Did Radio (Waves) Kill The Biometric Star?
Written by Evan SchumanIn another unintended consequence example, contactless payment and mobile payment efforts seem to have stunted the growth of retail biometrics. Is this a marketing fault or the death of an idea that never had much of a chance?
A few years ago, retail biometrics had what seemed to be a very bright future.
They promised superior security and a permanent CRM association. If that customer switched credit cards, moved to another state, changed their name and changed cellphone companies, the fingerprint would still allow all purchases to be associated with an individual customer.
But in making its case to retail managers, biometric vendors?particularly market leader Pay By Touch (which had the distinction of having purchased the infamous CardSystems, of data breach fame)?didn’t stress security or CRM. Marketers opted to focus on biometrics as the world’s coolest line-buster.
Their argument was that retailers could do without the delay of customers reaching into their wallets or purses to pull out and swipe a credit card. Instead, a customer would simply scan their finger and they’d be authenticated and associated with whatever credit card they had on file.
But things started to unravel. Some well-publicized retail deployments?such as the Piggly-Wiggly grocery chain–began to feel the pain of consumer resistance.
There were other setbacks for the biometric folk, such as their having settled on fingerprinting, the least accurate of the major biometric methods, although it was the cheapest and a method that some argued would be seen as less intrusive than retinal scans, voice print or face shape.
But the biggest problem turned out to be the one few anticipated. The surprisingly rapid acceptance of contactless payment credit cards essentially usurped the speed/convenience argument away from the biometric people. Current contactless payment devices are almost as fast as a finger swipe and next-generation longer-range versions expected next year could easily be even faster.
Mobile payments also added to the biometric problem, although the mobile payment approach of an RFID chip embedded inside a phone really turns that phone into a contactless credit card with ringtones.
The biometric folk can’t easily go back now and start touting security, CRM or any of their other advantages. Biometrics still has a very robust future in many verticals outside of retail. Indeed, even within retail but outside payments (think timecards, approvals and shipment acceptance).
Biometric retail marketing is an awkward position because they chose to tout an advantage that they couldn’t?no pun intended?secure. It’s somewhat reminiscent of how early RFID marketing has made life much more difficult for today’s salespeople trying to sell RFID into retailers and manufacturers.
There’s a lot of retail IT talk today about RFID trials failing. But for many of those trials that are supposedly “failing,” the chipsets are performing fine but they are being tested for the wrong things. When tested more realistically, even the classic low read-rates are sharply improving.
But retail is only testing RFID based on what RFID vendors touted, in terms of ROI and efficiency. Remember the arguments against the mainframe in the early 90s? The mainframe did quite a few things better than anything else, but it was being unfairly compared against machines that were designed for entirely different functions.
Was chatting with IHL President Greg Buzek on Thursday about some industry trends and we started talking about biometrics. Buzek said he never thought that would fly, but because consumers wouldn’t accept them. After having been conditioned by television and movies that fingerprinting is what happens to criminals when they’re arrested, he simply didn’t see it getting mainstream consumer acceptance.
Ironically, my family had just returned this week from a 10-day vacation to Disneyworld in Orlando, Fla. (Note: If you’re seeking a relaxing vacation to recharge your batteries, I can now counsel you that going to Disneyworld with a 9-year-old in August with a 109-degree heat index is not one of your better choices.)
I mention Disneyworld because they’ve been using fingerprint biometrics at the entrances to all of their parks and I was impressed by how well it worked. (Yes, I tried to trick the machine. It caught me.) Was even more impressed with how willingly consumers from around the world submitted to the biometric frisk.
Does this mean that consumers will accept biometrics more willingly than we thought, I asked Buzek. Nope, he said. Disney is an extreme exception, having spent decades building up consumer trust levels in the Walter Cronkite neighborhood.
Supermarkets, he said, are simply not going to ever get that. True enough, although in fairness, Disney will never sell me a TV dinner.
This all gets back to expectations and how powerfully marketing sets them. And with both biometrics and RFID, those initial expectations are dictating success and failures in remarkably inflexible ways.
Question for vendor marketing execs: When you’re deciding capabilities to tout, do you project what alternatives will likely tout four years down the road and think about likely trial requirements? Or do you focus on what’s going to sound best on a PowerPoint slide and in a brochure? Sadly, I think we both know the answer.
-Marc
September 7th, 2007 at 12:23 pm
Interesting story but one key point was overlooked: Visa and MasterCard’s refusal to create a biometric interchange rate that reflects the consumer present and low risk nature of biometric payments. It is a tough sell getting retailers in a slim margin industry like grocery to embrace paying the card not present interchange rate. In the current climate of PCI security and data protection one would think the card associations would embrace this technology as another tool in thwarting data thieves and provide incentive for biometric adoption.
They have not.
It is not that the Associations have an aversion to overcomplicating interchange, the last time I counted there were 298 interchange classifications with additional ones released like clockwork two times a year. 298 but they cannot create one for biometrics.
Why? The only reasons I can figure:
1) The substantial investment they made RFID which is a competing technology.
2) The potential to drive many of these transactions away from branded debit cards to ACH transactions which is a competing and cheaper payment method.
3) Protection of brand identity. Visa and MC want people to look for their logos not Pay By Touch’s.
I know little about anti-trust law but I would be interested to see what would have happen if PBT ever decided to pursue anti-trust litigation against the card assocations.
September 7th, 2007 at 12:50 pm
Another reader saw this story and wanted to post a comment, but was traveling and he asked that I post it on his behalf. I am now doing so:
I enjoyed reading your article about biometrics. I couldn’t agree with you more. The unfortunate thing is that investors put over $280 million into Pay By Touch which is now hurting other promising companies in the biometrics market because of its apparent failure. I do want to let you know that our first product, a joint product with Master Lock, called the Master Lock smartTOUCH garage door opener will go on sale through the Home Depot in 3 weeks. The HD ordered over 40,000 units and is rolling out the product nationally in October.
We have always taken the position that once consumers have had time to play with, understand, and get use to this technology, other forms of biometric usage, such as “retail biometrics†could have a chance of greater acceptability. I though Pay By Touch was about 5 years too early. Good thing for us is that we will have 40,000 installations in homes by the end of the year. At that time, the biometrics market can better gauge consumer usage and acceptance of the technology.
Anyway, I enjoy reading your articles.
Mark R. Basile
Chief Executive Officer
BioMetrx
September 7th, 2007 at 2:43 pm
I would like to make one slight correction from Mr. Burek’s quote:
‘Supermarkets, he said, are simply not going to ever get that. True enough, although in fairness, Disney will never sell me a TV dinner.’
Kroger’s sells Disney braded frozen products:
July 25, 2006 Kroger Press Release
Favorite Disney characters are making their way onto Kroger store shelves nationwide this month. The Kroger Co. (NYSE: KR) and Disney Consumer Products (NYSE: DIS) today announced an exclusive new line of Disney Magic Selections-branded products featuring Disney and Disney·Pixar characters on competitively-priced food, health and beauty items. The first products to launch include a food line offering healthy alternatives. Baby and toddler products, personal care and floral items will launch in 2007.
Thanks,
Tim McAdams
SUPERVALU
September 7th, 2007 at 3:51 pm
The truth is, in February, of 2007, research conducted on behalf of Unisys, by the Ponemom Institute concluded: “an even greater percent of U.S. consumers (69 percent) and U.K. consumers (92 percent) would prefer that banks, credit card companies, healthcare providers and government organizations adopt biometric technologies, as compared to other protection measures such as smart card readers, security tokens or passwords/PINs, to safely and quickly verify personal identities.”
Here are the facts: The main benefit of Pay By Touch is NOT speed and convenience, albeit, that is a benefit. It is NOT increased security, although that certainly is a hot-button with consumers.
It IS the reduction of transaction fees. Fees that the merchants/ retailers can keep as profit from their hard work. Profit that is being taken by V/MC.
Use, as a prime example, gas stations. A Visa interchange rate of 2% +.10 cents, on a 20 gallon fill-up equates to .90 cents. (When gas was $2.00 a gallon)
However, at $3.00 a gallon, the same 20 gallon fill-up today, costs $1.30. Using .10 cents a gallon profit margin, that’s about 65% of the profit, up from 45%…without V/MC doing ANYTHING except benefiting from their rates.
I think the first comment by David is on target regarding the “card not present” fees. A card not present rate is riskier, thus costs more to process. Therefore, if the rate is based on risk, how can a biometric transaction, which is inherently “more secure” than a “card present” situation, cost more to process than a “card present” transaction?
I believe he’s also right about the potential collusion/anti-trust lawsuit by Pay By Touch against V/MC. He might not know a lot about anti-trust law, but history tells us that Visa and MasterCard have been found guilty more than a couple of times.
V/MC aren’t Rocky or Rocky II when it comes to those fights. They lost the original fight, to Walmart/Sears, over debit card fees, then they lost the appeal. Then it became Rocky 3 Billion dollars in settlements. Then they lost the Rocky 4 fight with the Discover/AMEX lawsuit and didn’t even make Rocky 5 when they had their appeal denied.
It’s interesting to note that Discover was one of Pay By Touch’s first strategic partners. And their most recent is Citibank.
At the end of the day, the contactless cards can lost, stolen or misplaced. And, no, a severed finger won’t work with Pay By Touch.
September 7th, 2007 at 4:25 pm
Pay By Touch took in well over $280M…by my last count…but to their credit 2 years ago started running away from biometrics and buying into loyalty, buying Catalina loyalty systems for one and laying down coupon kiosks….Sooooo…Pay By Touch might make it through all this but change their name to PBT and all could be forgotten