Friday, January 18, 2008

American's Misconstrue Biometrics and Their Value

There is an interesting article from Cards&Payments Magazine. If Pay By Touch has dropped the ball on anything, it is in the failure to overcome the criminal attachment and Big Brother attitude that many uniformed (a nice word for uneducated) citizens associate with "fingerprints". Hey what about all the camera's recording your every move people?

In large part, nobody's more to blame than Pay By Touch themselves. After all, from the very beginning, Pay By Touch continued to allow the media, time after time, to portray their biometrically based platform as "fingerprint payments" and from the very beginning it never was. Yet, they did nothing. A new story would come out months later, and still, fingerprint, fingerprint, fingerprint.

Well, truth be told, it's not a fingerprint and never has been. In fact, if you want to put a finger on it, then it would be called an A-L-G-O-R-I-T-H-M, an algorithm consisting of a 300 digit code that CANNOT be reverse engineered into a f-i-n-g-e-r-p-r-i-n-t. How many numbers on a credit card? Biometrics protects us from identity theft. Identity thieves are the criminals. Not finger scans by association.

In fact, I made that point as clearly as I know how, in my very first post on this blog. (make that the second post, the one after announcing that PBT bought BioPay)

I addressed this issue, under the title "
Who's Moe Paranoid Now" There was a specific reason I blatantly included a picture of data points overlaying a fingerprint. Yes...the algorithm thing. Yet, to this day, Pay By Touch continues to allow the media to portray them as a "fingerprint payment company".

In light of what has taken place over the last 70 Daze, it's been considerably more maddening than it has in the past. They will have to, for the record, separate big brother from biometrics by putting together a simple explanation so some bible banging propagandist spouting Revelations won't 666 them to death.

Anyway, here's the story from Cards&Payments.

Biometrics Is Gaining Ground, But Payments May Be Secondary, at Least for Now

Though on shaky footing in the U.S., biometric-payment authentication may find a niche in Asia and other regions.

"Americans are a funny bunch", says one prominent industry professional. "They have this big brother Orwellian complex about biometrics, yet seem to be completely unaware that a camera captures their every movement at every street corner." he said. "Ironically, biometrics protects their privacy more than it invades it. Other countries around the world see the inherent value of biometrics much more concisely".

But we’re big in Japan” long has been the joking excuse of rock bands based in Europe and the United States that are little-known in their home countries. The quote also seems to portray the history of biometric-payment applications.

Editors Note: This is why Citibank is still "very enthusiastic" about their strategic partnership with Pay By Touch, in Singapore and the Pacific Rim.

While still a nascent application of the technology, using biometric devices to authenticate users of ATMs and payment terminals has gained traction in Japan and is starting to spread to other parts of Asia, the Middle East and Latin America.

In the United States, however, the best-known provider of point-of-sale biometric authentication services, Pay By Touch, is suffering. The San Francisco-based company recently faced the threat of disconnected phone service, eviction, and forced bankruptcy from investors and unpaid employees. However, they have recently received a cash infusion and are currently in the stages of emerging from a voluntary Chapter 11 bankruptcy.

Sources Cards&Payments spoke with recently agree that biometric-payment applications have demonstrated less than overwhelming adoption at checkout lanes in the U.S. and Europe. But many see a future for biometrics in not only payments, but securing ATM transactions, mobile-phone payments and, perhaps, eventually point-of-sale transactions, at least in some parts of the world.

Japan was among the first countries to install biometric-authentication devices on ATMs, and over the past five years the technology has grown in use there. According to Japan’s Financial Services Agency, 18,499 ATMs deployed by private banks in that country were equipped with biometric devices as of March 2007. Japan’s Postal Bank, which was privatized in October, adds another 12,300 biometric ATMs.

In a country where depositors may withdraw from ATMs the equivalent of a few thousand dollars U.S. at a time, the technology makes sense because such self-service transactions require a higher level of security, observers say.

Japan-based Hitachi Ltd. produces biometric readers for ATMs and smart cards that recognize vein patterns in fingers. About 80% of Japanese banks deploy biometric authentication, says Shigeyuki Ito, executive vice president of Hitachi’s smart card solutions operation. Authentication occurs either using biometric sensors on ATMs, usually employing infrared rays to read finger or palm-vein patterns. The system uses this live scan to the consumers’ vein patterns stored on their smart cards.

Hit by some well-publicized attacks on ATMs and facing presure from the government, the Japanese market swiftly adopted biometric authentication at cash machines. “This was accomplished since financial institutions and technology providers had carefully discussed and prepared for the deployment,” Ito says.

Ito says careful planning among banks and manufacturers of payment and biometric technology led to deployments Japanese consumers more likely would use. For example, smart cards that store biometric templates help overcome possible fears of financial institutions storing biometric data, and the infrared finger and palm-vein readers on ATMs do not require users to touch finger sensors that they might fear carry germs, Ito says. Editors Note: Germs...hogwosh..Just more BS propaganda...a door knob, elevator button, or even a bathroom towel dispenser has more germs than any biometric device" Did you hear the one about the gummy bears?

With mobile phones in Japan now performing so many functions, including initiating payments, Hitachi also plans to offer biometric-authentication devices to unlock mobile phones, Ito says. Competitor Fujitsu already offers fingerprint sensors on handsets it produces to store Japan’s contactless wallets. Fujitsu also makes palm-vein recognition systems for ATMs.

Indeed, the future of biometrics for payments will come from the use of biometric readers to authenticate users to a multitude of devices consumers own, contends Jeremy Grant, senior vice president and emerging-technologies analyst at Washington, D.C.-based Stanford Group Co.

“The most likely place you’ll see biometrics in a payment application will be if you start to see mobile payments take off on mobile phones,” Grant says. “You can develop silicon chip-based fingerprint sensors that will cost only $2 each.”

NCR Corp. sees a bright future for biometrics in poor, rural areas of the world such as coffee farms in Colombia or far-flung villages in India. There, the ATM maker contends, biometric ATMs and payment terminals, some of them portable, could bring electronic payments, microloans and other financial services to consumers who cannot read or write or who are reluctant to open traditional bank accounts.

NCR has sold some 50,000 ATMs to such financial institutions as the State Bank of India, HDFC Bank, ICICI Bank and Indian Bank. Dayton, Ohio-based NCR claims 70% of the ATM market in India and says one of its targets is the country’s rural areas.

“The interesting thing in India is that financial-services providers are reaching out to unbanked, rural customers,” says Claire Shufflebotham, director of NCR’s global security research and development organization. “They’re enrolling them with hand-held biometric readers.”

Potential Targets

NCR also has its eye on biometric authentication of high-tech payment devices that consumers in more-affluent communities around the world carry, including phones in Japan that support contactless technology similar to Near Field Communication, Shufflebotham says. “The Japanese are very forward-thinking,” she says. “Rather than carry several cards, they’re putting all these applications on their mobile phones. Now the rest of the world is looking at this space.”

Diebold Inc. has no biometric-ATM installations in Japan. But the North Canton, Ohio-based ATM manufacturer is looking to several other world markets for new types of biometric applications. Since 2004, Diebold has deployed hundreds of its Opteva ATMs with fingerprint scanners in Chile, Spain, Colombia, Dubai and Saudi Arabia, say company spokespersons.

“We’re seeing pretty varying uses (of biometrics) in different parts of the world,” says Jim Pettitt, Diebold director of portfolio strategy and global self-service fraud and security.

When registered retirees in Chile, Colombia and Saudi Arabia withdraw pension funds from Diebold ATMs, for example, pensioners prove to their governments they are still alive and that some relative or friend is not fraudulently continuing to draw payments, Pettitt says.

Smart Card Ties

Asked about the potential for biometric-payment applications beyond ATM access, Pettitt says he agrees that biometrics “has a place” at the point of sale “but probably in conjunction with smart card or mobile technology.”

So far, biometric applications have not ubiquitously found a place in checkout lanes.

San Francisco-based Solidus Networks, which does business as Pay By Touch, offers point-of-sale payments authenticated by fingerprint scans and telephone numbers of preregistered customers. The company provides its biometric payment, check-cashing and loyalty services to 2,600 merchant locations, mostly in the U.S. but with a few locations in Europe and Singapore. It also claims some 4 million consumers have registered to use the service, which compares algorithms (not actual fingerprints) (Editor's Note: Finally) of fingerprint scans (Editor's Note, whoops, nevermind, as we're right back to the problem...It's not "fingerpint" scans, it's just a plain simple "finger" scan" Just when I thought they finally got it right) with algorithms created during registration that Pay By Touch keeps in a database.

Pay By Touch’s pitch to merchants is the ability to steer customers to cheaper automated clearinghouse payments from checking accounts while maintaining the added security and speed of card transactions.

But Pay By Touch is struggling to survive (“Fingers Pointed at Pay By Touch,” December 2007). In December, a California judge allowed the company to take out a $9 million emergency loan to help it pay more than $6.3 million to help it meet payroll, avoid eviction and keep the lights on.

As vice president of marketing, Shannon Riordan has the unenviable job of putting a positive spin on what she calls Pay By Touch’s recent “bump in the road.”

Riordan says she cannot comment on many questions related to the litigation, which stems from alleged improprieties by Chairman and cofounder John P. Rogers, but tells Cards&Payments the company is operating “business as usual.” Riordan says morale among employees has improved under the temporary management of Thomas Lumsden, senior managing director of corporate finance in the San Francisco office of Baltimore-based FTI Consulting Inc.

In mid-November, the Delaware Chancery court appointed Lumsden after the feuding parties, which include company investors, mutually endorsed him for the position.

Riordan says Lumsden likely will “streamline” company operations. But she highlighted new developments around the world, including a project with Citibank Singapore, and Pay By Touch deployments at a store in Germany and at 10 Shell Oil Co. gas stations in the Chicago area.

The Shell stations in October began the pilot to test fingerprint scanners in their convenience stores and at their pumps. Each store also has a kiosk where customers may enroll by placing a finger on a reader. At enrollment, consumers may apply their biometric payment to a proprietary Shell credit card, a Shell MasterCard, or account and bank-routing information from a personal check, all of which cost Shell stations less to accept than do cards that do not carry the Shell brand.

Chris Suess, Shell manager of global refueling innovations, says Shell is conducting the test to provide “a more convenient, speedy and secure transaction process” and to reduce costs through lower transaction fees.

Rollout Hopes
Suess could not say whether the program will roll out nationally. “We hope that it does and, assuming the pilot goes well, we could be at stations nationwide as early as fall 2008,” Suess says.
Gwenn Bézard, research director and analyst at Boston-based consultancy Aite Group LLC, says Pay By Touch until recently did not offer shoppers enough reason to use it. “Credit card issuers offer rewards and cash back, which is a pretty big incentive,” he says.

Bézard says he sees promise in paring point-of-sale biometric authentication with SmartShop, a loyalty program Pay By Touch introduced in late 2005. Using a SmartShop kiosk near a store entrance, a shopper places a finger on a Pay By Touch biometric sensor or swipes the store’s loyalty card. The system’s loyalty-targeting program provides the shopper with individualized coupons and offers based on past purchase behavior.

Green Hills, a Syracuse, N.Y., grocery, deployed SmartShop, along with Pay By Touch, in October 2005. By December 2006, participants in the SmartShop program had increased their spending at the store by 6.1%, trips to the store by 9.8% and produced 5.4% overall revenue growth, according to Pay By Touch.

Riordan says Green Hills’ purported success may stem from promoting freebies before the payments.

“They launched the payments and the loyalty with Smart Shop at the same time, but they didn’t really market the payments,” she says. “They said, ‘Hey, get your special offers when you enter the store.’ Then, when people got comfortable at the kiosk, Green Hills started promoting the payment function. People loved it. They’re adopting it like crazy.”

Green Hills did not return calls requesting an interview by Cards&Payments deadline. But an Aite case study published in January 2007 says biometric payments at the store increased from 5% of sales in April 2006 to 27% of sales in December 2006 (See chart, page 22).

“What Pay By Touch has tried later in the game has been to try to mesh together a payment and loyalty product. That has been fairly successful,” Bézard says. “It only took a few hundred million dollars for Pay By Touch to get there.”

Despite Pay By Touch’s struggles, biometric authentication of some banking services and, perhaps, payments seems to be gaining some ground in Asia and is drawing interest from other parts of the world.

(c) 2008 Cards&Payments and SourceMedia, Inc. All Rights Reserved.

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