The introduction of disruptive technology is essential to new developments and innovation. It leads to reduced friction, as well as greater efficiency and ease of use, all in the interest of ever-expanding benefits for consumers and businesses.
I'm always in support of exploring new avenues for payments tech, but we can't forget that not all disruption ultimately proves to be a positive development. Combining contactless payments with wearables, for example, could present new challenges we hadn't previously considered.
Payments-Ready Wearables Will Soon be the Norm
Payments-enabled devices could account for as much as 72% of wearable device shipments
by the year 2020. Given that one in four digital-enabled consumers currently own some wearable, whether it's a Fitbit, Apple Watch, or some other device, that would translate to tens of millions of payment-ready wearables globally.
The proliferation of wearable payments opens new opportunities for businesses to leverage it. Wearables might prove to be a better and more secure payments tool than current technologies; after all, they use tokenization just like EMV chip cards. However, the technology can't take-off without consumers, many of whom are unsure about the security of wearable payments devices.
The fact that wearable payments are so new as a concept will prove to be an obstacle to adoption. We don't know for sure whether they will have a positive or negative impact on payments, and most consumers don't want to be the guinea pig.
No One Knows if Wearable Payments Will Work
Consumer skepticism regarding wearable payments is valid. Although many in the tech space point to proofs of concept like Disney's Magic Band
devices, there is still plenty left to speculate regarding how well it would work in broad application.
The main problem isn't wearable payments technology as a concept, but the fact that the infrastructure to accommodate it isn't really in place.
The desire to provide faster, easier, frictionless experiences to consumers tends to overshadow other concerns like risk mitigation. As a result, we end up with technologies that run the risk of surpassing the industry's ability to safely implement them. We could find ourselves with a massive security problem before we even identify a threat source.
Part of the solution is two-factor authentication. Introducing two-factor authentication will make wearables a potentially game-changing innovation for the industry. Without it, though, wearable payments will be a disaster.
Why Wearable Payments MUST Be Two-Factor
Most wearable devices capable of making payments are single-factor, meaning that anyone who knows the passcode to unlock the device may be able to make a purchase.
The person behind these unauthorized transactions typically won't be a criminal. Our staff at Chargebacks911
found that a family member-usually a child-is often responsible for unauthorized purchases with a parent's device. The cardholder, who doesn't recognize the charge on their statement, disputes the transaction through her bank.
This practice is referred to as "family fraud," and it is not something to take lightly. Family fraud results in millions of unnecessary chargebacks annually for businesses. For example, Amazon agreed to a settlement with customers back in April offering $70 million in refunds
for in-app purchases made by children without their parents' authorization. This wasn't really the company's fault, but they are held liable because their authentication standards didn't go far enough to prevent abuse.
In contrast, two-factor devices would typically employ a biometric component
alongside the passcode unlock. This approach is an exponentially more secure, as biometric scanners are much harder to spoof than a simple passcode.
A child might be able to unlock her parent's phone, but without a biometric imprint, the child can't complete a purchase.
With so Much Disruption, a Revision is Long Overdue
The payments industry is long overdue for serious policy and infrastructure overhauls. Radical technologies like wearable payments underscore the need for more adaptable and accommodating solutions. Otherwise, new developments will not be practical in the long run, and the industry will stagnate. That's why it is really a two-step process; we need new and disruptive technologies, along with the infrastructure and policy in place to serve it properly.
If the technology and the industry do not evolve in-tandem, then payments will face major problems, and both businesses and consumers will suffer because of it.
Monica Eaton-Cardone is the COO of Chargebacks911, the global leader for risk mitigation and chargeback management. Her company creates dynamic, scalable technologies to help innovative eCommerce merchants mitigate emerging threats. Connect with Monica on LinkedIn or Twitter.