Digital transformation continues to change the financial sector. The increasing use of smartphones and tablets has changed customers’ behaviors and fueled adoption of mobile banking. Wearables capable of storing and processing data allow us to integrate better with the technology and incorporate electronics into every domain of our lives. The question arises whether the wearables can follow that success and become a new disruption for the financial sector. And if so, will they replace or supplement the mobile devices that are currently in use?
Current Wearables Banking Market Assessment
Wearable technology has exploded in popularity in recent years as the devices have grown smaller and their communication and integration capabilities have grown significantly. The global wearables market was valued at US $9.2 billion in 2014, and experts envision global sales of wearables hitting $30.2 billion by 2018 (see “Wearable Tech: Leveraging Canadian Innovation to Improve Health“).
The increasing adoption of wearables has attracted the attention of banks and, according to a survey conducted by Misys, 15% of banks already have or are currently rolling out wearable apps, and 72% of banks say wearables are on their roadmap for the next three years. Of banks that have no wearables strategy in place, 78% are in the EU and US, demonstrating a stronger appetite for innovation from Latin American and Asian regions. The same survey reveals that 66% of banks state that proximity payments are the most attractive capability of wearables.
Two use cases are predominantly implemented by banks, financial institutions, or offered by device manufactures (and apps vendors) on the market: payments and extension of the current Internet banking functionalities over the mobile app. Payments space is the most developed area. The following wearables already include a payment function: jewelry (e.g., NFC Ring, Smart Ring), wristbands (e.g., at Walt Disney World, Jawbone UP4, bPay Band, Nymi Band), watches (e.g., traditional ones such as Watch2Pay and smartwatches such as Apple Watch, Alibaba Pay Watch, Sony Wena, and Samsung Gear S2), and clothes (e.g., Motorola Skip and the Lyle & Scott bPay jacket). Some of these use near field communication (NFC) technology embedded in a smartphone as well as applications and biometrics, which drive different user experiences; others, such as ApplePay, use their own technologies.
Today, the apps associated with wearable devices (mostly smartphones, watches, and wristbands) are used by banks, mainly to provide a new experience of mobile banking. Functionality mainly includes: checking balances, monitoring cash flows, timely offers related to geolocation (proximity of a branch or ATM), receiving alerts and notifications, and making payments. Nationwide was the first financial institution in the UK to provide account information via an Android Wear smartwatch app, followed by NatWest and Barclays, which offer banking apps for the Apple Watch (see “Millennials Love Banking with Wearables“). HDFC Bank, the second-largest private sector bank in India introduced a smartwatch application to the market that enables customers to check account movements,to top up their prepaid mobile phones, or to conduct utility payments with the help of their Apple Watches. The Commonwealth Bank of Australia enables balance enquiries; customers can also locate the next ATM or withdraw cash at any ATM of the bank with the use of their smartwatch (see “Will Wearables Lead to a New Era of Digital Disruption in Banking?“).
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The Key Drivers of Successful Wearable Apps
There are four key aspects that drive successful wearable apps:
- Customer experience is the most important driver in the successful adoption of wearables. The applications should be simple, intuitive, reliable, and transparent. They should also address the challenge of a small screen. One solution for this could includes voice commands — assuming banks can overcome user resistance toward using voicing commands related to financial transactions in public settings.
- Banking applications should become a part of a seamless ecosystem of services.
- Customers expect the wearables to offer an added value. (As an example, Alfa Bank launched an application in which customers receive a higher interest rate as they increase their physical activity.)
- Security has been one of the key barriers of adoption of online and mobile banking, and wearables are no different. To address this challenge, banks are experimenting with biometric verification.
Potential Future Use Cases: A Bridge Between Big Data and the Internet of Things
The key driver behind investing in wearable solutions involves enhancing customer experience and gaining competitive advantage. The ultimate goal, however, is to generate revenue and cost savings. The wearables are expected to better manage risk, engage with customers, and leverage entirely new capabilities such as biosensors, gestures, or geolocation. Wearables will enable banks to collect huge amounts of information about customers. This will potentially demand a change of strategy in which wearable applications will not mirror the mobile offer but will be designed utilizing unique features associated with the wearables.
Challenges for Wearables in Financial Services
Digital disruption, regulatory changes, and shifts in the ways consumers interact with banks via apps encourage proliferation of the solutions and huge pressure from challenger banks and non–financial services institutions, including digital giants like Google, Apple, Facebook, and Amazon. Each would like to have a share in the market. In order to address those challenges, banks are expected to shift their mindset and change the strategies from distribution and product-oriented to customer-focused. They will also collaborate with start-ups, providing a shortcut to skills and overcoming the limitations of legacy platforms that can take time to develop in-house.