Merchants and financial-services companies have always been uneasy allies. In 2004 alone, U.S. merchants paid finance companies almost $40 billion in credit- and debit-card transaction fees, accounting for nearly 20% of the banks' payment revenue. Because many merchants operate on thin margins, they're fed up with the high cost of relying on banks to process customer transactions.For a retail warehouse like Costco, total payment-transaction fees can run as high as 22% of pretax profits, according to a recent report by Bernstein Research, a consulting firm for institutional investors.
Currently, merchants pay a fixed fee plus a percentage of the transaction amount—also known as interchange fees—for accepting a card as payment. Credit- and debit-card transaction fees constitute the third-largest expense convenience stores face after rent and labor costs, says the National Association of Convenience Stores.
Because of these high transaction costs, merchants are constantly seeking technology innovations to level the playing field with their banking brethren. For merchants looking to save on processing costs, migrating to fingerprint biometric payment options from Pay By Touch is a good solution.
Biometrics refers to the measurement of unique human characteristics, such as a person's fingerprint, voice, iris, or hand geometry. Pay By Touch lets retail customers simply place a finger on a specialized scanner, register the transaction with their bank account, and walk out of the store with their purchase.
For merchants, Pay By Touch can lower costs and boost revenue by circumventing higher credit-card transaction fees, speeding up checkout times, promoting customer loyalty, and reducing fraud. For consumers, biometric payments offer safety and convenience.Financial-services companies are closely watching merchants that are adopting Pay By Touch. Moves by merchants to alternate forms of payment could cut into their revenue stream.
Despite the financial benefits, biometric payments add another level of complexity for merchant CIOs that will ripple from the storefront to the corporate data center. Business-technology leaders considering biometric payments must acquaint themselves with the costs, implementation challenges, and concerns about security and privacy. Executives need to assess the organizational and operational impact of the Pay By Touch system technology.
Pay By Touch transactions in the United States can now be found at many gas stations, as well as liquor and convenience stores. For example, the Express Mart in Arnold, Mo.—part of privately held Home Service Oil Co.—recently introduced a gas-price promotion to entice customers into using biometric payments.
But the most visible early adopters have been retail grocery merchants, including Albertson's, the second-largest U.S. supermarket retail chain; Supervalu, the 8th largest, Minnesota-based Hornbacher's and Cub Foods; Missouri-based IGA stores; and Piggly Wiggly.
In mid-2005, Piggly Wiggly began enrolling customers in a pilot implementation of fingerprint payments at 85 stores. The service grew to include more than 25,000 shoppers. "The primary justification was to provide our customers with a payment alternative that was fast and easy," says Rich Farrell, VP of information services at Piggly Wiggly.
"We're enrolling customers every day and launch occasional promotions to motivate more customers to enroll," Farrell says.
Both customers and merchants find fingerprint-based payment convenient. For starters, card clutter or forgetting the wallet altogether is no longer a problem for the customer. Merchants will benefit from improved sales due to easier and faster checkout, improved loyalty tracking, and reduced fraud risk."We conducted a three-month pilot installation to validate the benefits and determine an acceptable ROI," Farrell says. "Lower transaction fees, improved checkout speed, and customers' excitement about the service were the primary reasons the service was rolled out." Piggly Wiggly found the fingerprint-payment option increased customer store visits by 15% and total spending per customer by 12%.
"Each customer using the service saves us at least 25 cents for that transaction, "Farrell says. "On large transactions, we can [save up to] several dollars in fees compared with credit-card transactions."
Costs for biometric-payment systems vary depending on the size and scope of the project, but "initial setup costs can be budgeted at approximately $1,000 per shopping lane and include equipment, software, and installation," says Shannon Riordan, director of marketing at Pay By Touch, based in San Francisco. "Depending on merchant transaction volumes, recurring costs range from 8 to 16 cents per transaction."
