BIOMETRICS CUTS FEES FOR SEATTLE INDEPENDENT

Christine Blank / Additional reporting by Michael Garry

SEATTLE -- One year after launching a pioneering test of a biometric payment system, a one-store independent here reports that it is using the technology to switch shoppers from credit to less-expensive online debit payments.

West Seattle Thriftway, which has installed biometric fingerprint identification devices at each of its 13 checkout lanes, is processing 20% of its electronic transactions via the technology, according to owner Paul Kapioski. He said the store has signed up 3,000 customers to use the device -- which they activate by merely touching it with their finger -- as a cardless link to debit or credit accounts. About 53,000 biometric payments have been processed in the past year, he said.

Significantly, he told SN last week, by suggesting to shoppers that they use their online debit accounts as the payment vehicle that is linked to the biometric system, "we've moved some people from credit cards to online debit." He declined to reveal the number of people who have switched.

Overall, most of the store's customers who have signed up to use the system have chosen to put a debit card on their account. They can also choose to pay by credit card or offline debit, or have several different credit and other payment cards on the account.

Kapioski also told SN that the biometric system is programmed so that if a consumer selects more than one payment method for biometric processing -- credit or offline debit, as well as online debit -- the online debit option is the first to appear on the checkout screen. Most consumers will simply select the online debit option rather than move on to others, he said.

Debit card processing saves the retailer 50 to 75 cents per transaction, compared to credit card transactions, while adding about 10 cents per transaction for biometric processing, Kapioski said. The processing is handled by Indivos, Oakland, Calif.

Processing fees are one of the store's fastest-growing costs over the past few years, second only to health insurance premiums. "This thing [processing fees] is growing year after year. We've got to do something about driving down this cost," said Kapioski, noting that 70% of the store's transactions are electronic.

Processing fees were at the heart of the lawsuit settled this month with Visa and MasterCard, whereby the organizations agreed to reduce their rates for offline debit processing.

Kapioski, a member of Associated Grocers, Seattle, said other members of Associated are close to testing biometrics at the checkout. As a checkout device, the technology has relatively few supermarket users. Kroger has been running a test in Texas.

Kapioski described the biometric application at the NACHA-Electronic Payments Association's Payments 2003 Conference in Orlando, Fla., April 27 to 30. He will be speaking about it at the end of this month in Chicago for the Chicago Federal Reserve.

In Orlando, Kapioski said the primary reason the store's customers signed up to use the device is that it is a more convenient system than other payment methods. "It is fast, easy and secure. Anytime we can do that for our customers, they're going to reward us with sales," he said.

Only a few shoppers have not signed up because of their concerns about privacy, Kapioski said.

And senior citizens were much more accepting of the new technology than expected. Although the technology has had a few bugs, Kapioski said it has worked well and meshes with the store's current point-of-sale system, from Triversity, Toronto. The store uses biometric sensors (from Ultra-Scan, Amherst, N.Y.), switches and hubs, which were supplied free by the vendors because the store agreed to serve as a test site. The biometric sensors are installed next to VeriFone card readers.