American Banker

FACT Act Provision Raises Biometrics' Profile

March 17, 2004
By Jennifer Coogan

Technologies such as voice-recognition software and hand-geometry readers will be in the spotlight this spring thanks to the Fair and Accurate Credit Transactions Act's requirement that federal regulators study how biometrics can help prevent identity theft.

The FACT Act, which President Bush signed in December, is best known for renewing key federal preemptions on the handling and sharing of credit data, for mandating free credit reports, and for seeking to reinforce safeguards against ID theft. But it also stipulates that the Treasury Department solicit public comment about the uses, costs, and risks of biometric technologies.

Treasury must also consult with banking regulatory agencies and private-sector financial institutions. Comments are due by April 1, and the Treasury has to deliver its recommendations to Congress in June for any possible legislation.

Several of the questions in the Treasury's 14-point survey, which was published March 2 in the Federal Register, seek to measure the expenses of using biometric technologies to reduce identity theft losses.

Banking attorney Gil Schwartz said cost is the main obstacle to widespread adoption of biometrics in financial services, and that he did not expect the study to lead to a government mandate for the technology.

"Most identity theft doesn't involve an in-person transaction, so using biometrics wouldn't be cost-effective," Mr. Schwartz said.

A study of 439 banks by the American Bankers Association found only 5% used biometric identity verification on new accounts.

Joseph Atick, the chief executive officer and president of Identix Inc. of Minnetonka, Minn., said the public's privacy concerns are more of a barrier than cost when it comes to implementing biometrics in banks. He noted that finger sensor technology has become so cheap it is being incorporated into mobile devices.

Mr. Atick, whose company makes such devices, said other industries are doing a better job of exploiting new technology. "People are uploading digital photographs of themselves for online dating sites," he said, "but credit card companies aren't giving any incentive to customers to send in a picture."

Older folks are more open to biometric technology than many would suspect, Mr. Atick said. "At many conferences I've heard that senior citizens are embracing biometrics more" because they like not having to remember a PIN number and want to take extra steps to protect their nest eggs, he said. "As we get older, we realize it's not Big Brother that is trying to get us."

Trevor Prout, marketing director for International Biometric Group, a New York consulting firm, said banks may find the technology more useful for identifying their own employees.

"In the financial services sector, where people have to log on to a lot of applications where there are privacy concerns, biometrics can provide a more definitive audit trail," Mr. Prout said.

Biometrics may be marketed to the public as more people become familiar with the technology in the workplace, Mr. Prout said. Once consumers are comfortable using fingerprint scans and voice recognition, banks could develop expanded service kiosks, where customers could withdraw cash at higher limits, apply for loans, or buy bank products.