IoT in Payments



Amit Goel

Co-Founder at


Machine-to-machine communication was a concept that has been experimented with from time immemorial. The example of a home refrigerator communicating with the store to provide replenishments has been a case that has been talked about almost since Web 2.0. However, it is only in the last couple of years that M2M communication and Internet of Things (IoT) have gained real prominence and multiple use-cases are being actively explored. Until a few years ago, machine learning and deep learning were concepts that were being explored or were part of only some of the technology giants’ offerings (like Google, Apple). Even at that point, they were not actively considered as a specific offering suite but were being explored to provide greater convenience and customization to the customers.

The democratization of this technology has now led IoT – from eyewear to cars and smartwatches – to spread its wings into multiple industries. Connecting various types of electronic devices together for a great experience in day-to-day activities is stated to be the ultimate objective of IoT. The government, customers, retailers and various commerce application players are actively seeking for these solutions as a part of their future offerings. Initiatives such as smart cities, smart devices, connected cars, wearables and tracking systems propel the interest of financial services firm to enable payments within the IoT segment. A recent report by Ericsson has predicted that by 2021, there will be 16 Billion IoT devices – almost twice the number of mobile devices.

Financial services firms have also taken an active interest in this segment. Multiple initiatives are being pursued to incorporate the future of payments into the firms’ offerings. With the threat of new-age FinTech firms looming large, established firms are looking at these offerings as one of the ways to increase customization and the ease of transactions and as a result, reduce customer deflection.

Types: There are two major types of payments that need to be closely observed within the payments and IoT segment: the general payments enabled via wearables (currently, enabled via NFC technology) and the day-to-day payments made at supermarkets, fuel pumps, etc. The second and more interesting and evolving segment is the micropayments segment.

In general terms, the ideas of making every entity a technology/software offering have never gained more prominence. Major examples are the success of non-gasoline-based automobiles (a successful innovation in the automobile sector after almost 2–3 decades) shown by Tesla, the emergence of the sharing economy where it’s the segments technology offering (Uber, Airbnb) that wins and not the physical assets. In all the offerings, we see a software/technology layer that enables the machines/assets/asset owners to communicate and complete the transaction. The future of all these offerings is the IoT. Banks (Wells Fargo – drive-through banking to pay for products, JPMC – to improve customer services), network providers (Visa – purchase on the go proof-of-concepts, Mastercard – program that turns any device into a payment device) and others have started to build their expertise and offerings in this segment.

The second segment of micropayments (a $13 B+ opportunity globally) has been a hard nut to crack due to the high cost of processing. However, the emergence of cryptocurrency and blockchain, have caused this segment to now develop solutions that are viable commercially. By partnering with cryptocurrency and blockchain firms, payment players and businesses are allowing for micro transactions and converting them to fiat currency. A company called 21 Inc. is one of the major examples that is enabling such solutions.

Risks and Security:

Major risk factors that come along with IoT are: 1. Privacy: Capture of private information by hacking one particular connected device. 2. Security: Manipulation of data. 3. Skills and Interoperability: The ability/readiness of machines and personnel to understand and develop the IoT concept.

Though these are some of the major challenges, one needs to keep in mind that most of the financial services firms and other players are running extensive proof-of-concepts, as well as security checks to get a fool-proof solution to the market. However, in the growing cybercriminal age, there is also an onus on the customer to understand and maintain certain standard operating procedures to avoid theft.

Success factors:

A major factor for the success of IoT in payments requires a collaboration or partnership among the players across the value chain. The devices, the connected systems, the payment enablers, banks and related firms need to be able to incorporate IoT-based payments. As discussed in the security section, interoperability will be a major challenge as well as the important factor for the successful implementation of IoT-based payments.

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