Imagine a world of 20 billion connected devices, all transmitting and receiving data. Now, imagine that a good portion of these devices can make payments and order products and services on your behalf. That’s not just in your head — that’s the Internet of Things (IoT), and as time goes on, these devices will be everywhere.
While they provide tremendous convenience, it’s also vital to properly secure IoT products, especially if they have access to our financial details. Let’s take a look at the IoT, explain what it is, how it’s integrating payments, and the impact that will have on consumers, manufacturers, and payment providers.
- What is the Internet of Things?
- The IoT and Payments
- Security for IoT Payments
- Issues with Payments through IoT Devices
- Potential Solutions for Payment Difficulties
- Opportunities in IoT Payments
What is the Internet of Things?
There are many different definitions of exactly what makes up the IoT. Essentially, the IoT is a collection of devices that connect to each other and to central services and exchange data and information.
IoT devices come in many forms, including:
- Smartphones and tablets, connected via WiFi and data services.
- Personal devices like Fitbit or the Apple iWatch.
- Home assistants like Google Home, Amazon Alexa / Echo / Dot, and Apple Homekit.
- Connected cars and dashboards like Tesla and many other newer models.
- Home automation devices like thermostats, cameras, lights, and fire alarms.
- Appliances including fridges, ovens, washing machines, and dryers.
This is just for consumer and home use. Internet of things products are also widely used in healthcare, industry, agriculture, manufacturing, and more. The main function of these devices is automation — recording, transmitting, and receiving information to allow the devices and us to make more informed decisions.
The IoT and Payments
How does the internet of things integrate payments, and what does that mean to consumers? The easiest way to understand this is with a few examples:
You can use Amazon’s various home products like the Dot or the Echo to order from Amazon just by speaking to the device. Your dishwasher, washing machine, or dryer could automatically order detergent or laundry soap when it runs low. You could pay your bills from the convenience of your car dashboard. You can easily order films and TV shows online via your smart TV, Roku device, or other streaming product. Smart fridges can track the food you’re using and place an order when you’re down to a certain amount. Fashion stores are installing smart mirrors in dressing rooms where you can order and pay for the item there and then.
This is just the beginning. Machine learning will mean that our devices can learn and adapt to our unique needs. They will monitor various aspects of our lives and make suggestions for things we may want to buy or do. Smart products will become even more integrated into our habits, routines, and daily needs.
These smart devices will increasingly replace our physical debit and credit cards, making it quicker and easier for us to order products and services on demand.
As with any device that sends and receives information, security is paramount. Manufacturers need to build robust protection and encryption into devices so they don’t become vulnerable to hacking and malware. This is doubly important if we’re trusting them with our financial information.
Security for IoT Payments
As we entrust more of our information and financial details to these devices, everyone has a responsibility to treat that data carefully. Consumers need to understand what will happen with their financial information when they enter it. IoT device manufacturers must build robust security and encryption into these devices.
Software and applications that use data need to authenticate identities and ensure authorization to make payments, and payment processors must ensure transactions are genuine to identify and eliminate fraud.
It’s vital to maintain consumer confidence if we are to trust these devices. With so much news of data breaches and identity theft, IoT devices cannot become the next attack vectors for stealing and using people’s financial information.
Issues with Payments through IoT Devices
There are many potential pitfalls with accepting and processing payments through IoT devices — these will all need to be addressed to ensure the system is safe and secure for everyone to use.
The most important area is verifying someone’s identity. How can a payment provider be sure that an authorized person or device made a purchase? In some cases, that’s fairly easy to establish — it would be difficult for your dryer to fraudulently order some dryer sheets. But, if a person is out and about, and they lose their smartphone, what’s to prevent someone else using it to place a transaction?
Other issues include accidental ordering, chargebacks, and refunds. When can devices request refunds for undelivered products or services? How can the payer understand what their devices are ordering on their behalf?
See also: Biometrics for Payment Security.
Potential Solutions for Payment Difficulties
The card processing and payment provider networks are already working to secure IoT devices and payments. Visa and Mastercard have both introduced “tokenization” services — technology designed so you don’t have to store sensitive card information into IoT devices.
For example, a token could be granted to a unique device for a narrow purpose — your fridge can only use the token to order specific products from a particular store. This type of tokenization limits what a hacker could do if security were breached.
The card provider networks have also introduced new security compliance and best practice models. These are designed for IoT manufacturers to help them integrate payment protocols properly and safely. Visa has the “Visa Ready” program, while Mastercard, American Express, and Discover all have their own initiatives.
Software developers have a part to play too — the payments interface needs to be easy for end users to access and check. Notifications of products and services requested, and payments made, is essential. The way that orders and payment information is transmitted to service providers and vendors needs to be completely integrated and secure.
Finally, the whole, end-to-end process needs to be easy for the consumer to understand. They need to give permission for IoT devices to order products and services on their behalf —- there should be no surprises!
Opportunities in IoT Payments
For the businesses that can get this right, the rewards are huge.
- Greater demand for IoT devices from manufacturers.
- Faster speed and greaterconvenience for end users.
- More payments going through the processing networks.
- Greater demand for goods and services from vendors.
The IoT is growing at an exponential rate, and as more devices come online, automation is going to play a bigger part in everyone’s lives. Robust security and properly protected financial information will help to build consumer trust. If the security and identity protection issues can be worked out, there are opportunities for everyone.