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Starting a Wearable Payments FinTech: A Legal Guide

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Note from August 25 2021, the innovation patent will cease to exist. After this date, you can only file a divisional innovation patent if it is based on a previously filed patent. Read more about this change in our article.

Wearable payments technology refers to devices such as smart watches or pay bands which allow a consumer to make digital contactless payments. If you are thinking of starting a wearable payments FinTech, it is useful to know what legal issues you should be aware of at each stage of growth. This article provides guidance on four key stages of your startup.

1. Research and Development

Market research is an essential part of any business’ success. It will help you determine what wearable product(s) you want to focus on developing, and what payment technology options are available to you. This research will also help you identify your target market and consequently define your marketing strategy. 

Looking at how and why different businesses have developed their wearable technology may help you when setting up your FinTech. For example, BankWest has developed a wearable payment ring called Halo set to launch in 2018. The ring works like a contactless bank card, and was developed in response to research indicating approximately 10% of payments in Australia are made either using wearables or smartphones.

Legal Needs

Each stage of business growth comes with its own legal requirements and issues. The table below identifies key legal requirements at the Research and Development (R&D) stage.

Legal Need Purpose
Business Structuring Setting up your business structure correctly can help your company grow quickly. A good business structure can also help:
  • protect your company’s assets;
  • limit your personal liability; and
  • benefit you from a tax perspective.
Australian Financial Services Licence
You may be required to obtain an AFSL if you are:
  • providing financial services; or
  • offering services to AFSL providers.

The Australian government has a regulatory sandbox for FinTech startups. For the first 12 months of your FinTech startup, you may not need to apply for a licence. This allows you to conduct detailed R&D without having to comply with AFSL regulations.

Confidentiality Agreement In your R&D stage, you will probably talk with developers, potential investors, and other key personnel about your business. Signing a confidentiality agreement with these parties can help protect your innovative ideas in these initial conversations.

2. Pre-Minimum Viable Product (Pre-MVP)

At this stage, get your software and physical product development underway by engaging your chosen developers. It is also a good time to set up structures to protect your intellectual property (such as your business logo) as best you can. Ideally, you should kick off your marketing campaigns at this time as well, to generate interest in your product.

Consider holding a soft/ beta launch before your official launch. This lets consumers test the wearable payment product and identify any potential issues with its operations. For example, you may engage consumers to use the product over a set period of time, to test how it links to payment options and gauge its durability.

Legal Needs

The table below identifies key legal requirements of the Pre-MVP stage.

Legal Need Purpose
Trade marks A trade mark lets you build brand identity and loyalty. Registering a trade mark gives you the exclusive right to use your mark for a renewable period of time. It also protects your mark from being used by your competitors.
Development Agreement If you are engaging an external developer for your website and software, you should have a formal agreement in place with them. A development agreement should detail:
  • the scope of work;
  • the assignment of the IP to you on completion (otherwise the developer may own the IP); and
  • cancellation rights.
Employment Agreement

Use formal employment agreements when hiring staff. As an employer, you will also need to comply with the National Employment Standards and any relevant awards.

You may also want to consider whether to put an employee share scheme in place to incentivise employees.

Patents A patent is the exclusive right to monetise an invention for up to 20 years (or eight years for an innovation patent). Wearable payments FinTechs may gain protection because they have developed a new product, or mechanical step or process, that differs from what currently exists.
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3. Launch

At this stage your product and services are ready to be launched. Make sure your terms and conditions reflect how the wearable device works, and how it connects to different payment options (such as a credit card or bank account). 

Legal Needs

The table below identifies key legal requirements of the launch stage.

Legal Need Purpose
Website Terms of Use This document protects the intellectual property on your website. It also limits your liability in regards to the content on your website.
Website Privacy Policy This document ensures that your business complies with the Privacy Act. You should have a privacy policy on your website if you are solely operating online. It is particularly important for a wearable payments FinTech, as you will be processing large amounts of data with personal information.
Software as a Service (SaaS) Agreement SaaS agreement is the contract between you and your clients. If you are providing services through an online platform or cloud technology to large businesses, you will need an Enterprise SaaS Agreement.

4. Growth Stage

Once your wearable payments FinTech is in the growth stage, you may be considering raising capital. One way to do this is by acquiring equity investment from venture capital funds and other professional investors. Investment helps you inject capital in the business, resulting in quicker expansion compared to organic growth.

For example, Inamo is currently in the soft launch stage of its flagship product Curl, a waterproof wristband for contactless payments. It closed a $1.5 million seed funding round last year, the first round of professional funding it has received. This has allowed the startup to hire employees and look to expanding into other countries.

Legal Needs

The table below identifies the key legal issues of the growth stage.

Legal Need Purpose
Capital Raising When seeking investment to raise capital, you may need to:
  • finalise a pitch deck or information memorandum;
  • negotiate a shareholders agreement; or
  • draft or finalise a share subscription agreement, SAFE note or convertible note.

Key Takeaways

Being aware of what legal requirements arise at each stage of your business’ growth will allow you to plan ahead and make considered decisions.

For further advice on how to start up your business, or help with meeting legal requirements, contact LegalVision’s startup lawyers on 1300 544 755 or fill out the form on this page.

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