After phone and internet banking, is watch banking a new trend?

RBI increased the limit for contactless transactions from Rs 2,000 to Rs 5,000, encouraging the adoption of contactless technology

Following the State Bank of India's (SBI) launch of a contactless payment-enabled watch in partnership with watchmaker Titan, Axis Bank too launched has launched a wearable with which you can pay at shops and restaurants, and it costs only Rs 750. The bank has partnered with Thales and Tappy Technologies to launch the "Wear 'N' Pay" product which also includes a key chain, watch loop and a payment band.

These launches come soon after the Reserve Bank of India increased the limit for contactless transactions from Rs 2,000 to Rs 5,000, encouraging more transactions using contactless technology.

What is contactless technology?

Wearable devices and smartphones with near-field communication (NFC) use radio frequency identification (RFID) technology to communicate with contactless-enabled Point-of-sales (PoS) devices and link with bank cards. The technology works when the two devices are within close proximity of each other, but there is no need for the devices to touch and the transaction happens almost instantaneously, much like a smart card used on the metro.

This technology enables you to not carry cash and use wearables or just your smartphone to buy products and this technology is increasingly found on newly-issued debit and credit cards from Indian banks off-late.

Why is this development important?

QR-code based payments are unique to China, India and other smaller countries, while the rest of the world uses contactless payments using NFC. With PoS machines and phones with NFC becoming more common in India like what you might see in the US or UK, these wrist devices and greater adoption of the technology may pave the path to a more sophisticated payment method in the future.

Global research and consultancy firm, KPMG in a report saying that contactless payments are an important factor for the growth and adoption of digital payments in India in the future.

Amid the pandemic, card-based PoS terminals are witnessing a decrease in usage and adoption. In fact, about 30% of the 5.7 million PoS machines deployed as of December have become inactive or been returned, according to a report by CapTable quoting senior executives at companies that deploy these terminals for banks. The newsletter added that QR code stickers have become more popular in this time period as merchants do not incur the operational costs of PoS machines and contact is also limited.

Is contactless technology safe?

The way Google Pay works in India is unique due to the lower adoption of NFC technology and a greater prevalence of QR-code based payments. In other countries, Google and Apple's contactless payment solutions partner with banks and act as an interface on your phone to pay using your debit or credit card with some security technology.

Contactless technology when used on smartphones is safer due to the requirement of biometric authentication to process a transaction. However, when contactless cards are exposed without sufficient protection, thieves can use skimming machines to fool your card into processing a transaction. These machines are increasingly being found on sale in the dark web.

The security of wearable devices is still unknown as they aren't very popular yet. However, Axis Bank provides a fraud cover up to 100% of the purchase limit on the devices.

With more infrastructure and regulation supporting contactless payments and greater adoption of such devices in urban centres, wearable and contactless transactions may just the hot new trend in the world of banking.