Wearable devices for tracking fitness progress have become popular, yet payment using the devices continues to lag. Forecasters predict that will change as consumers begin to shift to smartwatch payments as a matter of convenience. According to IHS Inc., the number of wearable devices with payment functionality is projected to reach 150 million units globally in 2020, up from 10 million in circulation in 2015.
Recent data from the International Data Corp. published in the Worldwide Quarterly Wearable Device Tracker revealed that growth in wearable device shipments in the second quarter of 2016 was up 26.1 percent year-over-year at 22.5 million units shipped. The IDC tracker also confirmed that access to payments was not the top priority for wearable device enthusiasts.
"Fitness is the low-hanging fruit for wearables," said Jitesh Ubrani, Senior Research Analyst for IDC Mobile Device Trackers. "However, the market is evolving, and we're starting to see consumers adopt new functionality, such as communication and mobile payments, while enterprises warm to wearables' productivity potential."
While the overall wearables market saw second quarter gains, the trajectory for the two categories IDC tracked traveled in opposite directions. Basic wearables (devices that do not support third-party applications) grew 48.8 percent compared with levels for the second quarter of 2015; smart wearables (devices that support third-party applications) declined 27.2 percent over the same period, IDC noted.
"Basic wearables, which include most fitness trackers, have benefited from a combination of factors: a clear value proposition for end-users, an abundant selection of devices from multiple vendors and affordable price points," said Ramon Llamas, IDC Research Manager. "Consequently, basic wearables accounted for 82.8 percent of all wearable devices shipped during the quarter, and more vendors continue to enter this space."
However, as wearable-device vendors proliferate, entrants who fail to differentiate new offerings from existing products may find it increasingly difficult to compete in an already crowded market. According to IDC, the top five vendors driving the wearables market in the second quarter of 2016 were Fitbit Inc., Xiaomi Inc., Apple Inc., Garmin Ltd. and LifeSense Group B.V. As wearable device manufacturers seek differentiation through integration of such features as payment and two-way communications, the attraction for consumers who prefer to pack light when mobile could prove to be a further boon to the industry.
Fitbit, whose name has become synonymous with the fitness tracking side of wearable devices, recognized the value of expanding into payments. It acquired intellectual property specific to Silicon Valley-based Coin's wearables payment platform in May 2016. The investment will enable Fitbit to integrate near field communication functionality in future devices, the company noted.
"Coin has been one of the key innovators in advanced payment solutions," said James Park, Fitbit co-founder and Chief Executive Officer. "The inclusion of their payment technology into our offerings will further our strategy of making Fitbit products an indispensable part of people's lives."
San Francisco-based startup Fit Pay Inc., led by former CyberSource and Visa Inc. executives, developed the Trusted Payment Manager, a payment-enablement platform devised to allow wearable device manufacturers to seamlessly integrate contactless near field communication payment capabilities into their products.
In September, Samsung Electronics Co. Ltd. released the Gear S3 smartwatch. Users in select markets can now register credit cards and make purchases via smartwatch most anywhere Samsung Pay smartphone payments are accepted. Also in September, Apple rolled out the Apple Watch Series 2, which features built-in GPS and the capability to deploy Apple Pay to make mobile payments.
In Europe, Oberthur Technologies teamed with Swiss watchmaker Swatch Ltd. to integrate OT's FlyBuy Secure Element (a secure payment technology original equipment manufacturers can embed into watches or fitness bands) with Swatch Bellamy watches. Currently, Swatch owners are able to execute contactless payments across Switzerland.
"There is plenty of curiosity about what smart wearables – particularly smartwatches – can do, but they have yet to convince users that they are a must-have item," Llamas said. "The good news is that smart wearables are still in their initial stages, and vendors are slowly making strides to improve them. But this also means that it will be a slow transition from basic wearables to smart wearables." 
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