MasterCard on Monday unveiled secure payment prototypes in the form of rings, wristbands and car key fobs after working with NXP and Qualcomm to develop the chip-level technology.
Products are expected to roll out in the U.S. next year. Capital One was named as the first credit card issuer to back the program.
"As more and more 'things' become connected, consumers will have endless possibilities when it comes to how they pay and will need all their devices to work seamlessly together," said Ed McLaughlin, chief emerging payments officer at MasterCard, in a statement.
A new MasterCard video shows a model making a secure payment for coffee in a shop with a wristband, then using a ring to pay for a subway fare at a turnstile and, finally, paying for groceries with a key fob at a point-of-sale terminal. The video showcased a smart wristband from Nymi, a smart ring from Ringly and a key fob from GM. Other partners named included clothing designer Adam Selman and Bluetooth locator device maker TrackR.
TrackR so far has made devices that use Bluetooth connectivity to help people find lost items. Most of the MasterCard prototypes shown Monday rely upon Near Field Communication (NFC) technology. One of the demonstrations during MasterCard's announcement at the Money2020 conference in Las Vegas showed a dress that had several NFC chips attached.
MasterCard's security is based on dynamic tokenization technology in which a user's 16-digit credit card number is replaced with a unique alternate card number or "token," which can be used for mobile point-of-sale transactions and online purchases. To enhance the level of security, there is usually also a one-time code generated by a chip in the wearable device.
Wearable payment systems promise to be much more secure than the chip cards now being distributed by banks because of a unique identifier tied to each user’s token for each transaction. Tokens with that added identifier "are much more secure technology than a PIN, which is easier to steal," explained Gartner analyst Avivah Litan.
Analysts said that the market opportunity with wearables for banks and card companies is promising. "Every company will be, or already is, competing on this approach," Litan said.
"MasterCard wants to extend commerce to anything with an Internet connection, and the Internet of Things presents an opportunity for banks to expand their addressable market," said Jordan McKee, an analyst at 451 Research, after attending the MasterCard event.
"This is still early days for this Internet of Things market, and it's something that will take time to manifest itself," McKee added. "MasterCard's announcement is an indication of where things are headed, with the inventions less around mobile phones and more around connected [device] commerce."
Visa is working on a service called Visa Token service and is expected to make an announcement soon with a variety of partners, somewhat similar to what MasterCard did, McKee said.
Patrick Moorhead, an analyst at Moor Insights & Research, said a bank stands to gain financially by having its credit card applied to a variety of different wearable devices or other objects. "Card providers want consumers to use their card first," rather than a competitor's offering, on a variety of devices, he said.
MasterCard didn't give a formal name to the program behind the prototypes it announced on Monday, but it said the program is an extension of its Digital Enablement Service and its Digital Enablement Express program.
Because of MasterCard’s Digital Enablement Service, about 100 banks have aligned with MasterCard’s technology to allow any device maker to create a product to provide secure NFC payments, said James Anderson, MasterCard’s group executive for platforms in emerging payments.
That means hundreds of millions of MasterCard cards worldwide will work with a device, Anderson said in an interview. "With that connectivity in place, device manufacturers can get going quickly, with products introduced in 2016," he said. "You’ll see a lot of activity in 2017."
Reaction to Chase Pay announcement
Also on Monday, JP Morgan Chase launched a smartphone payment platform that will use QR codes instead of NFC technology.
Chase has partnered with 40 major retailers in the CurrentC payment system, which is expected to finally launch in mid-2016. The system will provide an app connected to a credit card to display a QR code on a customer's smartphone display, which is read by a retailer's payment terminal.
McKee said it is a big advantage for CurrentC to work with an established card issuer like Chase. But he also called using QR codes "kind of clunky and almost a step backwards." It would probably be difficult to put a readable QR code on a small wristband display and impossible to use a QR code with a ring or another device with no display, he noted.
The fact that Chase is working with CurrentC and Capital One is working separately with MasterCard suggests that "banks are trying to regain control" over mobile payment technology advances, hoping to wrest power away from Apple and Google and others, McKee added.
"Banks don't want to be the dumb pipes and are really trying to reposition themselves in mobile and don't want to be trapped in a third-party container like Apple Pay," McKee said.