Wearable technology has evolved rapidly the last couple of years, with a plethora of wearable devices like smartwatches, smart glasses, fitness bands, clothing, and jewelry all hitting the market and creating an impact across sectors like the healthcare, sports, and fitness industries. The American IT research and advisory firm Gartner expects strong growth in wearables with smartwatches, fitness bands, and other trackers to reach nearly 70 million units by the end of 2015. But is the banking consumer ready for wearable banking?
Banking through fashion accessories is called Wearable Banking
Key questions in the minds of banks and banking consumers:
Wearables are the biggest innovation in technology since smartphones and a big step up in providing convenience to customers. The wearables landscape continues to expand with technology giants such as Apple, Google, Samsung, Sony, and LG bringing innovative and exciting wearable devices into the market. Analysts around the globe have predicted that the wearable electronics market will reach $20 billion in 2015 and $70 billion by 2025. Reports reveal that Apple has received 7 million Apple Watch orders to date.
To capitalize on this growth opportunity, innovative financial institutions around the globe are exploring possible use cases for wearables and experimenting on such wearables as smartwatches and smart bands. Banks consider wrist wearables to be a smart consumer play due to their higher adoption rate and fast and cost-effective use-case implementation.
To stay ahead of the competition and retain market share, banks are focusing on innovative value propositions to targeted consumer segments. Wearable technology provides banks the ability to deliver convenient, personalized, and secure services to their consumers in the form of quick balance checks without the need to enter user credentials, contactless NFC (near field communication) payment, receiving time-sensitive fraudulent alerts, reminders, stock updates, and personalized marketing offers. Advances in wearable technology and user convenience use cases support projections that wearables will be the next defining trend in digital banking.
Savvy digital banking consumers are excited about performing banking transactions through wearable devices and are comfortable making contactless NFC payments because they are quick and secure. Consumers consider smartwatch banking more convenient than the existing banking channels.
“What’s the point? Why do I need a smartwatch (mini phone) for banking? I already have a smartphone that can do everything the smartwatch can do.”
Consumers hesitate to adopt wearable devices. They don’t see a real value proposition and speculate over whether these new devices offer strong security. There is a lot of hype about wearables that has not translated into sales. Some would say that wearable apps provide very minimal value to the consumer with no compelling business case for banks.
The small screen size of wearable devices is a disadvantage, as it limits the text that can be displayed, and is certainly not the right fit for image-intensive messages. The consumer requires a complementary device like a smartphone or a tablet for continued engagement with the banks. Smartwatches are not standalone devices but merely an accessory for the smartphone.
What is the benefit of NFC contactless wearable devices without the appropriate NFC infrastructure required for payments? Wearable devices are not a necessity for banking consumers and do not enhance the banking experience of the consumer in any way. Wearables are just another revenue stream for manufacturers and have significant limitations with respect to banking.
There is absolutely no doubt that smart wearables provide convenience to the consumer in terms of quick access to information, effectiveness of communication, and speed of contactless payments. Early adopters of wearable devices are the affluent tech enthusiasts with a digital fashion quotient.
Is it really worth investing in these devices for banking?
The answer is probably “not now”. A recent study from Carlisle & Gallagher Consulting Group, a business and technology consulting firm that focuses exclusively on the financial services industry, found that 82% of consumers in the US would not purchase a wearable device. Most consumers feel that smartphones are functional enough to satisfy their banking needs and are yet to be convinced that a wearable device is a necessity. They also harbor concerns over security, privacy, and high cost that contribute to slow adoption.
Adoption of wearables depends on sleek design and device aesthetics as well as device security and unique value propositions for consumers. For mass adoption, the current pricing model for wearables, ranging from $100 to $2,000, must move from high price tags to nominal price tags.
Banking consumers expect wearables to be a perfect blend of security, functionality, and fashion. Financial Institutions are known to be conservative when it comes to adopting new technology. They are in a wait-and-see mode, because there is a hint of doubt over how widely wearable technology will be adopted. The banking and financial services industry is in search of the key value proposition of wearables that would transform the banking experience of the consumers and increase quality of life.
Despite concerns over consumer resistance and the infancy of the technology, wearables possess great potential and are an attractive opportunity for banks to re-engage with their customers. Wearables are the closest banks can get to their consumers with regard to context and location-based personalized offerings.
Consumer adoption of wearable banking applications will shoot up as devices improve their functionality, ease of use, security, and cost-effectiveness.
Although wearables are currently not a top banking priority, banks cannot wait for too long to recognize and adopt the technology. Banks should start engaging with wearable technology and address the deal-breakers for mass adoption of wearable banking devices: privacy and security. To gain consumer trust, banks need to leverage wearable devices to provide convenience to consumers, achieve strong authentication, and reduce fraudulent transactions.