Despite the collapse of the US’s largest biometrics payment company earlier this year, some commentators are still predicting a rosy future for the technology. However, current credit and debit card readers remain cheap and effective. Unless banks push biometrics on to retailers due to fraud concerns, near field communication technologies are more likely to be adopted as alternative payment types.
In March 2008, many commentators and bloggers announced the end of the road for biometric transaction processing in retail after the collapse of Pay By Touch, the largest biometric transaction processors in the world. Many reasons were cited for Pay By Touch’s demise, including the cost and accuracy of its technology, its business model, and the lack of benefits that biometric transaction processing brought retailers, their customers and banks. Despite the loss of Pay By Touch, biometric transaction processing hardware is still being implemented – albeit at a very low level of penetration – in stores across Europe and North America.
Given the current lack of penetration and the commercial failure of the leading player in biometric payments, hubristic statements about the future of biometrics are still receiving press coverage. For example, two months after the collapse of Pay By Touch, Dan Stanek, executive vice president of TNS Retail Forward, said that biometric fingerprint payment is the kind of innovation companies will see, going forward.
It is true that there continues to be a niche commercial opportunity for biometrics within retail, largely as a marketing gimmick for retailers positioning themselves as technologically advanced. However, Datamonitor believes that, in terms of becoming a pervasive or ubiquitous technology, biometrics within retail face daunting competition from existing and emerging technologies.
Current credit and debit card technologies operate at penetration levels nearing 100%. New technologies like biometrics or contactless payments are, almost without exception, installed to complement existing card readers, not to replace them. Retailers, banks and customers are all relatively happy with the technology: the ubiquity of card reader technology makes it relatively cheap to install, and it currently operates within accepted boundaries of accuracy and security. That said, some high volume, low value retailers (such as coffee shops, sandwich bars and forecourts) have issues with the speed of transaction processing and have been the principal driving force in retail to develop alternative payment types to minimize queue times.
To date, NFC-enabled credit cards and mobile phones have generated more positive reactions from retailers seeking faster payment systems than biometrics, because contactless payment technology is more reliable and, in Datamonitor’s opinion, more acceptable to consumers. Biometrics still suffer from false positives (where the wrong customer’s account is charged) and false negatives (where the right person is not identified and refused a sale), which is of huge concern to retailers, banks and customers alike. Biometric technology also suffers from cultural resistance as it involves registering a thumbprint and thus touching a reader. It also presents the problem of the negative association between taking a thumbprint and criminality.
Governments are plowing ahead with ambitious plans to introduce biometrics in various situations, such as at passport control or for security access to public buildings. Should consumers become more comfortable with the technology in other areas, they may well be more open to using it in a retail context.
However, retail is seldom the market leader when it comes to the uptake of horizontal technologies and Datamonitor believes that biometric identification is no different. Datamonitor’s position is that the principal driver for increased take up of biometric payment technology beyond certain niches will not be from retailers or consumers, but financial services. Should the levels of fraud affecting chip and PIN or magnetic strip payments be of concern to the banks, they will seek more secure methods of payments. Biometric technology’s key selling point is its relative strength in combating fraud: contactless payments are on balance more susceptible to fraud than PIN or signature verification systems.
Biometric transaction processing faces an uphill struggle: the technology needs to become more accurate, the costs of hardware need to come into line and at least one of the players in the transaction system, be it retailers, customers or banks, needs to force the technology into stores. At present, no one is pressing the case for biometrics and it is Datamonitor’s view that biometric payments will remain at the periphery of retail for the long term. If the problem of false positives and negatives can be reduced to nothing, biometric technology will represent a fantastic payment solution. However, until then, there is no place for biometrics within the retail space.