The payments industry has come to associate IoT payments with “smart” devices like the smartwatch, smart speaker, and smartphone, yet the IoT industry itself—primarily chip makers, data communications manufacturers, and providers of specialized security services—rarely considers these to be IoT devices. IoT market participants are focused on collecting, disseminating, and analyzing data to better inform and manage specific logistical areas (loading docks, city transportation, etc.) or processes (manufacturing floor, inventory management, etc.). The size and scale of this IoT environment unrelated to payments is extremely large.

According to IoT Analytics, roughly 7 billion IoT devices were deployed worldwide at the end of 2018, and this number is expected to grow to 21.5 billion by 2025. Intel has stated that it expects the global worth of IoT technology to reach $6.2 trillion by 2025, while Cisco predicts that IoT devices will generate 847 ZB of data per year by 2021 (1 ZB, or zettabyte = 1 trillion gigabytes). Both consumers and merchants are capitalizing on this technology and the data it collects. The data provides a wealth of information that is automatically analyzed to assist or automate the buying decision. This in turn is changing the way consumers and merchants transact.

In this research report, IoT Payments: How the Internet of Things Is Influencing Payments, Mercator Advisory Group demonstrates that IoT-enabled environments such as these have already generated a small volume of IoT payments. There is a large conceptual gap between the way IoT is perceived by experts in the art of IoT and the way it is perceived by payments experts. Mercator combines these two different perspectives to establish a single new perspective defining IoT payments:

IoT payment. A transaction initiated without the real-time participation of either the buyer or the seller. It is constructed as a set of condition-result pairs based on data collection and analysis such that “If this condition holds true, then initiate this specific purchase and payment transaction.”

To explain how this new concept of IoT payments operates, we begin by reviewing the history of IoT, explaining how it evolved through machine learning. We also review how the payment industry measures payment volumes, including in-person payments in stores, recurring payments, and online payments for e-commerce purchases. We then show how IoT has changed purchasing behavior by bringing more relevant data to the attention of the individual making the purchase and by helping to analyze that data based on the unique perspective of that purchaser. In some instances, the individual may decide that the data is too complex to analyze directly and so may authorize the machine learning tool to make the purchase.

The report goes on to illustrate how IoT payments has been put to practice to benefit consumers and businesses in the insurance, energy, water, and printer industries. These examples demonstrate how IoT has already started to generate payment volume in areas unrelated to smartwatches, smartphones, and cars. It also lays the framework that Mercator Advisory Group will use to track IoT payments going forward.