Biometrics: Payments at Your Fingertips

Fingerprints and iris scans will replace keys and credit cards if outfits like Pay By Touch succeed in their biologic mission

In the future, no one will need pockets. That stuff jingling around in there -- keys, credit cards, checkbooks -- will be replaced by something closer to the body. When you need to open a door or make a purchase, chances are you'll do it with a fingerprint, a voice command, or a computer scan of your eyeball.

That is, if companies like Pay By Touch have anything to say about it. Pay By Touch, a closely held San Francisco outfit, specializes in biometrics, or the technology of identifying people by unique biologic traits -- not just fingerprints, but also irises, palms, and voices. And increasingly, those traits are being used in place of keys, credit cards, and even computer passwords.

Founded in 2002, Pay By Touch has signed up more than 2 million people willing to have their fingerprints used as a surrogate for checks and credit cards at more than 2,000 stores, including several large grocery chains. When making a purchase, a customer presses his pointer finger to a pad and then keys in an identifying number as an added security measure before his purchase is deducted from a checking account or added to a credit-card bill. On Mar. 21, Pay By Touch said its device would be installed in all of Albertson's (ABS) Jewel-Osco stores, a chain of more than 200 outlets that combine supermarkets and pharmacies.


  It's not just stores that are using biometrics. Elementary schools have installed iris scanners to keep out intruders. Companies increasingly use fingerprint scanners to authenticate computer users. And fingerprint readers have also been installed on locks for house and office doors.

But many consider Pay By Touch to be among the companies most effectively harnessing the rising demand for biometrics. Pay By Touch charges a set fee for each positively identified fingerprint that can run in the neighborhood of 15 cents for a big retailer, according to Pay By Touch President and Chief Operating Officer John Morris.

What's in it for the store? Using fingerprint scanners can accelerate purchase times by minimizing the checkout lane "fumble factor." Because a customer's Pay By Touch account can be linked to several payment devices, retailers can also save money by encouraging people to use accounts that incur lower fees, such as a checking account accessed by debit card. A recent report by Bernstein Research noted that systems like Pay By Touch could increase pressure on credit-card companies to reduce their charges to retailers so they don't lose market share.


  Supermarket owners overall say they're pleased with Pay By Touch results. "We'd like to encourage anybody who has a checking account to enroll in Pay By Touch," says Trisha Belisle, manager of retail technology at Cub Foods, a Midwest supermarket chain owned by Supervalu (SVU). She declined to comment on whether it saves the stores money, however.

Pay By Touch is also experimenting with using the system to customize bargains to individual shoppers based on their past purchases, a trick the Sunday newspaper circular could never manage.

Advocates say biometrics is a better safeguard against identity theft than current methods. It's easier, after all, to obtain a credit-card number than a fingerprint or voice pattern. But because biometrics relies on a person's biological data, it's apt to make some users even more nervous than other technologies do.

Pay By Touch and partner retailers are aware of the obstacle. The company takes pains to explain that it takes and stores an algorithm of a fingerprint, "a description," rather than the print itself, Morris says. Even so, paying with a fingerprint can inspire the jitters.


  Jay Stanley, communications director for the American Civil Liberties Union's Technology & Liberty Project, says that information obtained by a biometrics company could threaten consumer privacy, though he doesn't single out Pay By Touch. "The main problem with the situation we're in right now is that the technology is really ahead of the law," Stanley says.

The ACLU does not object to biometrics technology itself. "We need a law to prevent against the dark side of new tech to make sure they are not used against us" by the government mandating it or companies selling it, Stanley says.

Yet for many, paying with a fingerprint is becoming as routine as a trip to the ATM. Pay By Touch hopes to ride the wave as far as it can. In January it acquired rival BioPay for $82 million and recently closed on $60 million in capital from hedge funds and private investors. This came about three months after the company announced raising an additional $130 million.

Morris declined to discuss sales or any plans the company might have to go public. But Pay By Touch expects to double sales this year from 2005, in part due to acquisitions.


  Morris says the company hopes to expand its services to include health insurance information. It also has an initiative that would let customers use fingerprints to make online purchases using the sensors available on some laptops. It plans to announce a participating online store later this year (see BW Online, "Promising Pitches at Demo 2006").

"I believe it's going to ramp up," Frost & Sullivan analyst Sapna Capoor says of biometrics. "It's only a question of time before the Wal-Marts (WMT) of this world take it on." She expects more mega-retailers to adopt the technology within 18 months.

Fingerprinting is by no means perfect. Philip Youn, a senior consultant with the International Biometric Group, says prints don't register as well with certain groups such as construction workers whose fingerprints have been effaced.


  However, Capoor says that for most existing consumer needs, a fingerprint is adequate and cost effective. Youn agrees. Alternative biometric methods are less well-suited to the checkout line. Iris scanning is expensive and could intimidate customers, he says, and voice recognition would not work in noisy stores.

Capoor also sees consumer biometrics' potential extending far beyond groceries. Looking forward, fingerprints could be used to make purchases through sensor-equipped cell phones, or replace keys as a way to enter homes.

Though fingerprints are seen as most versatile, other biometrics will likely emerge to compete. Fujitsu produces a palm recognition device that identifies customers by using "near-infrared rays" to identify the vasculature of a palm. It's already widely used in ATMs in Japan, and Fujitsu expects to introduce the method in the U.S. in the second quarter, though the company won't say how it will be used. It has the potential for use in areas like access to buildings and electronic devices like computers.


  Among its advantages, Fujitsu's method doesn't require contact between the user and the machine, providing at least the illusion that it's more hygienic. PalmSecure only approves palms in which it can detect active blood flow, a way to thwart those who would attempt to scan an approved, but detached, hand.

Pay By Touch uses a heat detector to prevent similarly macabre schemes. And it's working to overcome other would-be obstacles to the wider use of biometrics, envisioning a future when you can leave home without those rectangular pieces of plastic, and a lot else.

Before it's here, it's on the Bloomberg Terminal.