With Solidus Networks Inc., the only major biometric payments company, struggling to avert a financial crisis, observers are pondering anew biometrics' viability in the current retail transaction environment.
Though some say that the whole idea of authorizing purchases through biometrics is flawed, others say the concept is sound but that Solidus has stumbled in trying to realize it.
The San Francisco company has said in recent court filings that it is facing a "severe negative cash burn," owes employees more than $6 million of payroll liabilities, and could face eviction if it cannot pay its rent by month's end. This week, it got approval from a judge to take out a $9 million emergency loan aimed at averting bankruptcy.
Though Solidus, which does business under its trade name Pay By Touch, said its biometric systems are still handling transactions, observers said the company remains in danger of failure, and one questioned the business model's viability.
A Solidus spokeswoman wrote in an e-mail this week: "Business continues as usual. Biometric payment transactions, biometric check cashing transactions, and personalized marketing transactions continue to be processed." The company would not make executives available for interviews.
People who enroll in the Solidus system at participating merchants provide their fingerprint and payment account details; they can then authorize purchases using fingerprint scanners at the point of sale.
The company also offers a loyalty program linked to the biometric system.
Its Web site says the Pay By Touch payment system is available at more than 3,000 retail sites nationwide, and the loyalty program is in use at 11,000 sites; some of these merchants use both. The spokeswoman would not provide any usage data.
Avivah Litan, a vice president and research director at the Stamford, Conn., market research company Gartner Inc., said she was not surprised by Solidus' financial problems. "I predicted this would fail," she said. "I predicted there would not be enough adoption in biometric payments."
Though consumers recognize that biometrics offers strong security, she said that many just do not want to use fingerprints for everyday purchases, as at grocery stores, where Pay By Touch has aimed much of its marketing efforts. "Biometrics … will work in certain high-security situations," she said. "In consumers' interactions with banks it's clearly No. 1, but that's because consumers trust banks."
But grocery stores are not banks, and many people are reluctant to share the same kind of personal details with a grocer that they do with their banks. "A significant number of consumers don't sign up for loyalty programs because they don't want the supermarket tracking them," she noted. "The last thing consumers want to do is give their fingerprint to their grocer."
Gwenn Bezard, a research director at Aite Group LLC in Boston, said that Solidus' problems are tied to mismanagement rather than a lack of consumer interest.
"There is definitely room for the technology," he said, but "the value for consumers is not great" unless it is paired with a loyalty program. Solidus began offering its payment system in 2002 and added its loyalty program, SmartShop, in 2006.
"What they ideally should have had since day one is a focus on loyalty and payments together," he said. "They did not have that. Initially they were focused on payments. Initially they were focused on saving money for merchants. That rarely works" because, without loyalty rewards, there is little incentive for consumers to use the system.
Though he has confidence in the idea of using biometrics to make payments, Mr. Bezard was uncertain whether Solidus will be able to remain in the market, even with the emergency funding. "Nine million dollars is basically going to cover their legal costs, in this day and age," he said. "Nine million is basically what you need to find a buyer and keep the lights on and not shut down the whole company."
The Solidus spokeswoman said the analysts have "fair concern."
"Consumers have a lot of questions, but what we've found is once the questions are answered and they try the system, then they adopt the system," she said, and usage increased after Solidus added its SmartShop loyalty program.
The U.S. Bankruptcy Court for the Central District of California granted Solidus permission Tuesday to borrow $9 million to get back on its feet from some of its past investors.
In a filing Monday, Solidus said the loan would give it time "to consider alternatives to bankruptcy or, at a minimum, to prepare for an orderly bankruptcy proceeding that will maximize value."
In an Oct. 31 filing, four employees tried to drive Solidus into bankruptcy to recover more than $60,000 in unpaid salary.
In court filings, Solidus said that it owes $6,340,000 in payroll to 292 of its 625 employees. It also owes related benefits and employment taxes; its general business insurance is scheduled to be cancelled Sunday; long-distance phone service and Internet access is set to be shut off Friday; and the landlord for one of its San Francisco offices has threatened eviction if rent is not paid by Nov. 30.
The company this last week that the emergency loan would cover some of these liabiliies, expecially some of the past due wages.
Ms. Litan said that some merchants have done a poor job of promoting Solidus' payment system. The grocery chain Piggly Wiggly Carolina Co. began offering Pay By Touch in 2004, and Ms. Litan said that when shopping there last year, she saw the scanner but "no one mentioned it to me. The cashiers weren't marketing it or selling it. It was just sitting there unused."
And being proactive did not help either.
"I even asked the cashier, 'What's this?' " Ms. Litan said. "She goes, 'Nothing.' "
