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Rik Coeckelbergs

Rik Coeckelbergs - Clear2Pay

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Innovation in Financial Services

Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

Market Opportunities on Biometric Payments?

14 May 2010  |  5800 views  |  0

As I stated in my last blog I was going to elaborate a bit more on the market opportunities of Biometric Payments these days. Through a couple of recent examples I hope to give you a better idea on how and where Biometric Payments can be a succes and what the pitfalls currently are in a business case on Biometric Payments.

Last time I gave the example of South Africa and Colombia where biometrics are used to help illiterate people to make transactions and to make it possible for them to better participate in the daily life. In Colombia biometrics in payments was used to reduce cash in the coffee beans business many farmer don’t know how to write their PIN-code so instead to a code they just use fingerprints. In South Africa however, biometrics seems to be just as common as fish and chips in England. And in that sense it is for them also a facilitator for a better customer service without scaring them to interrupt their privacy.

Another developing country where they are testing on biometric payments is Nepal, the argument that pushed the project was the illiterate population as well. Once again it is customer service as the main trigger. In these examples the biometric data are used as an authentication mechanism rather then an identifier.

In the States there was Wall Mart and other grocery stores who invested in biometrics to facilitate a higher speed in servicing their customers. Biometric started to grow there thanks to Pay-by-Touch, which got bankrupt and other biometric payment providers, like Indivos Inc. for example, took over the business.

In India there is also biometric payments business, where the focus is again micro payments, where all fingerprints are stored locally and authentication happens offline. There have been online examples as well, but that seemed harder to deal with, especially if all 10 fingerprints have to be authenticated (long processing time). Age of people and cold weather are another problem, because that makes it harder to read the fingerprints. That is of course the problem if you have no ‘black or white’. I suppose after a long bath with hot water you’ll see the same thing, when you get these wrinkled fingers.

Someone else gave the example of M-Pos in Mexico, which was also about micro payments. This is possible as long as the database is not too big, like Stephen Wilson explained in a comment. If there is no card present, you have a one-to-many matching and that takes long for processing the identification, but increases the risk of a wrong identification as well.

In Europe, payments provider Equens has been testing on biometric payments. Fingerprints were used as an identification method, to make it customers more convenient to go shopping in Albert Heijn supermarkets, which partnered with Equens. Customers seemed to be happy about it, especially the elder ones, because they didn’t have to remember their PIN. But Equens confessed as well that you need to combine several biometric technologies to make the system work. Otherwise the chances to failure are too big. According to the White Paper that is available on their website they still seem to be confident in this new technology though.

Another example is Voicecash, a mobile payments provider based on voice recognition. The idea is that they deliver voice authentication on mobile payments. The central idea is: ‘how can we make it customers even easier to make payments?’. Customers can make payments, which they authenticate through their voice (technology for which they co-operate with Voice Trust). A customer has to say his name and a speech recognition system compares that with the stored voice profile of this customer.

Voice Commerce is another example that makes business based on voice recognition. Voice Commerce is by the way one of the first Payment Institutions that got fully authorised to perform payment services from the Financial Services Authority under the Payments Service Directive. Next to that they also got recognition from Visa Europe, by becoming the first UK Payment Institution to be accepted as a Principal Member of Visa Europe, which means they can grow their business as a payments acquirer.

This week the Polish bank BPS announced its entrance in the biometric payments segment, using 3D-fingervein authentication of which they say it is a unique pattern. They must believe in the project since they plan to install about 200 ATMs the coming years using this technology.

Why would you invest again?

Customer Service is the main driver! If it is not for the illiterate, then it is for the elder or the lazy ones (who don’t want to remember any PINs). You do not need any PIN and just use you finger, voice or even your face (in case of face authentication).

For the retailer the main driver is a faster processing time of a customer. Instead of giving in a PIN code (or even a card), a customer just wipes a finger over the reader and it’s done, they can start servicing the next customer! There will be less cash in the store, which makes it safer to do business as well.

One of the pitfalls is that the technology doesn’t seem to go up. It is there for years and years and it seems only a success in some regions, so the question is: how are we going to convince the market (customers, retailers of payments providers) of the possible merits of this technology?

For years now scientists are working on biometrics and it is still not as safe as a card and PIN, just because biometric payments are not exact science: a fingerprint is for example different if you have taken a bath for a long time, or if you have grown old... fingerprints or not unique either I heard.

Another problem is that biometric payments demand a higher interchange rate, in case it is purely used as a replacement of a card. Reason: the payments method is a cards-not-present. And what can you say about that? Indeed, without a card, at least in case of micro payments and when the biometrics are used as an identification method, and not as authentication of a card. But this is only when implemented in supermarkets, grocery stores and fast food chains f.e.

Customers might be scared off by the fact that their fingerprints, face or irises are stored in a database, so biometric payments might need a mentality shift. One way to convince customers of course is to step up for the biometric payments technology is loyalty. But again, this is only in case of grocery stores, supermarkets, fast food chains etc. where the technology is used to speed up customers services (time is money of course) 

One last thing is the legal aspect if you want to start a biometric payments case: in Europe for example you don’t need approval from Europe as a legal entity but from every single country. That makes it of course far less attractive to start such a business in the Old Continent, in favour of the New Continents!

So is there a business case? I think there is, but you need to take a lot of elements into account to make it a success, and maybe it is not the right time yet in the developed world. Or maybe it should be combined with other technologies like mobile payments (with their cameras) to make it a success. Because, as Stephen commented in my previous post, biometrics is a less exact science than most of us think.. at least at the moment.

I got this post thanks to the contributions of Ketharaman Swaminathan, Steven Murdoch, Stephen WilsonRobert ReutimanRemco BoerJohn GrimesRalf Garland, Kishalay Thakur , Peter Horrell, AAPJames Van Dyke , Ashis SharmaKaran Sharmakunle akinrinlola , Frank S. Pierce, APR, PDM , Jon Shore , Brent SmithDarshan Mandrekar

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job title Management Consultant Payments
location Brussels
member since 2010
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As a Management Consultant I support Senior Management of Financial Institutions and Financial Departments of Corporates in developing or reviewing a strategy or tactical solutions in their payment bu...

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