Do Not Touch

It was a novel idea: instead of fumbling for credit cards at the point of sale, a consumer simply swipes her finger across a specially designed scanner to initiate and authorize payments. Several supermarkets gave it a try, but in the end, it appears, the business was unsupportable.

Pay By Touch, the San Francisco-based firm that pioneered fingerprint-based payments at POS, was shuttered in March by its parent company, Solidus Networks: its scanners, installed at about 3,000 stores, were unplugged.
“There was a window of opportunity that Pay By Touch had to scale and grow the system across the country. But I think that window is closing now, or already closed,” says Gary Hawkins, CEO of Green Hills Farm, a Syracuse, N.Y., grocery store that used the system. Pay By Touch terminals also could be found in several large supermarket chains, including those operated by SUPERVALU brands (a spokeswoman for SUPERVALU declined to comment for this story, except to confirm that the technology had been disconnected).

Hawkins says the most disconcerting aspect of the Solidus decision was the timing: Stores received just 48 hours notice that Pay By Touch services were being discontinued, and this just days before the Easter weekend.

In addition to running Green Hills Farm, Hawkins also advises retailers as president of Hawkins Strategic. That business came about following Green Hills’ 1993 launch of one of the first loyalty card programs in the grocery industry.

The partnership with Pay By Touch was driven largely by efforts to further enhance Green Hills’ marketing successes. Customers who were enrolled in the store’s SmartShop personalized loyalty program would touch a fingerprint reader upon entering the store and again at checkout to record their shopping activity.

In exchange, each customer received the equivalent of a “personalized ad flyer” weekly, with coupons available online, via e-mail or at an in-store kiosk. And because the Pay By Touch platform also supported payments, the finger scan at checkout could double as the customer’s authorization for payment.

Green Hills declined to reveal the metrics, but an analysis of the SmartShop program published in January 2007 by Aite Group estimated that 25 percent of Green Hills’ sales were made using finger scans.

Processing costs
Biometrics also produced modest savings on payment-processing costs. Prior to installing the Pay By Touch technology, Green Hills didn’t have the capability to offer customers ACH or electronic check payments; as of early 2008, Hawkins estimates that 7 percent of Green Hills’ sales were processed through the ACH.

Unlike credit card and many debit card transactions, where banks collect processing fees equal to a percent of payments, ACH payments clearing is priced on a per-transaction basis (typically 50 cents or less per payment). Nick Holland, a senior analyst at Aite, says the savings, while notable, aren’t sufficient to compensate most retailers for the time and money it takes to upgrade systems and procedures to support biometric payments.

“Compared to existing systems at the point of sale, it’s just cumbersome, and the merchant has to pony up money to do it,” he says, and suggests that the best-case scenario for biometrics in support of payments would likely involve voice-recognition and mobile-phone technologies.

From Hawkins’ perspective, the real value proposition with Pay By Touch arose from its integration with the store’s SmartShop loyalty program. “We drove a lot of biometrics use with the program,” he says, “far more than we did with payments alone.”

According to Hawkins, “thousands of customers” were using Pay By Touch finger scanners for loyalty and payment applications at Green Hills. Yet when Solidus pulled the plug, “it was almost a non-event. All we lost was the biometrics component.” SmartShop continues, with customers scanning loyalty cards instead of fingers to access the program.

The experience hasn’t soured Hawkins on biometrics. Like many practitioners and observers, however, he’s convinced that biometric authentication devices need multiple applications in order to be successful.

John Petze, president and CEO of Privaris, agrees. The Charlottesville, Va.-based company has developed a device that uses finger scanning, radio frequency and smart card technologies to support secure access to multiple networks, devices and facilities.

Privaris intends to position the device, known as plusID, as an option for customer-initiated POS payments. “Retail financial transactions are a coming market,” Petze says, adding that plusID was designed to work with existing contactless-enabled POS systems.

plusID is a bit larger than the keychain fobs used for contactless payments and incorporates a fingerprint scanner about the size of those used with laptop or desktop PCs. The company’s marketing literature describes plusID as “a portable wireless personal authentication token using on-device fingerprint matching.” It is activated when the customer swipes her thumb across the reader in the vicinity of an access controller, such as a door keypad. “It tremendously streamlines and simplifies things,” Petze says.

Privaris is in discussions currently with three “major” card companies and some online retailers to test the use of plusID tokens for e-commerce payment authorization, according to Petze.

A tough sell
Payments alone are a tough sell for biometrics. “The highest sign-up rates anyone has managed to get are about 1 percent to 2 percent,” says Jeff Wakefield, a vice president at terminal manufacturer VeriFone Holdings. VeriFone teamed with Pay By Touch in a joint development and marketing initiative several years ago, but the program never took off. VeriFone also made overtures to purchase Pay By Touch late last year, but a deal never materialized.

“Biometrics doesn’t seem to have enough of a driver on the financial institutions side,” Wakefield says. There isn’t a strong payback, he suggests, especially when bankers consider that biometrics can provide retailers with access to lower-cost payment systems like ACH.

Another sticking point: personal privacy concerns. Biometrics remains something of “a public perception problem,” says Wakefield. Fingerprinting raises red flags with people because of its association with criminals. plusID, however, doesn’t use fingerprints: it scans the ridges, valleys and curves in a person’s finger and converts that information to encrypted data points. The resulting data cannot be used to recreate a fingerprint, Petze says.

When data points on a scanned finger match the data on the customer’s plusID fob, it triggers the release of an access code or other authorization information (the Pay By Touch platform worked similarly).

“If you lose it, nobody else can use it,” Petze says, and the tokens can be recycled and reprogrammed for use by others.

Nonetheless, finger printing/scanning is not a process that’s easily explained to consumers. Green Hills customers may not have been troubled about providing finger scans for SmartShop, but that experience is unusual, Holland says. “Fingerprint-based biometrics certainly has some unwelcome connotations” for consumers, he says.