An explosion of new products, a growing number of vendors and solid consumer adoption has stimulated recent growth in the global wearable device market. Now that the devices have gone mainstream, financial services organizations are working to determine how to fit them into their overall mobile banking and payments strategies.
According to the Framingham, Mass.-based International Data Corporation Worldwide Quarterly Wearable Device Tracker, wearable device shipments will reach 76.1 million units in 2015, up by 163.6% from the 28.9 million units shipped in 2014. By 2019, worldwide shipments will reach 173.4 million units, resulting in a five-year compound annual growth rate of 22.9%. Total shipments include both basic and smart wearables.
"Despite this rapid growth, it doesn't make sense for most banks and credit unions to immediately jump in and create dedicated wearable apps, due to the fact that the development of dedicated apps can require a significant investment of time and resources," Andrew Barnett, principal digital banking consultant for the Brookfield, Wis.-based core processor Fiserv, said. "A more practical choice for the majority of financial institutions is to extend the existing functionality and convenience of the mobile channel to wearables."
Fiserv research has shown advanced mobile functionality leads to more satisfied users – meaning a mobile strategy that incorporates wearables has positive retention implications, the firm said.
"With growth and expanded functionality on the horizon, now is the time to evaluate the role of wearables in your financial institution's overall mobile banking and payments strategy," Barnett said.
Fiserv is currently piloting several wearable devices and applications, as well as researching how consumers use these devices in their everyday lives. At Fiserv's FinovateFall Sept. 16-17, the firm demonstrated how an Apple Watch can initiate a cash withdrawal at an ATM via its recently introduced CardFree Cash service as an example of how to extend a capability available via the mobile channel to a wearable device.
More than 80% of today's wearables are worn on the wrist, Barnett noted, and health trackers such as Fitbit are changing the way people measure their healthy behaviors.
"Smart wearables such as the Apple Watch offer broader functionality, allowing consumers to check email, load a boarding pass or monitor an account balance," he said.
Currently, when it comes to financial services, wearables are primarily used for alerts; however, when the device is worn on the wrist, too many untargeted alerts can be quite disruptive to the user. Barnett added that due to their small size, it can be difficult to input information on a wearable device screen, so getting the user experience right is critical.
"Functionality delivered via wearables should focus on quick and simple actions," Barnett said. "This makes wearables a perfect channel for actionable alerts, enabling the recipient to trigger an action, such as replying 'pay' in response to a bill notification alert. This eliminates the inputting of information on a tiny device and makes transactions from wearables much more practical."
Wearables also have the potential to enhance mobile transaction security because they are often used in close proximity to an individual's smartphone and can act as a second form of authentication. For example, during a point of sale purchase, its proximity payments and geolocation functionality can verify the wearable device is in the same location as the owner's mobile phone, helping to prevent fraudulent payments.
Smart wearables only account for about one third of the total market today, while basic wearables, which are led by fitness trackers, account for the rest, according to IDC Mobile Device Trackers Senior Research Analyst Jitesh Ubrani.
"Driven by advancements in user interface and features, smart wearables are on track to surpass the lower priced, less functional basic wearable category in 2018," Ubrani said. "Smart wearables will quickly move from a smartphone accessory primarily focused on notifications to a more advanced wearable computer capable of doing more processing on its own."
Driving the smart wristwear market, which includes watches and bands, are devices capable of running third-party applications, such as the Apple Watch, Motorola's Moto 360, Samsung's Gear S-series and Pebble's Time.
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Roy Urrico
Roy W. Urrico specializes in articles about financial technology and services for Credit Union Times, as well as ghostwriting, copywriting, and case studies. Also: writer/editor of a semi-annual newsletter for Association for Financial Technology since 1997 and history projects funded by the U.S Interior Department, National Park Service and Warren County (N.Y.).
