16 July 2018
James Stickland

Biometrics and Banking

James Stickland - Veridium

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Biometrics Swiftly Becoming the Global Standard for Payments

12 February 2018  |  7499 views  |  2

We’re all aware of how readily available biometrics are by this point. If you aren’t approving that purchase of a cup of coffee you just made with Face ID you probably unlocked your smartphone with a fingerprint, or use that fingerprint to log into your banking app. But consumers aren’t the only ones with their eye on biometrics as a convenient way to secure access to the things they consider important. Many financial institutions and governments have already embraced biometric authentication as the standard for verifying the identity of customers opening accounts, requesting services, and making payments.

And we’re not just talking about purchasing cups of coffee either.

Goodbye Chip & PIN

It seems like just a year ago that we were heralding the benefits of Chip & PIN for securing our card-based transactions. But by the end of 2017, we saw statistics that financial fraud has actually risen since this technology was introduced in some areas. And now, some nations like India and China are already moving away from Chip & PIN in favor of mobile biometric authentication.

How this works is, whenever you may a purchase, your card issuer can send a push notification to your smartphone requesting authentication. You scan your fingerprint, face, or whichever biometric you prefer, and it’s authenticated. This works seamlessly when using a mobile wallet, but seems trickier when using a card to make a purchase. It requires a POS system update and a robust back-end to communicate quickly with the shopper’s device and back. And yet, in India the view is every payment should be mobile authenticated by the end of next year.

Both the ease with which purchases can be made with mobile wallets and the requirement to upgrade POS systems to continue supporting purchases made with cards highlight a key opportunity here to eliminate the need for plastic entirely.

India Leading the Way for Mobile Payments

India is setting a star example for proximity mobile payments currently, with 30 percent of smartphone users expected to pay for goods with their smartphone, rather than a card, in 2018. This, combined with the push to embrace QR codes as the primary mode for digital payments, is expected to drive the Indian digital payments industry to grow to $500 billion USD by 2020. The Indian government is furthering these efforts by creating a policy environment to make digital transactions easier, issuing licenses for payments banks that will help fintech firms launch digital wallets and digital-only banking services.

Paired with the Aadhaar project, this trend puts India at the forefront of secure biometric authenticated mobile payments.

China Moving Beyond Cash & Cards

What India is beginning to do, however, urban China has already accomplished. Walking through shops or dining out, staff will ask if you’re paying with WeChat or Alipay before they even mention cash or cards. Mobile payments and digital wallets have become a way of life in China, driven by availability of technology. Even street musicians can be seen with QR codes for those passing by to scan and give them a tip.

In fact, the two companies driving the majority of mobile payments in China, Ant Financial (Alipay) and Tencent (WeChat), are expected to surpass Visa and MasterCard in total global transactions this year.

The massive abandonment of cash and cards throughout urban China has put the Chinese on the cutting-edge of mobile payments and biometric authentication isn’t far behind. Alipay users authenticate payments with facial recognition, and WeChat uses fingerprints.

Europe Isn’t Far Behind

The trend isn’t isolated to Asian countries either. Sweden has been leading the mobile payment revolution as well, reported to be leading the race to being a “cashless society” as far back as 2015. Unsurprising, as Sweden was also the first European nation to introduce bank notes.

The nation has been driving the migration to cards, and now mobile payments for years, eliminating cash from shopping, public transit, and more. In fact, the majority of banks in Sweden simply stopped keeping cash on hand or accepting cash deposits, as there was no demand for it. This is in part because the banks have teamed up to provide Swede’s with mobile payments in a joint app called Swish. Since, over half the Swedish population has adopted the app, many using it exclusively.

Of course, the technology that’s helping drive adoption and secure payments – biometrics.

But Where’s the United States?

The one question we should be asking in all of this is where is the United States? The US was slow to embrace Chip & PIN, so perhaps it shouldn’t be a surprise that it’s only now adopting it as other nations are already replacing it with mobile payments authenticated with biometrics. Why, though, has the US been so hellbent on remaining behind the times? It isn’t regulatory – the EU has already begun adopting strong regulations to protect consumer privacy that the US could adapt for its own needs. Perhaps it’s because other financial challenges, such as reducing money laundering, come first? Or perhaps it’s a mistrust in the technology that has been key to securing this trend in other nations – biometrics.

As the mobile payments wave continues to sweep from east to west, the United States might just be the last bastion of cash and plastic payments, but luckily, the rest of the world is already setting global standards for adoption, deployment, security, and privacy that the US will be able to adapt and, hopefully, improve upon.

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Comments: (3)

Paul Love
Paul Love - Open Payments Cloud - Nottingham 13 February, 2018, 12:40

In Europe, I don’t see the demise of Chip and PIN for face to face retail transactions any time soon. Contatless and High-Value contactless such as ApplePay and AndroidPay will continue to grow, but they are effectively working as proxy cards in an EMV acceptance network.

Requiring a customer to interact with a working, charged and connected smartphone (with actual coverage or logged into a stores wifi) at a point of sale introduces way to much friction into the buying process, and risks the prospect of introducing cart abandonment into physical stores.

An off-line (from a customer perspective) capable solution is the only practical alternative to carrying cash.

I see the biggest growth area for the biometric approach you describe as ecommerce / CNP transactions where there still is no simple and universal solution that is both secure and convenient. The device connectivity requirements are also overcome as the customer is probably already shopping on their mobile!

 

 

 

 

 

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James Stickland
James Stickland - Veridium - London 14 February, 2018, 14:49

Hi Paul,

Thanks for the comment. We are on the same page with ecommerce being the biggest growth area for frictionless payments. Clearly, shopping for goods and services experience is changing and regions need to react. Using biometrics for payments can enhance the user experience, eliminate fraud, and accelerate transaction speeds without the associated complexity of other deployments. Consumers are beginning to expect more from an in-store shopping experience, and smart regions and markets now have an opportunity to get ahead of the curve.

Secondly, I understand your point of not seeing the demise of chip and PIN in Europe. However, from a global perspective, frictionless payments using biometrics are the future. There is no doubt that people are in support of frictionless payments using biometric-enabled technologies and currencies. While some areas may be adopting quicker, it is the future of payments.

Looking forward, I see cards and biometrics co-existing, and biometric point-of-sale will grow in parallel. The necessity to adapt to this will force many markets into action, and as mobile payments adoption continues to grow around the world, it will hopefully be easier for other regions to utilize and improve upon.

In a world plagued with checkout abandonment and fraud, companies will want to manage these risks – and fast! The solution is the demise of cash and the rise of mobile payments, which create a seamless shopping experience as they allow in-aisle payments and order-ahead functionality. This removes the need to use cash, reducing drop out, and increasing margins. Moreover, mobile apps enable customers to easily pay with a combination of credit, points, and coupons at the touch of a button, ultimately decreasing fraud rates by eliminating the need for customers to use their cards.

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Paul Love
Paul Love - Open Payments Cloud - Nottingham 14 February, 2018, 15:48

Hi James,

Thanks for your kind comments.

Pure biometric payments at POS still look inceadibly had to do in a universal Open Loop style, in the way that cards currently work.

I can see this working in a closed or restricted loop environment, but there is no universal standard and not enough data pointns to provide both the identification and authentication needed for payment.

In the short term I see the alterative for customer present as Token + Biomentric (like Chip and PIN). For eCommerce this is easluily achieved with a smartphone as the token, but we need a standardised universal approach to enable this to scale for customer present transacitions.     

In the short term Zwipe looks to offer a great soltion, once the economics of scale kick in. 

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As CEO of Veridium, James is tasked with driving business revenue and investment growth, as well as leading the company's global go-to-market strategy for its flagship solution, VeridiumID.

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