Inside Visa’s IoT Playbook

When Tony Fadell, iPod creator and Internet of Things innovator as the founder of NEST, took the stage at the Innovation Project 2017, he told Visa’s Jim McCarthy why he has come to dislike the label the Internet of Things, despite the many IoT innovations he pioneered. His beef, he said, is that “IoT” is a label that fails to describe the range of possibilities that devices connected to the internet enable from the perspective of the end user — the consumer or business. People and businesses don’t buy things just because they are connected to the internet, he said; they buy them because of what those things can do to make their lives easier and daily activities more efficient.

Fast forward a few months, and Fadell’s portrayal of the consumer’s interest in connected devices for the value they deliver was more than validated in the “How We Will Pay” survey of 2,600 American adults. This study, a Visa/PYMNTS collaboration, revealed that consumers own a boatload of connected devices. The average number of connected devices (outside the usual portfolio of phones, computers and laptops) has increased to 4.4 per person and includes game consoles (47 percent), activity trackers (41 percent), smartwatches (15 percent), voice-controlled assistants (14 percent), connected thermostats (9 percent) and virtual reality headsets (7 percent).

But, it’s what consumers use those devices to do today and wish they could use them to do in the future in the pursuit of commerce that piques their interest in buying and then using them. When it comes to shopping and paying, more than 80 percent of those surveyed find today’s payments and commerce-related experiences across all channels frustrating, unproductive and inefficient — even boring. They believe that connected devices can deliver a better experience.

Delivering that better experience is what Avin Arumugam, senior vice president of the Internet of Things group at Visa, and his team are focused on: giving device manufacturers the ability to embed payments into the experiences that their devices power for the consumer.

“The instant that a customer says, ‘I wish I could use my [connected] device to buy this,’ is a commerce moment that we want to both anticipate and enable,” Arumugam said. “The IoT team’s job at Visa is to make sure that when that moment happens, we’re there, and a consumer can make a payment safely and securely using a Visa account credential.”

It’s admittedly both an opportunity and a challenge, Arumugam said.

The opportunity is compelling: to meet the consumer where she wants to conduct commerce using any one of the four, five, six or more connected devices that she owns and among which moves seamlessly. What’s clear from the data, Arumugam said, is that consumers like using them. More importantly, they aren’t intimidated at the idea of learning how to use new ones. Along with that willingness to embrace new technologies comes higher expectations of what they can do, he added. In the case of commerce and payments, consumers expect that connected devices eliminate — and not add — friction to the shopping and buying experience.

That sets up the challenge, anticipating what devices might be waiting in the wings, ready for consumers to embrace and use, or available today with an interest in payment-enabling, Arumugam said.

What’s also clear from the data is that consumers don’t believe that what they own today — smartphone, smartwatch, voice-activated speaker — will deliver the commerce experience they want to make shopping and buying less of a chore. Consumers want the ability for devices to contextualize the commerce experience for them, enabling them to safely and securely buy things while they’re commuting, taking care of the kids, cooking dinner, clearing the house. Consumers don’t see the devices they own and use today as capable of delivering that experience for them.

So, Arumugam said, job No. 1 for he and the team isn’t to look into their crystal ball and predict what devices might come next or decide “winners and losers,” but to build a flexible infrastructure that can commerce-enable new devices and new experiences, efficiently, securely and at scale anywhere in the world.

Building a Common Future

When one imagines what’s possible with commerce and connected devices, there are two tracks to be imagined, Arumugam explained. One track is more passive, where the devices such as refrigerators keep themselves stocked by ordering items before they run out and appliances that monitor themselves and book their own service calls for repairs and parts replacements before things break.

The other is more active — more or less the world we know today, where consumers use those devices to initiate commerce — tapping a smartwatch at a store terminal, asking a virtual assistant to order a pizza, opening an app to place an order that’s fulfilled in a store.

So, what path does Arumugam view as the path to be most traveled?

“It is going to be a walk that I think we can help device manufacturers run to passive commerce. Who wants to think about ordering the carton of OJ every three weeks when the fridge can order that instead?” he explained.

How that happens, he notes, can and will vary and will most certainly evolve over time. Perhaps, Arumugam said, it will be an Instacart app on a smart fridge using Samsung Pay. Perhaps it will be a smart list that auto-orders based on a frequency of purchase and calculated usage. But regardless of what app and digital payment “front end” is used, Arumugam said that the most important part of that experience is the ability for that payment to be transmitted securely for that consumer on behalf of that merchant.

That, he said, is where the smart, flexible foundation — Visa’s tokenization framework — becomes critically important.

The key elements of that infrastructure from Visa’s point of view, Arumugam said, are VTS (Visa Token Service) VDEP (Visa’s Digital Enablement Program) and Visa’s recently launched Visa Ready Tokenization Program.

“Visa Ready makes it possible for TSPs [token service providers] to gain access to tokens simply and easily,” Arumugam said. “Garmin is actually the first Visa partner to use a TSP to come online with their payment-enabled wearable,” adding that Garmin came online much faster, given the ability to connect to an approved third party already connected to VTS, in this case FitPay, rather than do the work themselves.

While Garmin is a first, Arumugam said it is far from the last. Using TSPs, device manufacturers can be up and commerce-enabled in a matter of weeks simply by leveraging the certified and vetted commerce and payments foundation that Visa and its third-party partners already have in place.

The Early Adopters — Wearables

Early interest in Visa Ready for IoT, Arumugam noted, comes from wearables and their device makers. He expects that will continue as that whole category transitions into becoming more attractive with more feature-rich connected devices.

“I think the wearables we have today are a bridge to the wearables of tomorrow,” he said. “Today, they are not really connected to the internet; they are connected to other devices that are connected to the internet, such as the smartphone. When they are actually connected, that will unleash the real IoT deal.”

And that entrance into the “real IoT,” Arumugam said, is where wearables will get their chance to shine — to become both more fashionable and a whole lot more useful, particularly for commerce.

“That is what the wearable consumer community is focused on: How do these devices make my life easier, and how can they make something those consumers do better, easier, more valuable?” he added.

Building Better Business Models for the Future

The Internet of Things, Arumugam reflected, is as much about an ongoing discussion as it is about reaching a destination.

“The payments part is what we need to get to baseline,” he said, “but it’s the business models that become possible because of a connected device being payment-enabled that really gets us excited.”

No more are consumers and merchants forced to be in the same place at the same time to do business — the experience in the early days of consumers with their plastic credit cards and merchants with physical storefronts. Five decades or so later, consumers and merchants may now be in totally different places doing business but still rely in some form or fashion on access to a plastic card.

But that all changed, Arumugam said, in September of 2014, when Apple Pay launched and the idea of tokens and tokenization as a proxy for account credentials and how payments transactions are done was introduced. Tokens, Arumugam said, allow payments to solve the “last inch” problem — where the card and terminal no longer must touch or even exist to do business and for that transaction to be secure and trusted by the consumer, issuer and the merchant.

Consumers, Arumugam said, feel secure when they use the connected devices they have today to make purchases. And it’s critical that they do. The two things that will hold back the great promise and potential of the Internet of Things is the consumer’s uncertainty over the privacy and security of their data when using them. And the more passive the commerce experience — when machines pay machines — and the less visible those transactions are, the more the consumer has to trust that the underlying commerce foundation that’s powering that experience will keep their precious data safe.

Arumugam said that’s why it should be clear now that tokens represent the future of how commerce will be conducted across the many ecosystems that are now overlapping and intersecting — and surfacing those new commerce experiences.

“Tokens make the commerce experience so much more secure, which means that there are now so many more areas and use cases that device manufacturers can explore.”