June 20, 2005

By Michele Chandler

Shoppers in the Bay Area will soon be able to leave their cash and credit cards at home and instead pay for purchases with a simple tap of a fingertip, thanks to a new partnership between San Francisco's Pay By Touch and San Jose 's VeriFone Holdings.

Technology from Pay By Touch, based on a science called biometrics, allows retailers to use fingerprints to identify and bill individuals for purchases made at stores.

Originally used to identify people for security purposes, biometrics is now being tapped for its retail potential.

Last year, as part of a pilot program with Southern grocery chain Piggly Wiggly, Pay By Touch installed its system in four of the group's South Carolina stores.

The system -- which electronically links a person's finger scan to his or her financial accounts -- quickly caught on with Piggly Wiggly consumers. The chain has installed its finger-scanning payment systems in all 82 corporate-owned groceries in South Carolina and Georgia . The system will be rolled out by the end of the year at the chain's remaining 38 franchisee-owned stores.

Other chains are exploring the technology as well. Albertsons in Oregon and Cub Foods in Minnesota launched tests of the technology this year, following Pick 'n Save food stores, which began a pilot program last summer.

Pay By Touch is negotiating to bring its technology to a Bay Area grocer sometime later this year, said John Morris, the company's president and chief operating officer. He said a deal could be formalized within the next two months with a food chain he declined to name. Pay By Touch is also in discussions with fast food restaurants, discount stores and convenience chains.

Pay By Touch recently announced a partnership with VeriFone, which manufactures electronic systems that process credit- and debit-card purchases in grocery stores, gas stations, pharmacies and fast-food restaurants.

Under the deal, Pay By Touch's technology could be paired with existing VeriFone systems in retail stores. The companies will also collaborate on new product development and joint marketing.

"We're a $500 million company; they are an upstart," said Doug Bergeron, chairman and CEO of VeriFone. "In the U.S. , we are everywhere. This is more of a distribution channel that Pay By Touch will be able to use."

Customer convenience
Customer convenience is the driving factor for grocers who are exploring whether to add the service, according to Albertsons spokeswoman Shannon Bennett. "So far, the feedback we received is that it's speeding up the lines when folks use it," she said. The biometric system's backers also say using a fingerprint is more secure than using only a personal identification number, which could be electronically intercepted or secretly viewed. Pay By Touch transactions are authorized only if the fingerprint presented is followed by the key-in of a companion seven-digit code. That's intended to reduce payment fraud or identity theft.

Pay By Touch president and founder John Rogers concedes, however, that biometrics -- a category which also includes voice recognition and retina scans -- "is not fool-proof."

"It's not totally impossible, but it is highly unlikely our database would be compromised," he said. Biometric buying will save retailers money upfront, backers of the technology say. That's because the electronic network used to process the biometric transactions charges retailers a lower fee than other electronic networks now used to approve debit and credit card purchases. While the cost to a merchant from the electronic network used to process a debit or credit card purchase is about 35 cents, the same purchase over the Automated Clearinghouse Network used by Pay By Touch is about 10 cents, Morris said.

Uses expanding
"Some retailers operate on very thin margins," he noted. "The ability to save even a few cents per transaction is a pretty big benefit when you are talking about millions of transactions." Devotees of the Pay By Touch system include mothers who don't want to fumble with their children and their wallets as well as retirees who'd rather leave their purses at home to minimize chances of robbery, company officials said.

Already, faces and fingerprints are being used to establish identity. Some companies use fingerprints rather than time cards to clock workers' hours. Microsoft has developed a reader installed on the keyboard that replaces the user's password with a fingerprint. Members of the Purdue Federal Employees Credit Union in Indiana use their fingerprints to get access to their accounts.

"There has not been widespread adoption yet, but we're starting to see it become more and more prominent in a number of settings," said Walter Hamilton, chairman of the International Biometric Industry Association, a Washington, D.C.-based trade group.

Backers of finger-touch technology say the payment method is gaining acceptance in part because of the growing amount of identity theft and people's concerns about protecting their personal information.

Right now, retail purchases and automatic teller machine or point-of-sale transactions generate $33.8 million in revenue, a speck of the overall $1.2 billion biometric payment market, according to the International Biometric Group.

While most of the total spending on biometrics last year resulted from security technology, the payment market is expected to double by the end of 2005, group consultant Maud Meister said.

Here's how biometric fingerprint systems verify identity:

A Pay By Touch scanner takes an image of a person's fingerprint, but doesn't store the actual image. Instead, 40 portions of the fingerprint are analyzed and stored as a mathematical algorithm. Only those ``data points,'' in mathematical form, are kept in an IBM-owned data center. ``Your actual fingerprint cannot be regenerated from the data points that are stored,'' said Morris.

At the time of a purchase, those "data points" must be matched with a seven-digit personal code keyed in by the supermarket shopper before financial or other information can be accessed.

Privacy Concerns
To use the system in a grocery store, shoppers touch their index fingers to a reader about the size of a computer mouse that scans a fingerprint in a second or two. Then, they're directed to punch in a seven-digit code (often their telephone number). If that code corresponds to the fingerprint information, the verification is complete.

Customers can then pay, using whatever transaction they have loaded into their virtual "wallet," which could include selecting from several credit cards or a debit card. Grocery store discount cards held in the virtual "wallet" can also be applied to the sale.

At Piggly Wiggly, the percentage of customers who signed up for the voluntary program is expected to climb from about 20 percent now to about 50 percent over time, ``as consumers see it and get used to it,'' Rogers said.

Whether fingerprint-payment technology becomes ubiquitous remains to be seen. Cost is one barrier.

Whether fingerprint-payment technology becomes ubiquitous Installing a Pay By Touch finger-scanner system at a store already equipped with a swipe box like the kind used for credit and debit cards costs a few hundred dollars a lane, said Morris.

Whether fingerprint-payment technology becomes ubiquitous With several new, competing retail payment technologies under development, it's unknown whether fingerprint-reader technology will end up being the one in widest use, industry analysts say.

Another technology under development involves credit and debit cards with special chips enabling them to be read simply by waving them in front of a special reader, with no signature required. Backers of that technology include deep-pocketed credit card giants Mastercard and Visa.

Privacy advocates also express concern about what might be done with biometric and financial data collected on customers. While Pay By Touch says it does not share that information, period, "it's just one more type of information and data that is out there about you," said Beth Givens, director of the Privacy Rights Clearinghouse.

"Look at all the TV shows with detectives dusting for prints," she said. "Fingerprints are closely associated with criminal investigations. The stigma may be decreasing somewhat, but there may still be a certain percentage of customers who don't like the idea of using a fingerprint capture system to pay for their groceries."