BOSTON -- Credit and debit cards have made cash virtually obsolete in some markets. Could biometric technology someday do the same to plastic?
It's definitely a possibility that fingerprint swipes may someday replace cards and even mobile payments, say some industry insiders and experts.
Consumers' rush to smartphones and tablet devices that can support a variety of biometric authentication mechanisms are opening doors for new payments opportunities. And the recent data security breaches at Target Corp. and other major retailers help make the case for a more secure way to protect personal financial information.
"I think biometrics is a tool whose time has come," said Aite Group Senior Analyst Shirley Inscoe. "Some of this is a little futuristic, but it is coming at us quickly. I would not be surprised to see biometrics usage in payments within the next two to three years."
Inscoe is not certain what form of biometrics could become widely accepted — fingerprint, retinal scan or voice recognition — but she feels that biometrics, at least initially, will not be what makes the payment.
"Biometrics will be used for authentication," she said. "In other words, making sure the customers paying at point of sale are who they say they are and own the account they will use at POS."
Inscoe gave the example of using the iPhone 5S fingerprint sensor to identify account holders who would then use the card in their mobile wallet, or use their phone's camera to perform a retinal scan. "I am not saying that someday the biometric device, such as a fingerprint scan, could not become the payment form. That may take some time."
The massive Target data breach that affected nearly one in four Americans will likely push more consumers — and financial institutions — toward new payment methods, say experts.
In North Highlands, Calif., the $2 billion SAFE CU is not sold on plastic — not even EMV — as a solution to rising fraud, according to CEO Henry Wirz. Wirz said the CU sees a shift coming in payments, away from cards and to smartphones. "We believe that EMV will quickly be outdated," he said. "There may be better fraud protection with a smartphone application that allows members to use their phone to make debit and credit purchases. We think that the card as a purchase device may be at the end of its life and that the smartphone will be the next innovation for purchases."
Chad Burney, chief information officer and SVP of virtual banking at the $1.6 billion GTE Financial in Tampa, Fla., acknowledges that fingerprint scanning to authenticate the account holder, or to make the payment "sounds nice." "My opinion is that interest here is picking up because of the new iPhone, but I don't think biometrics will be widely accepted by consumers," Burney said. "I have a lot of tech-savvy friends who have biometric scanners on their laptops and they never use them. Plus, I think biometrics brings up other issues — if your password to a device is compromised, you get a new password. What happens if your fingerprint is compromised?"
One company that has already piloted a biometric, fingerprint-scanning payment device is Mountain View, Calif.-based PayTango, which launched a system last year at Carnegie Mellon University in Pittsburgh. "We believe this is a much more natural payments model. It identifies who you are, as opposed to what you carry," said co-founder Brian Groudan.
Norm Patrick, director of debit consulting at Advisors Plus, a division of PSCU, St. Petersburg, Fla., agreed that biometrics is a payments option worth watching.
Because of its convenience, a fingerprint scan could eventually have greater consumer appeal than plastic and even mobile payments, according to Patrick, as many experts have argued that paying by phone, today, is not much more convenient than pulling out plastic.
"What's easier — pulling out your wallet, your phone or using your finger?" said Patrick, who feels biometrics is more secure than EMV. "I don't think criminals have figured out a foolproof way to hack fingerprints."
No Consensus — Yet
Michael Poulos, CEO at Lathrup Village-based Michigan First CU, said his $670 million CU has talked a lot about biometrics but has not reached a consensus on the technology's acceptance yet.
"We are not as familiar with retinal and iris scanning as we are with fingerprints, but the issue comes down to convenience and error rates," said Poulos. "Using fingerprints is fairly easy, but the error rate is way too high for us. I believe statistically it is one error for every 500 swipes. We have attempted to utilize it internally for PC logins, but we have a fair number of team members that cannot get their fingerprints to read, unless we use very expensive scanners. We don't think the mass market is ready to embrace any of this yet."
But Jim Tobin, SVP and general manager, digital channels, at Fiserv, Brookfield, Wis., said biometric authentication use with banking makes a lot of sense. "Adding a fingerprint scan to increase veracity of authentication is a natural trend."
With PayTango's device, students first tapped their middle and index fingers to a sensor on a PayTango POS terminal, and then swiped the card to be associated with their biometric information. No card is needed afterward. PayTango terminals also have a magnetic stripe reader.
Groudan said the pilot at Carnegie Mellon had the company's terminals — which he said cost about the same as a standard POS terminal — in six areas of the school, including the student dining hall.
He noted that PayTango is a good fit with colleges, since students on meal plans are often known to share meal cards. "Our system prevents that from happening."
PayTango was tested in a university first, said Groudan, because the company's founders were Carnegie Mellon grads, and since young adults tend to be more receptive to biometrics.
Groudan sees a natural expansion of biometric payments into places where people don't like to carry cards, like the gym and water or amusement parks. "But we think the appeal will grow quickly as consumers and merchants learn more about it. We see this being used in many merchant locations."
Could iPhone 5S Increase Acceptance?
What could increase acceptance of biometric payments, according to sources, is the iPhone 5S fingerprint sensor. "That shows the market is ready for this," said Groudan.
PayTango is not the first company to make a foray into biometric payments. In 2006, the San Francisco-based Pay By Touch, which had acquired BioPay, enabled consumers to pay for goods and services with a swipe of their finger on a biometric sensor. But the company shut down in 2008.
"I am not certain what led to their demise," said Patrick. "But the financial crisis certainly did not help, and today, I think consumers are more open to this technology. Pay By Touch had some contracts with supermarket chains, and that initial barrier of using biometrics for payments has been broken."
Aite's Inscoe agrees, saying consumers are beginning to leave fears behind about using biometrics as the authentication method becomes more commonplace — used for employee access to work facilities, access to PCs and phones and to ID players for sophisticated online video games.
"A huge roadblock to biometrics has been removed," Inscoe observed. "We are really seeing a change in younger consumers' acceptance of biometrics, and older people as well. They are concerned about fraud and want to be protected."
PayTango's Groudan said his company has not completed studies on the potential for biometric payments to reduce fraud losses when compared with chip cards or even mobile. Patrick pointed out that while biometric payments are more secure than chip cards, which despite being very difficult to hack have been compromised, PayTango is not foolproof. "What if someone steals your credit card and then goes to the bio reader, taps their fingertips and swipes your card? Now their biometric data is attached to your card," noted Patrick.
Ultimately, as is the case with any new payments system, consumer and merchant acceptance lead the way, reminded Patrick. "PayTango also has to satisfy all of the people in the payments ecosystem — it will have to prove to merchants it lowers their costs and drives more traffic, consumers will have to feel more safe and secure and that it's better than what they use today. With FIs, they will want to know what's in it for them."
Tobin predicts biometric authentication methods will vary based on the device used. "For payments, if a scanner or reader is present, fingerprints work," he offered. "With Google Glass it might be iris recognition, which could work with phones and their cameras, as well. When we get more powerful microphones, possibly with Google Glass, it could be voice recognition. The need for greater security, and convenience, will drive a lot of innovation."
