One of the most overlooked trends in the payments industry is the rise of the Internet of Things (IoT). From smartwatches to internet-enabled refrigerators, there’s been a proliferation of IoT infrastructure. Billions of IoT devices are coming to market around the globe.

These devices collect vast amounts of information and enable a range of payment and logistical capabilities. This means that as IoT devices become more ubiquitous, the world of payments and commerce will be greatly impacted.

To better understand the rise of IoT and why companies should pay attention to this trend, PaymentsJournal sat down with Tim Sloane, VP of Payments Innovation at Mercator Advisory Group, and David Nelyubin, a research analyst with Mercator focused on IoT-driven payments. The two analysts recently published IoT Payments: How the Internet of Things Is Influencing Payments, a report that sketches out the first comprehensive framework of IoT payments.

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During the conversation, Sloane and Nelyubin discussed Mercator’s IoT framework and how IoT-driven payments fit into the broader payments landscape. They also discussed the state of the market and explained why companies should take note.

What is an IoT-driven Payment?

In order to understand how IoT devices are changing payments, one must first define what an IoT payment is. Such a definition may seem self-explanatory, but it is actually more nuanced than one may expect. It is not simply any payment made from an IoT device.

Mercator’s framework categorizes all payment types along two axes: the degree of human involvement and the amount of data being used to determine spend. Thus, Mercator classifies IoT payments as a machine-triggered payment based on real-time data analytics. Defining IoT payments in this way enables one to understand the subtle, yet important, impact IoT devices can have on payments, explained Nelyubin.

If a person consciously decides to make a payment through their Apple Watch, for example, that is not so different from traditional shopping; both are human triggered. Moreover, someone’s Apple Watch making a recurring payment for a newspaper subscription is no different from traditional recurring payments.

The type of IoT-driven payments that are innovative are the ones made autonomously by the device based on analyzing relevant data. Nelyubin explained how an IoT-enabled Brita Infinity Pitcher can det...