Let your fingers do the paying

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The way Americans spend their trillions each year will soon experience one of the most dramatic changes since credit card use at the checkout became widespread.

The same biometric technology that holds promise for fighting terrorism is about to undergo its first major retail trial in the Portland, Wash., area. Pay By Touch, a privately owned company, is expected to announce later this year a rollout of its system in the leading grocery chain Albertson's, said an executive familiar with the situation.

Pay By Touch's checkout system requires a small scanner placed at the checkout counter. Customers who sign up for the service need only to place a finger in a scanner to verify identity. The customer is then given a list of debit, credit or other payment vehicles. Store loyalty programs are entered automatically. The system also is able to provide authentication for cashing government and payroll checks.

The Albertson's move follows another push for the system from Morgan Stanley's Discover Financial Services. The credit card company this summer announced a deal with Pay By Touch to charge merchants the lower "card-present" fees on Pay By Touch transactions vs. the higher "card-not-present" fees for telephone and Internet orders. IBM-which is the biggest provider of point-of-sale solutions, with 60% of the global market-also has an agreement to use Pay By Touch as its exclusive biometric payment partner.

"There's a flurry of activity in developing new payment types and access devices," said Richard K. Crone, director, Edgar, Dunn & Co., San Francisco. In addition to biometric systems, other competitors include systems using Radio Frequency Identification, or RFID tags, as well as other devices under development at major credit-card players.

Today, biometric payment systems are a miniscule part of the point-of-sale transaction business, according to International Biometric Group, a New York consulting and research firm. Biometric point-of-sale devices are expected to account for only $33.8 million in transactions this year, but that number is expected to reach $243 million by 2008, said consultant Maud Meister.

Pay By Touch offers customers and retailers a number of advantages. Customers don't have to dig or scramble for credit cards at the check out line, and Pay By Touch also has the potential to allay consumer fears over identity theft.

For merchants, the system speeds up the checkout line by as much as 34%, according to Shannon Riordan, director of marketing for Pay By Touch. But even more importantly, merchants get to list the customer's payment vehicles, often opting to put a debit card at the top of the list. Studies have found that the first choice is often the one consumers will pick, and with the debit card at the top, processing fees charged by banks are considerably less. The system also can be used for age verification for alcohol purchases or for senior citizen discounts.

Another plus for the merchant is a reduction in "charge-backs," which occur when consumers dispute charges, saying they did not authorize the transaction, said Mr. Crone. "Pay By Touch is a new way to authenticate and authorize payment," he said.

competitors

Still, Pay By Touch faces a myriad of competition in the battle to better extract money from the consumer's wallet, including a facial-recognition system at Donald Trump's Taj Mahal, which allows gamblers effortless access to cash from their bank account or credit line. Competing RFID payment systems have been in use since the late 1990s by ExxonMobil, which requires consumers to flash a little card in front of a scanner. RFID use also is widespread in speeding up the toll- paying process along highways nationwide.

Even football fans attending home games of the National Football League's Philadelphia Eagles, Seattle Seahawks and Detroit Lions will be able to flash an RFID card from PowerPay to purchase food, beverages and merchandise. Mark Johnson, founder, president and CEO of SMART System Technologies, said the technology is especially helpful for merchants at cash-based venues, such as sports and entertainment events. MasterCard's contactless credit card, PayPass, is being tested in three cities, as well as those McDonald's stores accepting credit cards. Other fast-food chains may follow.

"There's always going to be competitors," said Caroline McNally, Pay By Touch's chief marketing officer and a former Visa International executive. Those systems are not as carefree as Pay By Touch in that they still require a consumer to carry a card with them, she said.

Pay By Touch's initial marketing strategy is focused on in-store efforts at a number of test sites, including a group of Piggly Wiggly, Blockbuster and other stores. In addition to direct mail to those stores' loyalty customers, Pay By Touch has taken a hand-holding approach to "demystifying" its system with a sales force explaining the system and allaying concerns. An outdoor and radio effort also is under consideration for Portland when the Albertson's stores bring the program on line.

To get the story out nationally, a Pay By Touch PR blitz has resulted in 79 million impressions from June through Sept. 1, 2004, according to the company's numbers. Pay by Touch agencies include Omnicom Group's TBWA/Chiat/Day, San Francisco, for creative and siblings Porter Novelli for public relations and PHD for media buying.

challenges

Mr. Crone said launching the system is not without its challenges. "There's a chicken-and-egg problem in starting a new payment," said Mr. Crone. He noted that credit cards were available in the 1960s but didn't become commonplace until a decade later. "The stars need to be in alignment for exponential growth and ubiquitous usage," he said.

Privacy concerns must be overcome, especially about the prospect of giving up a "fingerprint." However, Ms. Riordan said the devices do not collect a fingerprint per se, but rather a set of data points which are encrypted and can't be reverse-engineered into an actual fingerprint.

Those marketing concerns may be the smallest piece of the puzzle, Mr. Crone said, compared with the challenge of getting merchant cooperation.

Paul Kapioski, president of Cap Food Services Co.'s West Seattle Thriftway, which has tested a Pay By Touch system for four years, said 400,000 transactions have been completed with the system. He added that about 25% of the customer base for his store-located about 10 miles from the Redmond, Wash., Microsoft campus-has signed up. Among the first group to sign up were the elderly, he said, primarily for safety concerns about carrying cash.

"We need more merchants to be a part of it," he said. The reason: "It's a chance for merchants to take back control" from the payment companies by demanding lower processing fees, a move which will immediately improve a store's bottom line.

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