The Apple Watch and other wearables face 3 big hurdles

'Really scary' data privacy worries should concern all users

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His view matches those of other analysts that Americans are just as happy using credit cards -- and cash -- for in-store payments. U.S. merchants are slowly updating their in-store payment terminals to support more secure smart cards and NFC chips in the latest phones. Still, there's widespread acknowledgment in the industry that it will take five to 10 years to have payment terminals installed in 90% of the estimated 12 million U.S. retail locations.

"I just don't think consumers see mobile payment as a need; credit cards work just fine," Carolina Milanesi, chief of research at Kantar WorldPanel, said recently. "If consumers have it, they might use it, but it is not an adoption driver for the hardware."

Coupling mobile payments with rewards could change that, however.

Apple is highly committed to mobile payments, of course, and is expected at WWDC to link Apple Pay with shopper rewards and various special offers. Conceivably, Apple or various merchants' reward cards and coupons could be automatically applied at the time of a mobile purchase. Android Pay is supposed to offer similar capability when it becomes available.

The linking of reward cards and shopper credits with a smartphone or smartwatch used for payments could provide the needed breakthrough to nudge Americans into wider acceptance of mobile payments.

"Linking rewards with payments will make the user experience with wearables more sticky," Llamas said. "You would be putting the carrot out in front of them, which helps answer the question they have of 'what's in it for me.'"

What happens to the data?

Analysts have noticed in polling and interviews that younger wearable users aren't especially concerned with the collection of their personal data, including GPS location, health metrics and more. But maybe they should be.

"All the health data you're revealing is incredible stuff," Llamas said. "Giving out your location is even more hazardous."

Llamas raised the potential that a nefarious hacker could find a Fitbit user's running habits and location, discover the runner was out every other day, and use this information to break into a home.

"We're talking about something incredibly problematic," he added. "Somebody accessing the data store could mess around with your fitness results, and affect your meds. It's really scary."

While many wearable makers insist they don't share personal data collected on the devices they sell, there is a growing industry in selling the collected data in bulk, from perhaps millions of users, to help a company market products and services to wearable users generally. The bulk data being sold is supposedly anonymized so that a user's name and other identifying information is left out. But experts believe the software designed to delete identifying information isn't complete or reliable.

apple watch android wear

The success of the Apple Watch, left, will likely mean strong sales of other smartwatches, such as the Moto 360.

Also, comparing a user's location with his or her health data and shopping patterns makes it possible for a hacker to determine who an individual is -- even without that person's name or typical identifying information, Julia Horwitz, director of the consumer privacy project at the Electronic Privacy Information Center, said in a recent interview.

Irina Raicu, director of Internet ethics at the Markkula Center for Applied Ethics at Santa Clara University, recently urged wearable users to demand clear information from wearable makers about how the collected data will be used before allowing it to be collected.

Analysts such as Forrester's Fatemeh Khatibloo recently said government entities, especially in the U.S., need to make sure manufacturers are getting permission to use a person's data. Government oversight is also needed in how collected data is kept secure by various companies and groups. "I don't think self-regulating trade bodies will do [all] that effectively," she said.

Copyright © 2015 IDG Communications, Inc.

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