The future of autonomous, invisible, IOT payments

The first physical currency was minted by King Alyattes of Lydia over 2,600 years ago. These simple coins evolved into banknotes in 1661.

However, up until 1871, the monetary transactions enabled by these currencies remained physical: a tangible exchange of cash. The first electronic money transfer was made in 1871 by Western Union using a telegram.

Nearly 150 years later, in 2020, 779 billion digital transactions were completed worldwide. And yet, the fundamental basis of these transactions has not changed: they are triggered by one person (sometimes representing an organisation) making a payment to another person (or organisation).

More recently, there has been a huge growth in the number of devices connected to the Internet, from an estimated 200 million globally in the year 2000 up to 38.5 billion in 2020. Twenty years ago, a small percentage of households may have had a single device connected via a modem or router.

Now, a vast range of objects are connected, from toasters and watches, to light bulbs and thermostats, through to cars and trains.

In the last decade, we have also seen a rise in the use of Artificial Intelligence (AI), fuelled by the increased availability of compute power coupled with readily available state-of-the-art open source algorithms. We are now starting to see AI being used to make decisions on behalf of people or organisations and to take actions fully autonomously.

With electronic payments already ubiquitous, and with increasingly powerful connected devices able to run AI algorithms, we are on the verge of a world in which these devices will autonomously trigger payments to organisations, people and even other devices.

Given this backdrop, perhaps it is not surprising that the IoT payments market is expected to be worth $27.6 billion by 2023, impacting every industry and disrupting the current payment model landscape. We are currently witnessing three trends that are combining to drive the IoT Payment Revolution:

• Acceleration of digital payments, with 779 billion transactions conducted digitally in 2020
• Massive growth in connected devices, tripling in five years to 38.5 billion in 2020
• The increased use of Artificial Intelligence, driven by growing compute power and better algorithms

Indeed, we believe that the IoT Payment Revolution is no longer a mere possibility, but a certainty, driven by the significant benefits that it will deliver:

• For consumers, a truly frictionless experience for repetitive or low-value purchases, saving them time and effort, and reducing stress
• For merchants, a seamless experience for their customers leading to higher conversion rates, increased revenues and more repeat custom
• For all businesses creating new offerings based on IoT and Artificial intelligence, the ability to embed automated payments into their value propositions to create truly innovative, end-to-end solutions for their clients

However, to achieve these benefits, managing the topics of trust and accountability will be crucial. People need to trust the device triggering a payment, and the delegation of the person or organisation accountable for the payment must be verifiable.

We therefore believe that regulatory frameworks will need to evolve rapidly to accommodate Object-Initiated Transactions (which will exist alongside the Merchant and Customer-Initiated Transactions of today).

Today, we see IoT payments being applied to relatively simple cases (for example, where the location of a person or object is used to trigger a payment). However, we can imagine scenarios where devices use multiple data sources and sophisticated AI algorithms to transform people’s day-to-day lives.

An example of this could be a connected fridge that orders food automatically when it detects that supplies are low, based on an assigned budget and taking into account the changing preferences of the household and even dietary recommendations provided by a nutritionist.

The fridge might also interact with various e-commerce solutions to find the best option in each case and book a delivery slot, after confirming availability for receiving the order by a member of the household.

To harness the power of IoT payments, businesses will have to understand and master several technological aspects, including device authentication, lifecycle management, interoperability, communications, and Artificial Intelligence.

Those organisations which successfully understand the possibilities created by IoT payments and how these could transform their industry, and which develop the right capabilities needed to leverage their true potential, will be able to gain significant competitive advantage in the coming years.

Many attractive use cases exist: from electric vehicle charging, to highly convenient walk-in/walk-out shopping experiences, through to sustainable commerce solutions enabled via the sharing economy.

The question now facing business leaders in all sectors is not whether IoT payments will become pervasive, but rather how this change will impact their products and services, and what they need to do now to prepare for this future.

Drawing on Worldline’s extensive payments experience and research into this area, together with the insights we have gained through working with our customers and partners, we have recently launched the whitepaper “The IoT Payment Revolution”, within which we seek to help you answer these questions.