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Secure and efficient IoT M2M payment using digital fiat currency

Miles Au Yeung, Chief Markets Officer, eCurrency

The Internet of Things (IoT) is changing the way people, companies and machines interact and transact through connected devices. Gartner forecasted that 8.4 billion connected things will be in use worldwide in 2017, up 31 percent from 2016, and will reach 20.4 billion by 2020[1]. Many of these devices will be given the ability to perform machine-to-machine (M2M) payments so that they can order and exchange products and services. These 20.4 billion devices will shift some of the existing USD75 trillion cash payments to digital and transform the present digital payments involving human.

Existing payment networks such as Mastercard and Visa are already taking initiatives to meet the future demand by providing IoT device manufacturers with a path to embed secure payments into their connected devices, this enables anything from a watch to a car to initiating payments. Furthermore, IoT will break the traditional human initiated purchase model. Recent IoT applications have demonstrated how connected devices such as wear-ables, home appliances and vehicles can become platforms for commerce. For example, Samsung has created a smart fridge, known as the Family Hub, which integrates MasterCard Groceries to allow users to purchase groceries for delivery from the fridge.

While this future is exciting, a survey[2] shows that consumers remain apprehensive about sharing personal information with the devices and giving up privacy. Sixty-two percent (62%) of wear-able owners are concerned about the safety and privacy of their personal information. The question of how to secure data and validate identity is becoming more challenging as the networks of connected devices expand and access consumers' payment credentials and conduct transactions on their behalf. While innovations in tokenization address part of this puzzle, concerns and questions about the protection and control of access of these tokens remain.

Digital fiat currency provides a secure and efficient alternative for IoT M2M payments because digital fiat currency, in the form of a digital bearer instrument, possesses a number of advantageous characteristics of physical fiat currency:

  • The bearer instrument is the medium of exchange and can be stored in a “wallet” in a payment system connected to the device or in the device itself.

  • Each bearer instrument has its own identification and security protection that makes it unique, traceable and counterfeit-proof.

  • The exchange of the bearer instrument results in an instant settlement and instant finality for all participants involved.

Devices linked to digital fiat currency wallets are able to pay each other without gaining access into people’s and companies’ bank deposit or credit accounts. Personal credentials are not required to be stored in the devices. The vulnerability will be reduced because the amount of digital fiat currency accessible by the device is limited should the security of the device be violated.

Devices made by different manufacturers or belonging to different IoT communities can transact with each other without necessarily finalizing the transaction through the banking system and inter-bank settlement infrastructure, since the digital fiat currency is the legal tender bearer instrument, i.e. a liability issued by the central bank in a certified document form. This eliminates the costs associated with banking, payment network services, interbank settlement services, reconciliation effort, and reconciliation discrepancies. This cost efficiency is particularly beneficial for low value transaction use cases.

Digital fiat currency presents the opportunities to the regulators to enable the IoT commerce with the supply of a secure, trusted and interoperable digital legal tender. It presents the opportunities to IoT players to build IoT platforms on an alternative secure, efficient and open payment infrastructure. It presents the opportunities to financial services providers, including banks and non-banks, to extend their services via billions of connected device.


  1. 451 Research's Voice of the Connected User Landscape


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