LET YOUR FINGER DO THE PAYING 2004-04-12 (2)

AMANDA WEEKES / Additional reporting: Dara Boyko / John Dawson

Biometrics is one of those technologies that got a huge boost from an awful event -- Sept. 11.

The resulting need for heightened security in virtually every walk of life has turned biometrics -- which uses a physical attribute such as a fingerprint, face, hand, voice or iris as a unique identifier of an individual -- into a billion-dollar industry. According to the International Biometric Group, New York, total biometric revenues will grow from $719 million in 2003 to $1.2 billion this year and will reach $4.6 billion by 2008.

Suddenly, biometrics is being applied to everything from passports and identity cards containing facial biometric data to cell phones that convert fingerprints into digital images.

In retailing, biometric fingerprint systems have been growing as a way to process paychecks and, to a lesser extent, to process transactions at the point of sale. The POS application, pioneered over the past few years by Kroger Co., Cincinnati, and a one-store independent, West Seattle Thriftway, may be starting to catch on. Certainly the technology got a significant boost by the recent announcement by Piggly Wiggly Carolina, Charleston, S.C., that all 116 of its stores in South Carolina and Georgia are expected to offer biometrics at the POS by the end of this year.

Biometrics is not the only new technology to visit the checkout lane. Radio frequency identification systems that allow shoppers to wave a key fob in front of a reader to check out are starting to be tested (see story, Page 42). Smart cards embedded with a microchip, though popular in Europe, continue to have a hard time catching on in the U.S., as evidenced by Minneapolis-based Target's recent cancellation of a smart credit card program.

The most convenient of these technologies may be biometrics. At the POS, fingerprint-based programs allow customers the option of paying without having to swipe, write or count anything.

Customers sign up for the program in-store initially by selecting their preferred payment option and having their fingerprint scanned. Their fingerprint is then stored in the system, along with their debit, credit and loyalty card information.

After registration, customers pay by having their finger scanned at the register and entering a personal identification code for speedier processing. The code, which can be a phone number or address, does not have to be secret, since it only works when the fingerprint is available. According to biometrics software companies, instead of storing an image of the fingerprint, the scanner reads a set of data points.

A customer is then able to use fingerprint payment at any retailer that uses the same biometrics software system. The initial registration is the only time that identification must be used.

In its biometrics rollout, Piggly Wiggly is partnering with Pay By Touch, San Francisco, to add biometric scanners at its registers. The first stage of the rollout will take place this July in four stores. All checkout lanes will offer consumers the option of fingerprint payment through the account of their choice.

"We're confident that our customers will embrace this faster, safer way to pay in our stores," said David Schools, senior vice president of Piggly Wiggly Carolina, in a statement.

Rita Postell, manager of community and employee relations for Piggly Wiggly, said the technology helps make the chain and consumers more secure. "[The chain] knows that they are who they say they are, and they know that no one else can access their bank account except them," she said.

Postell hopes the technology will give the stores a competitive edge since they will be the first to offer it. "We are looking forward to embracing it," she said. "We have come such a long way with technology. With each advance it has become more user-friendly, and that's what we are all looking for -- convenience and security."

That's the view expressed by biometrics vendor executives like Frank Pierce, senior vice president, financial services for Ultra-Scan, Amherst, N.Y. "People are always looking for speed, ease and convenience, which biometrics promises to do," said Pierce.

On the security side, he added, "people are willing to use biometrics to protect their accounts, to protect their identity. It's a technology that can accurately identify somebody, but you can still be relatively anonymous. You don't have to necessarily show a photo or account information. So that quest for security and privacy at the same time is what is driving things."

So far, every retailer and software company has reported that consumer acceptance has been going well. Retailers have reported up to a 75% consumer adoption of the technology and checkout lines moving 33% faster, according to research by Pay by Touch. West Seattle Thriftway uses Pay By Touch systems at 13 of its front ends and has conducted more than 200,000 transactions using the system over the past two years. The store has more than 3,000 customers enrolled in the biometrics program.

"It allows them to shop without carrying their wallets and purses," said store owner Paul Kapioski. "It's something different and unique to our store." Consumers have found the system an easy technology to learn and have received it well, he added.

Currently, West Seattle Thriftway does not allow checking account payments to be processed through Pay by Touch, but expects that feature to be added within a few weeks. European retailers have never been keen on biometrics, relying on the "Chip and PIN" approach (a smart chip plus a personal identification number) for card security. However, in the U.K., one U.K. retailer will shortly move in the direction of biometrics.

That retailer, the Oxford, Swindon and Gloucester Co-operative, has decided, in collaboration with self-checkout supplier Optimal Robotics, Montreal, to try fingerprint scanning, as well as Chip and PIN, as part of its self-checkout strategy.

The co-op has 86 food stores in the west of England, as well as other businesses.

The project is at the trial stage and Bill Laird, retail general manager, emphasized that the program will be voluntary. Customers will be invited to enroll by having their fingerprints read, their credit and debit cards swiped and their PINs registered.

The initial installation will be in Oxford's Summertown store, an affluent suburb with a high student population. Oxford also claims the highest number of self-checkout registers per head in the United Kingdom.

In addition to speeding up sales transactions, the co-op's system is designed to take pressure off the staff from having to demand age verification for purchases of alcohol and other restricted substances.

Hurdles to Overcome

Biometric technology still faces some hurdles, particularly consumer concerns about privacy.

Finger scan records are generally kept in databases maintained by system vendors, who all say the records are held in strict confidence. Moreover, the vendors argue that biometrics can protect privacy rather than undermine it.

"When a consumer writes a check, that check is handled by up to seven different people, on average," said Robyn Porter, communications manager, BioPay, a biometrics company based in Herndon, Va. "That's seven strangers who have easy access to a person's name, address, phone number and [in some states] social security number, everything that's needed to commit identity theft." Consumer awareness of this has made them very open to more secure technology, Porter said.

Cost is also an issue for retailers to consider. Pay By Touch states that the immediate cost of the technology and training is offset by the reduction in fraud and checkout time. In the initial test pilots, retailers were not asked to make an investment in the technology, but an additional charge was added per transaction. Typically, the additional charge is between 5 and 10 cents.

The hardware itself is inexpensive as well, according to Caroline McNally, chief marketing officer, Pay by Touch. "The hardware cost is minimal and differs from merchant to merchant. To give you an idea, a minor software integration is required, and the scanners, for instance, are less than $100 each."

Retailers can also customize their system so that paying by credit card, the most expensive choice for retailers, comes up last on the screen. Non-credit card transactions save the retailer 50 to 75 cents per transaction, so even with its transaction fee, biometrics can save retailers money, according to Kapioski.

BioPay reports that its bCheck biometric payment service, which uses low-cost ACH electronic check processing, is 75% less expensive than credit or off-line debit transactions.

"Return on investment comes in many ways," said Porter. "Word-of-mouth is by far one of the best. People like the convenience of biometrics and are telling their friends and family about the ease of use and are encouraging them to try these merchants. Also, in many instances, merchants are reporting that fraud is being wiped out from the business, and that is increasing the bottom line."

Biometrics has other uses besides payment. For example, Bi-Lo Supermarkets, Greenville, S.C., uses BioPay's Paycheck Secure, a check-cashing system that requires customers who cash payroll checks to register by scanning their fingerprint and entering their checking account information. After registration customers can cash checks by scanning their fingerprint at the service area; no additional identification is required.

Since last November, close to 40,000 Bi-Lo customers have registered in the system, and 100,000 transactions, worth more than $21 million, have taken place. The system has reduced fraud by 60% at Bi-Lo, according to BioPay. "Our expectations have been met ... and exceeded," said James Wiles, Bi-Lo loss prevention director, in a statement. "In a short period, BioPay and Paycheck Secure have delivered on reducing fraudulent check losses, and you can't ask for better than that."

Paying With RFID

Radio frequency identification is better known in retailing for the pallet-tracking application that Wal-Mart is asking its top suppliers to use by January. But in the consumer world, RFID is the underpinning of such payment applications as the E-Z Pass toll system on the highways and the Exxon Mobile Speedpass key fob payment system for gasoline.

Stop & Shop, Quincy, Mass., recently launched a program in Boston that allows consumers to pay for their groceries using their Exxon Mobile Speedpass key fob.

Now some new RFID payment applications are emerging. For example, American Express, New York, is testing its RFID technology, ExpressPay, in Phoenix, New York and Singapore.

The ExpressPay system also consists of a small fob, usually attached to a key chain, that the consumer waves in front of an RFID reader at the checkout. The reader is often attached to the point-of-sale reader terminal used for credit and debit cards. The data is then submitted through the existing credit card network used for magnetic-strip credit card transactions.

"The beauty of ExpressPay is that the technology is occurring primarily between the fob and the ExpressPay reader," said Tony Mitchell, American Express vice president, corporate and financial public relations. "So it takes no implementation or back-end changes, or the type of changes that can be both costly and cumbersome and has tripped up other technologies." When the pilot began, 175 merchants signed up. Currently, over 400 merchants in the Phoenix area are participating, including Kroger and CVS. Customers have two billing options: They can link the technology to their American Express Card and charge up to $150 per day, or they can pre-pay up to $600 a month using an alternative credit card or debit account.

Research conducted during the test pilots showed that ExpressPay is 53% faster than credit and debit transactions, and 63% faster than cash.

Texas Instruments, Dallas, the hardware provider for ExpressPay and Speedpass, reports that MasterCard and Visa are testing RFID programs.

"I think this technology is catching on in markets where speed of transaction and convenience for the consumer is very important," said V.C. Kumar, strategy manager for wireless commerce, Texas Instruments.

AMANDA WEEKES