Mercator Blog

IoT Payments 101: Everything You Need to Know
Date: November 3, 2021
Adam Winograd
Staff Writer, PaymentsJournal

What are IoT payments?

IoT stands for "internet of things" and is a phrase that describes everyday physical objects that are connected to the internet or other communications networks. IoT payments are specific transactions that occur using IoT technology.

According to Mercator Advisory Group, an IoT payment is defined as follows: "A machine-triggered payment with real-time analytics and data collection. An IoT payment is a real-time, data-driven payment that does not involve the buyer making a purchase decision. Instead, the buyer has previously authorized a plan for payments to be made automatically based on feedback from a sensor or automated data source."

Internet of Things Technology and Consumer Devices: Machine Triggered Payments Continue Growth in U.S. Households_IMAGE

IoT payments are distinct from human-triggered and data-unaffected payments

Not all electronic or automatic payments are considered IoT payments. In fact, not even all payments made from IoT devices are considered IoT payments. In order to distinguish IoT payments from other similar payment types, Mercator categorizes payments along two axes: human-triggered vs. automatic machine-triggered, and real-time data affected vs. real-time data unaffected.

Old-fashioned payments such as in-store purchases are both human-triggered and unaffected by real-time data. Conversely, automatic payments such as subscription services or toll payments are machine-triggered, but still unaffected by real-time data - the payment occurs at regular pre-determined intervals. Neither kind of payment is considered IoT since they do not integrate real-time data.

On the data-affected side of payments, many transactions conducted by computer, phone, or even an IoT-capable device are actively influenced by prior personal purchase history and market trends. Any given selection of movie options on Netflix or product options on Amazon are filtered through layers of PII (personally identifiable information) and popularity that create an algorithm specific to each user - but even if the selections are curated based on real-time data, the actual payment is still human-triggered, meaning a person must consciously confirm the order either by clicking, touching, or using voice-order technology. Human-triggered payments are not considered IoT.

IoT payments: automatic and data-driven

IoT payments are both automatic and real-time data-driven. The "smart" technology used for IoT payments can detect if a given household item (such as food, beverages, and cleaning or office supplies) has crossed a low-inventory threshold, and then automatically re-order and pay for the item to be replaced or replenished.

Such IoT technology, for example, might sense that the weight of laundry detergent in a washing machine has dipped too low based on parameters the owner set up in advance, and then coordinate the purchase and delivery of more detergent. The IoT technology might alert the user after the fact that more detergent is en route, but the user plays no active role in procuring the re-supply.

This automatic and data-driven process is expanding to more corners of the consumer marketplace, particularly among household items: Coffee makers that need replacement pods, printers that need more ink and paper, water and air purifiers that need filter replacements, and any electronic device that needs a new battery.

Consumers once had to assess their own inventory levels and manually place reorders or sign up for a subscription service that re-upped goods regardless of current levels. Now many of those types of payments can be made both invisible and "smart," monitored and managed in the background by IoT technology.

Appeal for both merchants and consumers - and integration barriers

IoT payments can be beneficial for both buyers and sellers, and both individuals and businesses.

For consumers, there are three main economic benefits:

  • Waste Prevention - Reordering only occurs when the product is running low, preventing oversupply.
  • Resource Conservation - Shoppers can save both time and energy by outsourcing common purchases to IoT-enabled technology.
  • Seamless Supply - No risk of running out of stock.


Merchants, likewise, see three major benefits to the bottom line:

  • Usage Data - Real-time usage habits become available to manufacturers, so they can more quickly address consumer needs.
  • Recurring Revenue and Customer Retention - IoT purchases often source back to the original manufacturer, keeping a reliable revenue stream with enticing convenience.
  • Supply Chain Efficiency - Access to real-time data lowers inventory mismanagement and human error.


No matter how you slice it, IoT payments represent efficiency, dependability, and cost-saving for all involved parties. According to David Nelyubin, Senior Research Analyst with Mercator Advisory Group, "Establishing a connection and a real-time data stream to bring visibility into household items or industrial processes results in more optimal decisions for consumers and businesses." However, there are several challenges that make it harder for vendors to introduce and maintain IoT-enabled technology:

  • Data Management - Additional resources may be necessary to process enormous quantities of incoming data.
  • Systems Upgrades - Legacy systems may be incompatible with IoT replenishment networks.
  • Security - Consumer information flowing through multiple networks increases security risks.


Additional concerns associated with the interconnectivity offered by IoT technology include consumer privacy, post-sale manipulated obsolescence, and safety issues. Any advances in machine learning and automation must consider all potential pain points.

The future of IoT payments

IoT payments continue to emerge in industries around the world, particularly as the COVID-19 pandemic has pushed retailers and manufacturers into remote services. Shreyas Shaktikumar, Research Analyst at Mercator Advisory Group, says: "As the COVID-19 pandemic continues to affect virtually all facets of our lives, businesses are compelled to develop innovative solutions…"

While this article gives an overview of the IoT payments space, it does not provide deep and nuanced insight into the research-supported trends that project where IoT payments are headed next. Mercator Advisory Group's recent report,  Internet of Things Technology and Consumer Devices: Machine Triggered Payments Continue Growth in U.S. Households, offers broader insight into this topic.