Is the Industry Capable of Supporting the Disruptive New Technology?

Current innovation in the payments and finance industries constantly challenges our methods of addressing common and often mundane processes. In the interest of increasing efficiency for consumers, professionals are seeking to streamline every aspect of the payment process and reduce friction wherever possible.

For example, the latest FinTech disruption combines wearable technology with contactless payments. The problem is, this may not necessarily be what’s best for the industry or consumers.

Is it Wise to Add Payment Functionality to Virtually Any Item?

According to recent data, just one in four online-enabled consumers around the world currently owns a wearable device. However, by turning everything from a watch to a jacket to a car into a vehicle for contactless payments, wearable technology will likely turn into a $100 billion industry by 2018.

A recent collaboration between FitPay, STMicroelectronic, and G & D produced a new product—a combination of hardware and software—that will make it easier for wearable manufacturers to incorporate payments. This technology may be included in 62% of new wearables by the year 2020, reinforcing earlier data that showed roughly 60% of banking executives believed wearable payments would be common by the end of 2017.

While industry officials appear enthusiastic about what this means for payments and retail, we should remember not to get too far ahead of ourselves. Nearly 50% of consumers surveyed in early 2016 noted concerns about privacy and security as a major barrier to wearable payment adoption. All things considered, those reservations are not uncalled for.

How This Plays Out is Uncertain

I’m very much in support of new innovations and disruptive technologies in the payments and finance industries. The problem is that the industry often prioritizes rapid change over the development of necessary infrastructure to accommodate that change.

Customers, especially the younger, plugged-in Millennial and Gen-Z shoppers, want a frictionless experience, and the payments industry is rushing to deliver on that demand. However, we can’t be in such a rush to create a frictionless environment that we overlook necessities like risk mitigation. If the industry does not take these basic precautions before adopting new technologies, those developments will ultimately become more of a liability than a benefit.

It’s entirely possible that wearable payments may turn out to be more secure than standard payment options. Wearable payments make use of the same kind of tokenization technology as other payment methods, like digital wallets and EMV chip cards, which may prove to function just as well on wearable devices. However, it’s too soon to say which unique variables will present themselves as the technology develops and rolls out.

A Case in Point: What About Chargebacks?

If we’re discussing the possibility of turning jewelry or clothing into a tool for payments, for example, that will require very careful consideration of how a transaction is initiated.

What happens if a teenager borrows Dad’s coat—the one that just happens to have payment capabilities sewn into the cuff? Will unauthorized transactions skyrocket, causing family fraud and friendly fraud to seep into brick-and-mortar sales? Could lost or stolen ‘card’ fraud increase? Or, will biometrics be universal for these wearable devices?

What will issuers accept as compelling evidence when merchants attempt to dispute chargebacks? The chargeback process is archaic—it can’t keep up with all the developing technologies. Networks will not have considered the different types of data that will be associated with these technologies and, therefore, will not recognize valuable information as valid forms of evidence. It will be years until the data associated with these wearable devices will be recognized by the card networks, leaving merchants liable for billions in losses from undisputable, illegitimate chargebacks.

Balancing Innovation with Necessary Infrastructure

At present, merchants already lose as much as $40 billion each year due to chargebacks. Without an adaptable infrastructure that can accommodate new developments—like wearable payments—that number will certainly increase.

Again, disruptive technologies and industry innovation are positive developments. However, it only seems rational that we would closely consider the long-term and holistic ramifications before we allow ourselves to go all-in with a new technology.

Monica Cardone