Though contactless payments have long been advertised for their ease of use, recent trials have departed from that premise. Some banks are putting the focus back on simplicity — and making payments as easy as a flick of the wrist.
These banks are building payment capabilities into wristbands, watches and other accessories that do not need to be hidden away in wallets or activated through software. These moves would seem to go against the trend of making contactless payments through a mobile phone, where the payment is enabled only after consumers go through the additional steps of unlocking the phone, activating the app and selecting the desired payment account.
Wearable payment products will likely have limited functionality and demonstrate a short shelf-life compared to systems that combine payments with coupons and other features. But their ability to make fast, simple and secure payments could nevertheless help banks ease customers away from their reliance on plastic cards.
"It seems like it's kind of a limited audience there, but … the technology is flexible enough where you can include it in a lot of different applications," said Aaron McPherson, a practice director with IDC Financial Insights in Framingham, Mass. "It definitely helps in terms of getting more adoption out there among consumers."
U.S. Bancorp is one such bank that is looking at a variety of formats to drive contactless payment adoption. The Minneapolis banking company on Monday announced it is testing the use of payment wristbands that double as a health record tracker.
Likewise, MasterCard Inc. last month tested the use of wristbands equipped with its PayPass contactless technology — the same technology built into U.S. Bancorp's wristbands — at the Isle of Wight Festival in the U.K. About 500 guests were able to use the wristbands, which were loaded with about $50 on a prepaid account, to buy food and drinks during the festival.
Though users of the wristbands are wearing their payment devices openly, they are not at greater risk of their card data being skimmed, U.S. Bancorp says. Since the wristband does not have a magnetic stripe, it cannot be read by the skimming devices fraudsters often conceal on point of sale terminals and automated teller machines.
"You have to be in very close proximity to read it so it's difficult to compromise, unlike handing someone a mag-stripe card that they could potentially commit fraud with by reading the mag-stripe and capturing the data for later use," Dominic Venturo, the chief innovation officer for payments at U.S. Bancorp.
Likewise, Venturo said payment information is safe in the wristband because it is stored in a chip, making it more secure than a card with just a magnetic stripe.
Venturo said the same fraud protection policies that apply to other cards would apply to the wristband if it is lost or stolen. U.S. Bancorp is testing the wristband with "thousands of employees" across the country and will decide later on whether to make it available to customers, Venturo said.
Pairing a payment chip with a wristband mirrors earlier efforts by banks and payment networks to spark interest in contactless payments. Some banks have issued special stickers containing a contactless chip that customers could affix to the back of their phones and other devices to use as a tap-and-go payment device.
"We're still very much in a test-and-learn kind of [environment], so we will see institutions and different providers trying different things," says George Tubin, a senior research director who covers mobile payments at TowerGroup in Needham, Mass. Particularly with mobile payments, "we don't know really yet what is … going to work so these trials are good."
Venturo agreed that there is still a lot of uncertainty in the contactless and mobile payments markets.
"When you look at consumers and the types of things that they do, mobile may not always be the answer in terms of future payments scenarios, although it has, we believe, a lot of potential," Venturo said. "Contactless payment … creates the opportunity to be able to solve for how people do what they do."
The bands are being provided by Vita Products Inc., a Philadelphia company that also sells its own version of the bands containing Visa Inc.'s PayWave contactless technology. For the version that Vita sells, the prepaid accounts are issued by Bancorp Bank, a subsidiary of Bancorp Inc.
In addition to allowing users to pay for purchases from a prepaid account, the wristbands also serve as a medical ID bracelet. A customer can input information about their health conditions into an Emergency Response Profile using a software program Vita developed. The health information is not actually stored on the wristband; rather, the wristband displays a phone number that emergency responders can call to get the information.
The wristband could be appealing to athletes who don't want to carry a wallet or even a phone with them while out running, said David Waxman, the chief executive of Vita. While the a wristband has less functionality than a mobile app, Waxman said mobile payments is not "a zero sum game."
"We actually view … using phones to make payments as extraordinarily complementary to our overall strategy to provide a platform that [combines] payments and health records," Waxman said.
Wristbands may have limited appeal but the approach that Vita has taken by pairing health information is logical, said Rick Oglesby, a senior analyst with Aite Group LLC. Mobile payments systems in general will require added features beyond the ability to make a payment to make them useful, Oglesby said.
"If it supports payments only, it's probably not going to go very far," Oglesby said.
Venturo agreed that payments-only services offer little value. Mobile services are likely to dominate in the future, but as development of such systems continues, U.S. Bancorp plans to invest in a wide variety of contactless formats, Venturo said.
"We continue to believe that there is a lot of opportunity that's enabled through the technology, whether it's a contactless card or a [key] fob or a sticker or a bracelet or a full-fledged mobile device," Venturo said.
For example, U.S. Bancorp recently completed a trial of a mobile payments service with Visa and a company called DeviceFidelity Inc., which provides external memory cards equipped with NFC technology that can be paired with current smartphones or smartphone cases. The chips turn the smartphones into a contactless payment device.
Participants in the employee trial liked using the application but wanted to be able to use the service at more merchants, Venturo said. U.S. Bancorp currently does not plan to make the service commercially available.
"We're really watching the acceptance side of things because that's pretty critical to us relative to the commercialization of mobile payments," Venturo said. "Right now acceptance isn't right where we think it should be in terms of broad adoption for consumers. As that picks up I expect you will see more from us."
