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Preparing for an IoT-connected future

12 Apr, 2018 | Urs Gubser

The future is closer than ever - concepts that until recently seemed merely theoretical are now on the brink of realisation.

The potential commercial possibilities offered by the Internet of Things (IoT) is a prime example. With the multiplying abundance of connected objects, from cars to fridges to clothes, the opportunities for consumers to make cashless, automated payments, for merchants to sell and distribute goods and services through new channels, and for logistics providers to optimise their capacities, are growing exponentially.

A recent study¹ found that 80 per cent of Americans have a ‘strong interest’ in making purchases via IoT and connected devices, with 83 per cent recognising the associated time savings and ease of use.

IoT in the retail market

IoT is a complex environment to manage in digital businesses of any sector. For consumers, the major attraction is convenience: they want to be able to order and pay for things remotely, or to set up automated payments so that, for example, their fridge will re-order milk whenever supplies run low. There will be increased levels of personalisation and customisation, as consumers gain greater control of the timing and location of their purchases, together with an extended range of available items.

For retailers, it’s highly advantageous to have these new digital channels create ‘natural’ demand without any additional effort. There are also supplementary benefits which include inventory management, allowing them to offer discounts on surplus stock, or to automate deliveries and increase cash flow security. Retailers also gain a highly valuable new source of data on customer behaviour and buying patterns, which enables them to more accurately predict future demand.

Today, most people consistently buy the same brand of groceries, so it is relatively straightforward for a fridge, for example, to automate the purchase and alleviate the consumer from the time it takes to keep track of particular groceries. With the convenience that comes with smart-fridges and automated ordering, consumers will be able to browse the “fridge” for more exotic produce that they would typically not have access to.

Preparing the e-commerce ecosystem to be ready for the IoT

Logistics form perhaps the toughest challenge to the IoT payments ecosystem. Options include delivery companies such as Uber, local delivery firms, or a corporate service such as Amazon. Yet many merchants are keen to avoid operating via Amazon, since the Seattle company is seen as a direct competitor with a clear market position in the IoT space.

Instead, there is the prospect of new e-commerce ecosystems which combine merchants, an IoT provider, and payment systems (such as those developed by SIX), delivering goods and services which take advantage of new digital capabilities and the wealth of data now becoming available.

As a payments systems expert, SIX has many years of experience managing transactional data and order flow. Developing an IoT payments system is a natural progression from our existing work and one which we believe holds tremendous value for merchants, consumers and logistics providers.

We have started to implement an IoT commerce platform in our home city of Zurich, trialling a simple ‘fridge replacement’ mobile app to understand how the technology will work, together with local merchants and future IoT providers. Based on this initial test case we believe that, within a few years, there will be countless opportunities across multiple sectors. Small businesses, for example, frequently need to replenish their stocks of stationery, something that IoT payments could achieve, bringing significant cost and efficiency gains.

Machine learning and Artificial Intelligence (AI) can help to solve many of the issues thrown up by the practicalities of IoT channels. At SIX, we anticipate employing Blockchain technology to create a distributed ledger of transactions. The immutability and transparency of distributed ledgers will allow stakeholders to always see where they stand in the order workflow and this should help prevent friction in the process.

Manufacturers of all kinds will benefit from automated remote payment options using IoT and Blockchain technology, which will remove layers of administration, complexity, and cost. They will also gain opportunities to better understand their customers - today, when a kitchen supplier sells its products, there is rarely any further connection between the buyer and seller. With the advent of IoT payments, a new and consistent communication channel opens up, enabling greater opportunities to gather user data and improve what they do. In this way, the consumer begins to play a larger part in how manufacturers evolve and develop product lines.

The role of payment systems provider - connectivity and security

Industry reports predict that by 2021 there will be 28 billion connected devices worldwide, all of them potentially capable of making and receiving payments. These are likely to include wearable technology, all kinds of automotive vehicles, and domestic items such as fridges, heating, and air conditioning units (in addition, of course, to mobile devices, watches, and a hundred other items or even parts of the human body that are yet to receive embedded computer chips and sensors).

In many cases, the infrastructure to complete IoT payments already exists. Fridge manufacturers such as Samsung and Trustonic have released connected equipment which can place direct orders for groceries. Uber and Lyft have integrated embedded e-commerce solutions, which consumers can access via mobile apps.

The next stage is to link together various distinct systems into a seamless whole, with a payment services company such as SIX providing the payments ecosystem through which the transactions can take place. Facilitating micropayments between enabled devices, and employing data analytics and machine learning, may lead to much-improved deployment of resources, through matching supply and demand, while anticipating future needs.

According to a recent survey², 65 per cent of consumers trusted card issuers above retail channels, social networks and mobile device manufacturers, as their preferred enabler of IoT services.

As a Swiss-based company, we have an inbuilt neutrality and trustworthiness dating back many decades. As with our banks and retail customers across Europe, we are well-suited to the demands of IoT payments, as retailers and customers need to trust the platform through which they conduct their business. If the platform provider was itself a retailer, this could lead to perceived conflicts of interest, such as would be the case with Amazon.

Emerging concepts arising from the IoT technologies are opening new channels and opportunities, as well as reshaping consumerism. Cloud computing, social media, robotics and Artificial Intelligence will continue to transform the payments landscape in ways we cannot yet imagine, just as the transformations enabled by the smartphone could hardly have been imagined 10 years ago.  We are seeing merely the tip of the iceberg in terms of the possibilities that IoT can bring, and the landscape is developing at a remarkable rate and opening opportunities beyond our visible horizon.

¹ http://www.paymentscardsandmobile.com/iot-driving-the-future-of-commerce

² https://www.ibm.com/developerworks/community/blogs/33dd2ec5-fd1b-400f-a3c2-f761c06a6ed3/entry/Advancements_in_Payment_Systems_are_Fueling_IoT?lang=en

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