is the development of fingerprint-scanning and even facial-recognition technologies that could surpass any mainstream acceptance of wearable technology.

“The critical element at this stage in the market is the development of software-based payment platforms, rather than devices,” Ubaghs says.  

No killer application

To make their presence felt, wearables as a trend needs to get popular as quickly as possible, giving banks and payment providers sufficient confidence the user base can be economically viable.

“Without a demonstrable base for wearables, the majority of banks and payment providers will not devote major resources to developing for these platforms,” Ubagh says.

“Although there are potential use cases for payments through wearables (such as for joggers), there is, as yet, no killer application for wearables that will drive consumer uptake in any major way.”

The good news is that the likes of Google and Apple are serious about wearables. While wearable devices are destined to play second fiddle to phones for now, the aim will be to embed smartwatches, fitness bands and Glasses into the overall eco-system so deeply that consumers aren’t thinking about which particular device (phone or watch) to make their payment.      

As Ubaghs points out, that need for mobile wallets is “strengthened, not threatened, by wearable technology.”

“With a larger screen and better user experience, most consumers will continue to use their mobile device as their primary digital wallet interaction point, and wearables will simply be peripherals to these platforms.”