Fitbit Buys Its Way Into Wearable Payments

By Markets Fool.com

Wearable technology leader Fitbit announced this week that it's purchased a wearable payments platform from Coin. You may remember that Coin made the smart cards that allowed users to load multiple debit and credit accounts onto one card (sadly, Coin says it won't continue selling those cards now).

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Fitbit says it's also bringing key personnel over from Coin and that the purchase will "accelerate" its ability to add near field communication (NFC) enabled payments to its devices, though it noted it won't happen anytime this year.

This is a big move for Fitbit as the company's increasingly being squeezed by Apple at the higher-end of the wearable tech spectrum, and cheaper vendors at the lower end.

Why wearable payments matter

Buying Coin's wearable payments platform should bring two major benefits for Fitbit:

The first is that Fitbit will now join other technology companies that are betting on the multi-billion dollar wearable payments market. Nearly $500 billion worth of NFC wearable payments will be made in 2020, according to Tractica.

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Fitbit is wisely jumping into this market soon (hopefully, next year) and its wearable device sales could benefit as users become more used to making payments with smartwatches and wristbands.

Secondly, moving into wearable payments allows Fitbit to differentiate itself from the cheaper wearable devices on the market.

Recently released data from IDC shows that the "other" vendors category made up 37% of all wearable device shipments in the first quarter of this year, while Fitbit took just under 25%. Fitbit's lead as the No. 1 vendor could eventually be challenged as companies from China release good-enough fitness trackers that undercut Fitbit's prices.

But adding wearable payments could help Fitbit keep other devices at bay, because NFC chips add additional costs to the device and need to be paired with an established wearable payment system.

What investors need to see now

I think investors should be looking for two things from Fitbit following this news: A quick release of an NFC-enabled device anda price point for the device that is priced significantly lower than the Apple Watch's $300 introductory price tag.

Fitbit shouldn't wait too long to update one, or a few, of its products with wearable payments so that it doesn't miss the window when its lower-priced competitors don't have this technology. If it can get ahead of the "other" vendors category with wearable payments then I think it could help drive sales by offering a feature that other devices (besides more expensive ones) don't offer.

Which leads to why Fitbit needs to price its wearable payment device right. The company's Blaze smartwatch sells for $200, while the Apple Watch (with its recent price drop) starts at $300. Fitbit would be wise to add wearable payments to the Blaze and keep the price tag the same. Otherwise it would be encroaching on Apple's territory, and the Blaze -- even with built-in wearable payments -- can't match Apple's software, third-party app integration, etc.

Aside from Apple, Samsung and Google already have their own versions of wearable payment systems, so buying up Coin's wearable payments platform isn't a sure win for Fitbit. The company is still fighting against the biggest tech players in the market, but adding payments is a great step in keeping the company's products innovative -- and that may be more than enough to keep the company moving forward at this point.

The article Fitbit Buys Its Way Into Wearable Payments originally appeared on Fool.com.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fools board of directors. Chris Neiger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Apple. The Motley Fool has the following options: long January 2018 $90 calls on Apple and short January 2018 $95 calls on Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.