Investors Feel Good About Pay By Touch

Becky Yerak
Published December 29, 2006

Pay By Touch, the company that enables shoppers to pay through fingerscan verification rather than old-school cash or plastic swiping, continues to attract financing and beef up its management ranks, recently adding a former Home Depot Inc. and Sears, Roebuck and Co. executive to its payroll.

In January 2006 the privately held San Francisco-based company disclosed it had raised $190 million in financing from such investors as hedge funds Plainfield Asset Management LLC and Scout Capital Management LLC during a three-month period.

To date the company has raised more than $300 million in debt and equity financing from both existing and new investors, Pay By Touch President John Morris said in an interview Thursday.

"Things are going great, and we're building the business like mad," he said. "This is one of the rare times where you can deliver a win-win situation to everyone...identity theft prevention for the shopper, better security in terms of fraud for the retailer and increased speed and convenience."

Pay By Touch's patented biometric services enable shoppers to quickly access personal accounts using a finger scan to identify themselves, make purchases and earn rewards.

Rewarding Experience

Two weeks ago the firm purchased S&H Green Stamps, a company founded in 1896, and the first company to introduce the rewards concept. PBT intends to integrate the Green Points program with their personalized marketing division, called SmartShop.

Strategic Partners

Another reason investors feel good about Pay By Touch is because of whom they have been able to develop strategic partnerships with. To date, PBT has formulated strategic partnerships with some of the world's biggest and most respected companies, This impressive list includes IBM, NEC, Citibank, Discover, Microsoft, Accenture, Verifone and UPEK. The relationships are solid. IBM and NEC have installed Pay By Touch sensors in their hardware, Microsoft is using PBT as a payment processing partner with their new Vista operating system, due out next month, and UPEK is certified to enable PBT transactions via biometric sensors in all Lenova (formerly IBM) Thinkpads.

The use of the Pay By Touch fingerscan systems also coincides with the use of other biometrics in financial transactions. After conducting tests for three months, Citibank recently joined forces with Pay By Touch, and invested millions of dollars to introduce the world's first biometric credit card in Singapore.

Impressive Management Team

Pay By Touch's success has enabled it to attract high-profile talent, including former managers from such companies as IBM, Visa, MasterCard, Accenture, and Bank of America.

Joining Pay By Touch in September was John Costello, former executive vice president of merchandising and marketing for Home Depot. Costello filled the new post of president of consumer and retail operations, one of the top three jobs at the company.

Costello reports to John Rogers, Pay By Touch founder, chairman and chief executive. Costello will also serve on the firm's board of directors.

Costello joined Home Depot in November 2002 and was instrumental in the "You can do it, we can help" campaign. He left the home improvement chain in August 2005. Before Home Depot he was chief global marketing officer at Yahoo, and from 1993 to 1998 was senior executive vice president of Hoffman Estates-based Sears, leading its "Softer Side" marketing campaign.

Enrollment Numbers Increasing

In a story in March about the rollout of Pay By Touch in all 204 Jewel and Jewel-Osco stores, the Chicago Tribune reported that nearly 10,000 people had signed up since it was unveiled in January, citing store officials. Asked about enrollment Thursday, Morris would say only "it's tens of thousands, many more than 10,000 Chicagoans who have enrolled." In September, a Chicagoan, Mary Rodriguez, became Pay By Touch's 3 Millionth customer, and was honored at Wrigley Field.

"Chicago is doing great," he said. "We're up double-digits both on enrollments and transactions" percentage-wise since a November promotion in Chicago with a former "Trading Spaces" star.

"We'll have more retailers in Chicagoland in the first quarter," he said, declining to be more specific.

byerak@tribune.com
Copyright © 2006, Chicago Tribune

Merry Christmas and Happy 2007

Pay By Touch on Mission

Joins Technology Office Grab
San Francisco Business Times

One of the largest leases in the city this year...Pay By Touch on Mission

Pay By Touch has agreed to move into 93,000 square feet of office space at 560 Mission St., one of the largest city lease deals of the year and a striking example of the role that technology is playing in San Francisco's office resurgence.

This is one of the last remaining "large chunks" of space available in the South Financial District.

The building, an architectural gem. features a unique bamboo garden, creating both an ambiatic and transcendental atmosphere which can go a long way to woo sum China companies.

The rapidly growing company has signed a letter of intent to absorb floors six, seven, eight and nine of the dark green Cesar Pelli-designed building.

For pictures, click here...

The deal would double the company's space and absorb all of the remaining sublease space that JP Morgan put on the market.

JP Morgan leased the entire building at the time of completion in March of 2000, but has since subleased more than half to other tenants, mostly in the financial service industry.

From San Fran Biz Times

John Costello Interview

John Costello, who recently joined Pay By Touch and currently serves as it's President of Consumer and Retail, and member of the Board of Directors chats with Susan Bratten from WebMaster Radio's DishyMix for an "very" interesting interview.

Anyone interested in learning more about the Hall of Fame marketer's career and insights will be riveted to their chair as Mr. Costello discusses his days at Sears, including the marketing industry's first rock n roll coup de'tat, (the signing of Phil Collins), his careers at Proctor Gamble, Home Depot, Yahoo, AC Nielsen, MVP.com, of course, Pay By Touch,...and why a man who could've had any job in the world, chose Pay By Touch as his next "hobby."

To listen, click here or the title of this post and enjoy a bit of the history behind what makes a marketing guru tick.

_____________________________________________________________________________

About "Mr. John Costello"

John Costello joined Pay By Touch and its Board of Directors in September, 2006.

He brings more than 25 years of general management, retail and technology leadership to his work leading the companys biometric authentication and payment services, and spearheading its new personalized marketing and online businesses. Costello is best known for helping companies manage through high change environments.

Costello has been involved in some of the most visible business turnarounds and been associated with some of the most successful marketing campaigns including "Come See The Softer Side of Sears" and "You Can Do It. We Can Help." at The Home Depot.

He was most recently Executive Vice President of Merchandising and Marketing for The Home Depot, where he held responsibilities for the company's merchandising, marketing, advertising, and visual and store merchandising, public affairs, eCommerce and global sourcing, including the Company's sourcing offices in China and Mexico.

Costello joined The Home Depot in November 2002 as Executive Vice President & Chief Marketing Officer, and was promoted to assume responsibility for merchandising and global sourcing in August 2003. He led a major transformation of the merchandising, marketing, eCommerce and sourcing operations, and worked with the senior leadership team on long-term growth strategies.

Costello joined The Home Depot from Yahoo! where he served as Chief Global Marketing Officer. At Yahoo!, he worked with the CEO and senior leadership team on many of the strategies that are driving Yahoo's growth today. Prior to Yahoo!,

Mr. Costello was President and CEO of MVP.com, the Internet sporting goods and outdoor retailer, which he founded with John Elway, Michael Jordan and Wayne Gretzky.



He also served as President and Chief Operating Officer of Nielsen Marketing Research, USA, where he led a major restructuring of Nielsen's product line, customer service model and technology platform.



Costello served as Senior Executive Vice President of Sears from 1993 to 1998, and was a key member of the team that revitalized Sears with the "Softer Side of Sears" marketing campaign and increased focus on Sears' proprietary brands. He was an early leader of multi-channel retailing, and launched Sears.com and Sears' specialty catalog business to replace the "Big Book". He served as a member of Sears' Executive Committee and on the Board of Directors of Sears Canada.


Costello began his career at Procter & Gamble, where he held a number of senior marketing and brand management positions.





He also served as Senior Vice President of Sales and Marketing at Pepsi-Cola, USA where he became a "front-line soldier" in the cola wars.

A frequent speaker on industry trends, Costello was named one of the 30 Most Influential People in Marketing by Advertising Age, one of the Top 10 Merchants by DSN Retailing Today and was elected to the Retail Marketing Hall of Fame in 1997.

He has sat on the Board of Directors for The Quaker Oats Company (NYSE) and The Bombay Company (NYSE), and the Direct Marketing Association, and is a current director of the American Film Institute (AFI), the Steppenwolf Theatre, and the Georgia Aquarium.

Costello is also a director and past chairman of both The Ad Council and the Association of National Advertisers, and chaired the selection committee for the 2006 inductees into the Advertising Hall of Fame.

J.Stuart Moore Joins PBT Board

Co-Founder, Director and Former Co-Chair and Co-CEO of Sapient Brings 20 Years of Visionary Technology Leadership to Biometric Payment and Personalized Marketing Company

Pay By Touch, the leading provider of biometric authentication, personalized rewards and payment solutions, today announced that J. Stuart Moore, Co-Founder and Director of Sapient, has joined the board of Pay By Touch. Moore brings 20 years of visionary leadership, management and technology industry experience to Pay By Touch, and joins the Pay By Touch board as a part of the company's acquisition of S&H Solutions (S&H).

"Stuart Moore's experience in building innovative technology-based services companies makes him an ideal addition to the Pay By Touch Board of Directors," said John Rogers, Founder, Chairman and CEO of Pay By Touch. "His success in co-founding Sapient -- taking it public, leading it as Co-CEO through years of high-growth and creating significant shareholder value -- will prove invaluable as we continue our own high-growth trajectory and expand into new vertical and global markets."

Moore is a proven technology innovator and one of the visionary industry leaders of the past two decades. He is best known as Co-Founder and Director, and formerly Co-Chairman and Co-CEO, of Sapient Corporation, a premier global consulting firm that helps clients innovate in the areas of marketing, business operations and technology. Moore's focus on innovation, results and value were instrumental in establishing Sapient's reputation for delivering outstanding results for its clients.

Moore is also a founding investor and board member of S&H Solutions - a provider of customer-based loyalty marketing and retail solutions, including its iconic S&H greenpoints® program. With S&H, Moore used his expertise in personalized marketing in the retail environment to play an integral role in the reinvention and successful re-launch the nation's premier loyalty marketing program.

"Pay By Touch is changing the way the world shops with innovative payment and personalized marketing services that deliver convenience, security and savings," said J. Stuart Moore. "I am extremely pleased to join the Pay By Touch board as we bring the loyalty marketing and biometric payment pioneers together. I look forward to working with John Rogers and his team to make this powerful new combination a resounding success."

Moore holds a degree in Computer Science from the University of California at Berkeley.

To view a video presentation on S&H Green Points, click here.

Pay By Touch Buys S&H Green Stamps

Pay By Touch Acquires S&H Solutions/S&H Green Points and its Advanced Promotion Engine to Bring Personalized Marketing Applications to its Popular Biometric Payment Platform

SAN FRANCISCO, CA – (December 6, 2006) – In keeping with its corporate strategy to acquire companies that complement its portfolio and provide future growth opportunities, Pay By Touch today announced that it has acquired S&H Solutions (S&H) and its parent company S&H greenpoints.

Pay By Touch, founded in 2002, sees the deal as a ``perfect fit'' in its plan to use the fingerprint to preclude the need to carry around debit and credit cards, cut merchant costs by processing transactions to sidestep Visa and MasterCard's networks, and steer customized promotions to consumers.

S&H, which dates to 1896, is renowned for its early role in rewarding loyal customers. Generations of grocery shoppers collected Green Stamps at the supermarket, pasted them into books and redeemed them for merchandise. That program has evolved into a digital rewards program called S&H greenpoints.

The two companies previously had teamed up for a pilot program at a grocery store in Rochester, N.Y., where customers pressed their fingers to a reader at a kiosk to receive coupons tailored to their past purchases. Shoppers redeemed 8 to 40 percent of the coupons, vs. the typical rate of less than 1 percent, a spokeswoman said.

The purchase price was in excess of $100 million in cash and stock. S&H Solutions is a leading provider of customer-based loyalty marketing and retail solutions. Many years and more than $200 million dollars have gone into developing the company's real-time marketing technologies, including a highly sophisticated analytical engine that enables retailers to deliver one-to-one consumer messages in-store through multiple proprietary platforms.

"S&H Solutions' unique marketing technologies and advanced promotion engine are years ahead of anything else in the marketplace. We looked at personalized marketing services, and, around the world, none of them even comes close," said John Rogers, Founder, Chairman, and CEO of Pay By Touch.

"S&H's unparalleled solutions and top-tier team make it the perfect strategic fit with Pay By Touch. We are extremely pleased to welcome the S&H team, and look forward to working together to help merchants deliver the right offer to the right shopper at the right time."S&H Solutions' suite of services also includes the S&H greenpoints® Reward Program, the digital reinvention of the Sperry & Hutchinson Company's Green Stamps. The nation's first loyalty marketing program (circa 1896), the S&H greenpoints program rewards millions of consumers with points for every dollar they spend at participating merchants.

"Pay By Touch is the leader in biometric authentication for payments and S&H has built world class loyalty marketing systems," said Ron Pedersen, CEO of S&H Solutions. "Together we will transform the personalized marketing industry by offering unprecedented opportunities for relevance marketing and customization."

In connection with the S&H acquisition, Pay By Touch is also pleased to announce that J. Stuart Moore, a Director of S&H Solutions, will join the Pay By Touch Board of Directors. Mr. Moore is also Co-Founder and Director, and formerly Co-Chairman and Co-CEO, of Sapient Corporation.

About Pay By Touch

Pay By Touch (http://www.paybytouch.com/) is wowing the world one touch at a time as the global leader in biometric authentication, personalized marketing and payment solutions. To date, patented Pay By Touch™ biometric services enable 3.4 million shoppers to quickly and securely access personal accounts using a finger scan to identify themselves, make purchases and cash checks at 2,700 locations nationwide. It also provides robust payment processing solutions for ACH (electronic checking), card-present and card-not-present debit and credit transactions for retail clients. Founded in 2002 and headquartered in San Francisco, Pay By Touch employs 700 professionals and holds more than 50 patents worldwide on secure, convenient and cost-effective transaction solutions.

About S&H Solutions

S&H Solutions is a leading provider of customer-based loyalty marketing and retail solutions. The company provides sophisticated, real-time technology and knowledge that enables retailers to deliver one-to-one messages in-store through multiple proprietary platforms. S&H, Green Stamps, S&H greenpoints, greenpoints and S&H Solutions are registered service marks of The Sperry and Hutchinson Company, Inc. Additional information is available at http://www.shsolutions.com/ and http://www.greenpoints.com/.

ZDNet Asia On Citibank/PBT Partnership

Biometrics' answer to identity verification
By Lynn Tan, ZDNet AsiaTuesday , December 05 2006 05:25 PM

The million-dollar question: How secure is fingerprint authentication?

Those that have implemented the technology, however, emphasize there is little cause for worry.

According to M.N. Rangaraj, senior country operations officer of Citibank Singapore, the Pay By Touch fingerprint authentication system that the bank uses does not capture images of the fingerprint. Citibank launched in November the world's first biometric cardless payment service for credit card transactions.

Instead, the system looks for certain aspects of the ridges on the finger, also known as minutiae points, and encrypts them in numerical format--in a series of numbers that cannot be used to reverse engineer and recreate an image, Rangaraj explained in a phone interview with ZDNet Asia.

To safeguard customers' information, "neither biometric nor financial information is stored at the retail location, and fingerprint [data] is not transmitted back and forth to the point of sale", according to Krista Thomas, vice president of corporate communications at biometric authentication vendor Pay By Touch, in an e-mail interview.

All the encrypted data are stored at "secure IBM data centers, which abide by financial industry security standards", in a completely separate database from all other personally identifiable information--such as name, address, and financial account information, Thomas explained.

"In fact, these IBM servers are located in fortress-like facilities with security guards, bulletproof glass, mantraps, biometrics, video cameras and alarmed doors--like in a scene out of Mission: Impossible," she said.

According to Thomas, Pay By Touch also performs security audits and vulnerability tests with external security experts routinely to ensure security on an ongoing basis.

"Our encryption is better than--the security used to protect your ATM PIN code, which has been seen as the model to strive for in the industry," Thomas said.

According to Thomas, the fingerprint authentication system also helps to deter fraud. Writing checks, for instance, creates multiple opportunities for fraud because it lets "as many as 10 people view the information on a check before it is processed".

In contrast, she explained, the Pay By Touch system does not even let the cashier see a customer's payment information as the data is encrypted. "If you write just five checks in a week, that creates 50 opportunities for fraud," Thomas noted.

Is it foolproof? The biometric system authenticates the transaction by matching the data captured from the user's finger ridges at the point of the transaction to the encrypted data stored in the secured database, Rangaraj explained.

Before the transaction is approved, the user would also be required to key in a seven-digit "Personal Search Number" after pressing their finger to a biometric scanner as an added layer of security.

However, a replicated copy of the fingerprint image will not work as fingerprints do not carry minutiae points. Rather, the system requires the actual finger to be on the authentication device so that the sensor can detect certain unique characteristics of the finger, Rangaraj said.

On top of that, the sensor will also automatically check for moisture and warmth of the finger, he added. As such, prosthetic or fake fingers will also not work, Rangaraj said. ZDNet Asia understands from Pay By Touch that while some finger sensors detect pulse and heat, the sensors that the company is presently using do not have these functions.

Consumers' choice

According to Thomas, a recent study conducted by IT services vendor Unisys revealed that consumers around the world are becoming more comfortable with biometrics.

Results of the research released in April this year indicated that "70 percent of consumers worldwide support the use of biometric technologies to verify their identity, while 66 percent [of consumers] favor biometrics as the ideal method to combat fraud and identity theft as compared to other new payment methods such as smart cards and tokens", Thomas said.

Pay By Touch launched its fingerprint authentication system in Thriftway Supermarket in Seattle in 2002. To date, the San Francisco-based company has worked with several retailers, including a small grocery chain in the United Kingdom and larger brands such as Albertsons' Jewel Osco chain in Chicago, SUPERVALU's Farm Fresh in the Southeast, and Lowes Foods in the Midwest, to use biometrics as a form of authentication commercially.

Scott’s is cashing in on finger scans

Remaining 14 Stores Up and Running After Positive Results from 4 Store Pilot

It’s no money, no plastic, no problem at Scott’s Food & Pharmacy locations for those who have arranged to debit their checking accounts with a fingerprint scan.

Scott’s is the first grocery-store chain in Indiana to implement the biometric payment service. Executives with the chain tested it in four stores early this month then rolled it out to the remaining 14 after they were satisfied with the results.

The new Pay By Touch technology is running now in every lane at all 18 locations of the area supermarket chain, and “people signing up have been very positive about it because it’s going to save them a lot of hassle,” said Rick Zahm, vice president for merchandising and operations.

Pay By Touch developed the system Scott’s is using to debit a shopper’s checking account via a secure finger scan, in the same way that swiping a debit or check card provides account access. The company says finger scans are more secure than paper checks or debit cards because the account numbers are not visible to anyone at the checkout lane, even store associates.

And it is the kind of technology that disappoints pickpockets, said Rod LaFleur, a Pay By Touch regional sales representative.“If you’re not carrying a purse or wallet, there’s nothing to be stolen,” he said.

Scott’s is the first grocery-store chain in Indiana to implement the biometric payment service. Executives with the chain tested it in four stores early this month then rolled it out to the remaining 14 after they were satisfied with the results.

Signing up for the free service requires a canceled check, a driver’s license or electronic benefits transfer card, and an initial finger scan.“If you took a fingerprint, there are certain points unique to each individual. That’s what is kept on file,” Zahm said. “The sign-up only takes about two minutes.”

The transaction generates a receipt without an account number and is quicker than a standard debit-card transaction, he said. The technology is in most major cities but hasn’t made it to Indianapolis yet.

LaFleur said Pay By Touch is operating at 2,400 locations in 44 states. A retailer pays between 8 cents and 10 cents per transaction, but that is less expensive than the cost of an average debit-card transaction, he said. The service usually boosts sales enough to more than cover its cost, he said. Pay By Touch drives sales because customers shop more when the line at the checkout lane moves faster and when spending isn’t limited by the amount of cash they’re carrying, LaFleur said.

Citibank Roll Out to Be Quick

This is the first time that Citibank has tested a biometric payment system, and the bank's operations in other countries, especially in Asia, are watching what happens in Singapore with interest, Cavale said.

"Our plans include taking this technology around the region," he said.

"Our intention is to roll it out very quickly to other cards," Cavale said.

Citibank chose to start the rollout of the biometric payment system with the Clear Platinum card because it is targeted at younger Singaporeans, ranging in age from 25 to 34. "We launched with this segment because the uptake is going to be very strong," he said.

Getting signed up to use the biometric payment system, provided by Pay By Touch, of San Francisco, is relatively easy.

Citibank has installed Pay By Touch kiosks at several Singapore branches

Citibank to Expand Pay By Touch Offering

Citibank this month began rolling out biometric payment systems in Singapore that allow Citibank Clear Platinum credit card holders to pay using their fingerprints and says they plan to expand the platform to other regions and other cards.

"It's an investment for our future," said Anand Cavale, vice president and business director of credit payment products at Citibank Singapore, noting this is the first time the bank has used a biometric payment system anywhere in the world.

Before putting the biometric system into operation, Citibank officials took a long hard look at whether the system was secure -- and came away satisfied that it was, Cavale said. "We see this as the next step, which will enhance our already good fraud prevention systems," he said.

With an affluent, tech-savvy population of 4.5 million, Singapore is among the most competitive for credit-card issuers, with many Singaporeans carrying three or four cards in their wallets. To encourage card holders to spend, banks regularly team up with partners to offer special discounts -- say, 10 percent off dinner at a trendy restaurant -- if customers use a certain credit card.
So much competition leaves banks looking for any edge they can find.

For its part, Citibank hopes the biometric technology makes payment more convenient for its card holders, eliminating the need for them to always carry credit cards while still allowing them to buy things. But don't expect to see biometrics replace Citibank cards any time soon. "The technology will be used in conjunction with a credit card," Cavale said.

Cavale believes biometric payments systems will shine in applications where a quick payment method is needed. "If you're running to catch a train, and buying a cup of coffee and a newspaper, your time has more value," he said.

So far, Citibank's biometric payment systems are only in place at a handful of outlets in Singapore, including local coffee shops and the popular Zouk night club.

The bank has plans to quickly expand the number of such systems and the number of Citibank card holders able to use them.

"Our intention is to roll it out very quickly to other cards," Cavale said. Citibank chose to start the rollout of the biometric payment system with the Clear Platinum card because it is targeted at younger Singaporeans, ranging in age from 25 to 34. "We launched with this segment because the uptake is going to be very strong," he said.

Getting signed up to use the biometric payment system, provided by Pay By Touch, of San Francisco, is relatively easy. Citibank has installed kiosks at several Singapore branches where card holders can register their fingerprints. To sign up, Citibank customers need to provide valid photo identification and a seven-digit numeric passcode used with the fingerprint to authenticate payment.

This is the first time that Citibank has tested a biometric payment system, and the bank's operations in other countries, especially in Asia, are watching what happens in Singapore with interest, Cavale said. "Our plans include taking this technology around the region," he said.

IBM Fortifies Pay By Touch Relationship

RALEIGH, NC, Nov 21, 2006 (MARKET WIRE via COMTEX) -- IBM (IBM)

IBM today announced that Thriftway Supermarket in Seattle, Washington is the first retailer to install a new point-of-sale application that provides a turnkey solution for Pay By Touch(TM), a popular biometric payment service that lets shoppers make purchases with the touch of a finger.

IBM SurePOS ACE, starting with release 4.0 and higher, will offer Pay By Touch as an option. With this option in IBM ACE, a supermarket can quickly deploy Pay By Touch to support the growing demand for reduced costs and increased security in electronic payment transactions. The new IBM SurePOS(TM) ACE application was implemented in 13 checkout lanes in a matter of hours. It enables Thriftway to handle biometric payments faster, enhancing customer service.

For simplicity and added security, Thriftway is using IBM e-business Hosting Services. As part of an IBM Software as Services solution, shoppers' Pay By Touch digital wallet information is securely stored off-site at IBM data centers. IBM Software as Services offers clients lower costs that are aligned with usage, minimal upfront expense, rapid implementation and reduced risk.

"Thanks to IBM, we have very little hardware and software to worry about," said Paul Kapioski, President and Owner of Thriftway Supermarkets, which, in 2002, installed the first retail grocery Pay By Touch biometric payment system. "We've seen many operational improvements from using the Pay By Touch system, including fraud reduction and increased transaction speed. With the new IBM ACE underpinning, we look forward to integrating additional Pay By Touch capabilities into our IBM in-store technology."

Using IBM's new SurePOS 700 Series point-of-sale systems running IBM SurePOS ACE software, shoppers at Thriftway Supermarket can now purchase groceries by providing a simple fingerprint image that is linked to their financial accounts and loyalty programs. The shopper selects which account they want to use, the transaction is processed as if a card or check has been presented, and rewards points are automatically recognized and awarded. The checkout routine is faster, helps protect customers from identity theft and eliminates the need for shoppers to carry cash, multiple credit cards, or bring their checkbook.

"As Thriftway shoppers know, Pay By Touch enables consumers to transact with no cash, no cards and no checks. There is nothing to carry, so there is nothing to be lost or stolen," said Ryan Ross, Vice President of Business Development at Pay By Touch. "Our relationship with IBM makes it easy for retailers to bring unprecedented ease, speed and convenience to shoppers everywhere."

"For more than 60 years, Thriftway has offered a wide selection of high quality products and innovative customer services," said Steve Ladwig, General Manager, IBM Retail Store Solutions. "This implementation of Pay By Touch's biometric payment service on the IBM ACE platform is the latest example of how new technologies can make shopping easier and more secure. It's also a great example of how IBM can work with a partner like Pay By Touch on a solution that can be successfully rolled out by a medium-sized retailer."

IBM's Versatile Point-of-Sale Solutions

IBM SurePOS(TM) ACE for 4690 OS is a powerful, versatile point-of-sale (POS) application designed to help retailers improve service and reliability in a flexible environment. It combines checkout support, electronic marketing, data maintenance and account management, and supports the IBM Store Integration Framework -- which enables clients to prepare to integrate an in-store pharmacy, photo kiosks or a personal shopping assistant.

The SurePOS 700 is the most powerful POS solution in the IBM portfolio, and is specifically designed to deliver the speed, availability and on-demand reliability that retailers require to transform the customer experience and increase employee productivity. SurePOS(TM) 700 models deliver fast transactions and personalized service, while providing investment production through a rugged, retail-hardened design.

About Thriftway Supermarkets

Founded in 1945, Thriftway has established a reputation for providing customers with only the highest quality products and services. With 14 supermarkets in the Seattle area, their commitment to the community sets them apart from other retailers. Each year, Thriftway stores donate thousands of dollars and thousands of volunteer hours to local causes: area food banks, little league teams, community fund-raisers, charities, civic events and other worthwhile causes.

About IBM

For more information on IBM Retail Solutions, please visit www.ibm.com/retail

With IBM SurePOS™ ACE for 4690 OS, supermarket, hypermarket and chain drug retailers can deploy a single point-of-sale (POS) application that helps enhance customer service, increase reliability and support an on demand business model.

SurePOS ACE combines checkout support, electronic marketing, data maintenance, account management and many other processes to deliver superior POS performance. It also offers outstanding operational reliability and a built-in customer loyalty program to help increase profitability. Plus, it positions retailers to take advantage of the IBM Store Integration Framework, a key component of on demand business. It also offers:

Terminal offline feature records transactions without a server connection
Supports a wide range of integrated fuel pump transactions
Now offers Pay By Touch™ integration and full check image capture
Integrated management tools and security features
Built on the proven IBM 4690 OS platform

Convenience Store News Poll

An interesting poll done by Convenience Store News revealed that almost 1 in 4 convenience store operators want to implement Pay By Touch technology in their stores. In fact, only made to order foodservice was more desirable by convenience store operators that participated in the poll. Here is the poll question and the results:

If you could choose one thing to integrate into stores, regardless of price or space, what would it be?

Gas Station TV -- 4%
Contactless credit card payments -- 8%
Gourmet coffee offerings -- 11%
Finger scan payment technology -- 23%
Fresh produce -- 4%
Made-to-order foodservice -- 25%
Ethanol/alternative fuel pumps -- 8%
Satellite radio -- 6%
Other -- 4%
None of the above -- 8%

Hedge Funds Move Into VC Turf

Tech startups take capital where they can get it. Hedge funds are getting in.

November 17, 2006 Red Herring Magazine

When news hit last month that hedge fund Artis Capital Management was an investor in web sensation YouTube, it shed a light on what is becoming an increasingly common practice.

High technology startups are turning to hedge funds for financing, particularly when they reach the later stages and need the capital to prepare for an initial public offering. Yet, as hedge funds begin moving into investment areas that were once the exclusive realm of venture capital firms, the old way of doing things is being disrupted.

“As (hedge) funds get larger, they are looking for new places to invest,” said Kathryn E. Coffey, partner at Seven Hills, a San Francisco financial advisory firm.

With the cost of doing an initial public offering skyrocketing in light of new regulations and the current investment climate, startups need significantly more capital to jump these hurdles than they did five or six years ago. Hedge funds, said Ms. Coffey, often have access to public markets that can help smooth the transition from private to public.

“A number of companies are talking to hedge fund groups,” said John Balen, general partner of Canaan Ventures, a Sand Hill Road venture firm.

Sometimes companies avoid dealing with venture capital altogether. Pay by Touch, a San Francisco biometrics company that has developed a fingerprint payment system, raised two rounds totaling $190 million in October 2005 and January 2006 from hedge funds Plainfield Asset Management and Scout Capital, plus private investors such as Quince Associates and Global Trust Partners, among others.

Industry observers say the biggest tension between the two types of firms is in their expectations about how much they will earn from their investments. Because hedge funds are highly diversified, they usually don’t have the same need for high returns from individual companies in which they invest. In contrast, venture firms have often been with a company through several stages and are counting on big returns at the end.

The difference can be between an expectation of 60 percent returns on the part of a venture firm, and a mere 23 percent for the hedge funds, said Eric W. Edmondson, partner at Seven Hills. This means that the team of investors shepherding a company toward going public or being acquired can have very different ideas about strategy.

Hedge funds usually involve themselves in later stage deals and are rarely interested in getting in on the ground floor of a new business. (Artis’s investment in YouTube is an exception to this.) Ms. Coffey said that in her experience, they’re seeking companies with a solid management team in place and a track record of performance that can be extrapolated into the future.

Not Hands-on

They also usually choose to remain in the background, she said. They don’t take seats on boards of directors as venture and private equity firms often do, and they usually aren’t all that interested in the hands-on running of the business.

Some in the technology finance world say it’s inevitable that hedge funds and venture capitalists are going to find themselves doing deals in the same space. Some even go so far as to say the traditional venture model is irreparably broken and that a new model is being constructed on the ashes of the old. Hedge funds, in this scenario, are merely taking advantage of an opening.

Clearly, certain factors that fueled the last technology boom have shifted. Nowadays, limited partners—the entities who fuel all of the private equity that invests in technology—have quite a lot of capital to invest in areas that used to be considered too risky for them, such as high technology startups. At the same time, multibillion-dollar IPOs and other profitable exits are becoming rarer.

Capitalism: Broken?

Drew Lanza, general partner at Morgenthaler Ventures, a Sand Hill Road venture firm with offices across the U.S., says the old way of doing things—expecting a big, splashy IPO at the end of the tunnel—is just not happening anymore.

“Capitalism is broken. We broke it,” he said. Luckily, he added, this has happened several times in the past and it’s always been repaired one way or another.

And while congress debates whether to regulate the hedge fund industry, for now at least these types of funds have free range to do a wide variety of deals.

As Mr. Lanza sees it, “Any time there is a movement, opportunity is created.”

The question remains, however, who will benefit from all this opportunity, and who will be left behind.
Contact the writer: SMugrabi@redherring.com

$3.25 Billion and Counting

Pay By Touch, San Francisco, Calif., was on the acquisition trail at the end of 2005 and emerged as a significant player in the acquiring business, according to Les Riedl, President of Speer & Associates, Atlanta, Ga. This week they purchased the portfolio of Paynet, including 50 NCAA sporting venues. They also announced a major strategic relationship with Citibank, which will issue "cardless" cards in Singapore.

Pay By Touch's has a valuation of approximately $3.25 Billion dollars. $3,250,000,000

Pay By Touch’s specialty is biometrics, and they have over 3.3 milion enrollees, but with the recent acquisitions and others that could be made, Riedl expects the payments portion of the business to become an ever-larger portion of the total enterprise. They currently process over $20 billion dollars worth of transactions (checks, ACH and debit/credit) annually.

Riedl sees that as good for Pay By Touch’s long-term prospects because although the growth prospects for biometrics are tremendous, revenue streams from payment processing will harbor profitability until biometrics becomes mainstream. They've established some momentum in terms of being an full service payment processor. Will they hit the acquistion trail again, at the end of this year?

A quick look at Pay By Touch’s recent acquisitions:

The assets of CardSystems Solutions, Inc., a payment processing provider, for $47 million in cash and stock. Under the terms of the deal, Pay By Touch assumed responsibility for all CardSystems Solutions, Inc. assets and for payment relationships with reportedly 120,000 small and medium-sized merchants. The deal was completed primarily for stock and some cash. CardSystems provides integrated payment solutions to associations, financial institutions and independent sales organizations and retail merchants. Through these payment solutions, CardSystems processes more than $18 billion in Visa, Mastercard, American Express, Discover, online debit and EBT transactions annually.

BioPay LLC for $82 million in stock and cash. BioPay is a biometric services provider with two million enrolled consumers, 1,600 retail implementations, and more than $7 billion in transactions processed. BioPay specialized in biometrically authenticated check cashing, with more than 2 million consumers in retailers across 42 states. The deal was closed in the first quarter of 2006. This acquistion eliminated a potentially long drawn out legal battle that was brewing before the buyout which would have resulted in potential clientele, sitting back and waiting for the outcome, before investing in one or the other. Therefore, Pay By Touch virtually eliminated the competition, and emerged as the dominant player.

ATM Direct, delivers a complete, patent-pending, software-only solution for the secure entry of a PIN number through personal computers over the Internet. Backed by a suite of security, monitoring and control processes, our service enables the secure multi-factor authentication of online users enabling, for the first time, the use of PIN-debit payments on the Internet with a low cost, easy to deploy and use, software-only solution. This could be their cash cow, as PIN debit for the internet would save Internet Retailers signifcant amounts on their card processing costs. Pay By Touch recently announced their TrueMe application, which incorporates biometric sign-on, eliminating the need for passwords and usernames. If they combine the TrueMe application with their ATM Direct application, they could give Paypal and Google Payments a run for their money.

7th Street Software, Inc. and Convena, LLC, two loyalty technology providers that Pay By Touch officials expect to significantly bolster the company’s loyalty offerings. 7th Street Software, Inc. is the developer of LoyaltySuite, a patent-pending technology that helps retailers automatically give shoppers personalized offers on the products they purchase most. The Convena, LLC assets add another layer to Pay By Touch’s loyalty offerings.

Capture Resource, a supplier of integrated reward programs and business process outsourcing solutions, further enhancing the company’s loyalty offerings. This acquisition enables Pay By Touch to offer customers interactive gift and reward programs, customized reporting, design, production, and Web access services. In addition, the company will offer retailers advanced information capture technology and database management. Pay By Touch assumes responsibility for all of Capture Resource, Inc. assets and will manage the company’s 120 million-plus consumer loyalty enrollment profiles, including more than 12,000 supermarkets and retail institutions.

The acquistion of Covena, 7th Street and Capture Resource has empowered Pay By Touch to put together and introduce, Smart Shop, a personalized marketing program that allows shoppers to receive personalized coupons either at the store, at home or via e-mail Shoppers can view offers online or by email, as well as at an in-store Pay By Touch kiosk. Their targeting engine tracks each individual shopper's purchase history and serves up "perosnalized" relevant coupons from a finger-accessed kiosk right inside the merchant's store. No need for coupons, mass mailings, loyalty card...just your finger. At checkout, discounts are automatically rewarded without the need for cards or key fobs.

These acquisitions build on a trend the company, founded in 2003, started when it acquired InterCept Payment Solutions, a merchant processing platform with approximately 18,000 customers. At the time of the acquisition, company officials said the deal reflected Pay By Touch’s ongoing evolution from a single payment solution to a provider of end-to-end biometric authentication and payment processing services.

“It’s an intriguing company, they have a lot of momentum,” Abbey adds. “Ever since they acquired InterCept, they’ve been building out their capabilities. With these acquistions they’re a lot further along than I thought they would be at this point.”

Part of the reason for the company’s success so far is the financial wherewithal of the firm’s owners Riedel says. “They have a ton of money behind it." So far, it looks like they've spent money on acquistions for growth and have built great value. Their current valuation is over $3 Billion. That's pretty a pretty darn good return on their acquistion investments.