putting a finger onbiometrics

Some retailers now accept a new form of customer payment: the human body (or at least part of it).

Most people would develop an eating disorder or some other form of neurosis if people continually gave them the finger. But not Colorado’s Bob Zenner. The more people flash him their “digits,” the wider his smile.

“They come in and give us the finger,” says the owner of Terry’s Liquor Martin the city of Alamosa. “They all joke about it.”

To be clear, the “finger” refers to the index finger, not the middle one, andit’s being used as a form of payment rather than an offensive gesture. Zennerhas been accepting people’s fingers—or more specifically, mathematicalalgorithms based on 27 points corresponding to a fingerprint’s ridges—forjust a few months, but he says he earned a return on his investment in one-tenthof a day.

“We had a compliance failure for the first time in three years,” says Zenner, a retired software security program manager for HP before buying his liquor store. “The person was 20 years, 11 months and two-anda-half weeks old, and she came in on three different occasions, trying to use a fake ID each time. On the fourth time, she sought out a clerk who remembered her. We got popped and it cost us $35,000 in fines.”

He vowed to never let that happen again, since the incident also cost him three days of operation and $150,000 in sales “just to get back to zero.” With a $3,000 investment in biometric readers from vendor FSS Inc., Zenner says he no longer worries about getting caught up in compliance checks. As of late June, he had more than 1,300 customers enrolled in a program that enables them to place their fingertips on readers by the point of sale to make purchases—without a credit card, without cash and without flashing a form of ID.

“We probably reduced the time to ID customers as 21 or older by a couple of minutes per person,” he says. “When you have rush hour or the week during Christmas, that equates to more business and fewer [angry] customers.”

So far the system has held up against a determined lot of underage fraudsters.Zenner says “very good computer departments” at a couple of local colleges havebeen producing “fabulous” fake IDs for years. The method of choice: stealingsomeone’s legitimate ID, splitting it down the middle and laminating a fakefront onto the back, which bears the magnetic stripe. The info on the frontdiffers from the mag-stripe data, so associates need to compare the front andback in order to spot a fake.

Such imposter IDs are convincing, but Zenner doesn’t lose sleep over them. Since the biometric system requires a fingerprint to be matched to the ID from the very beginning, it has circumvented the problem.

Check assurance
Zenner’s store is hardly an anomaly. Two Combos conveniencestores in Utah collect an unusually high number of customer checks each month.Tallies of $18,000 in checks per month are common, according to Combos GeneralManager David Wiscombe. And until recently, of that amount roughly $3,000 camefrom bad or “NSF” (insufficient funds) checks. In February, the company installedbiometric readers from BioPay LLC—consisting of a terminal, a check readerand a fingerprint pad— to replace a check verifier from a competing vendor.The problem with bad checks has since disappeared.

“BioPay doesn’t let us know if we’re getting bad checks,” says Wiscombe. “They’re our collection agent, and they guarantee the funds. It’s not a problem anymore.”

Upon installing the BioPay solution, Combos stores did receive their fair share of complaints from customers who weren’t familiar with the technology; Combos remains the only retailer in the state of Utah to implement BioPay readers, according to Wiscombe. So far the stores have enrolled 2,000 users in the program. Still, usage has been fairly low.

“We probably get 15 to 20 transactions per day,” he says. “But customers like it because they can even get some cash back.”

In addition to the elimination of NSF checks, another advantage has been adecrease in transaction fees, since some customers have switched from plastictransactions to biometric payment, which runs through ACH (Automated ClearingHouse), as opposed to the credit card networks. He says whenever a customerpays for merchandise using a fingertip, Combos pays “maybe 25′ per transaction”as opposed to 2% of the total transaction amount.

Reduced interchange costs are one of the things that attracted Rich Gladu to the technology. Gladu has installed biometric readers from BioPay in three of his four Virginia-based convenience stores.

“It helps on the transaction costs, since it’s only a 15′ flat fee,” says Gladu, president of Apple Valley Foods Inc., based in Sterling, VA, just outside the nation’s capital. “If a customer is only spending a couple of dollars, you may take a hit on smaller purchases. But when the majority of your customers are buying gas and spending $20 to $30 per fill-up, you’re talking about substantial savings.”

Gladu admits to not promoting the service very heavily, yet he has been able to enroll more than 350 customers. He says a few other area retailers have also adopted the technology, including a dry cleaner, a few small restaurants and some grocery stores—but no big chains.

“At one store, I do maybe a dozen transactions per day, so it’s not like it’ssetting the world on fire—but it’s not heavily advertised either,” Gladusays. “The only unique thing about it is that we have a lot of contractors—guysthat work with their hands. We usually scan the index finger, but once in awhile you have to work pretty hard to find a finger with a good print becauseall their fingerprints are worn off.”

The “big bang”
Gladu’s stores are becoming part of a network—acommunity—of retailers that accept biometric payment. The same can besaid of Zenner’s liquor store, which is part of a three-store alliance. TimRobinson, president and CEO of BioPay, says this is where the real benefit liesfor the consumer.

“It’s not a compelling case for the consumer if you’re a single spot,” Robinson says. “What we’ve done is create a system that enables crossincentives and cross-promotions; in North Carolina, if you sign up for the program at a Lowe’s grocery store, you can get a free coffee at Dilworth’s Coffee and vice versa. In the case of Combos, where it’s a convenience play, you can be an island and it’s still a value for the customer.”

The buzz surrounding biometric payment has been percolating since the late1990s, but only recently has it begun to make serious inroads into retail. PigglyWiggly grocery stores have adopted biometric payment from Pay By Touch, andan increasing number of c-stores, QSRs and other retailers continue to implementit as a means of speeding transactions, lowering transaction costs and generatingconsumer interest. As Gladu says, “There’s a novelty to it; it’s kind of likescience fiction.”

It has also aroused some suspicion. Some people picture criminals stealing someone’s identity by carving out an eyeball or chopping off a finger, thereby gaining access to his/her funds. If anything, such biometric technology makes commerce more secure, according to Robinson.

“People no longer want to be so exposed,” he says. “The average check, for example, is touched by an average of eight people. It’s an issue of privacy; you want to rent the car from Hertz and the DVD from Blockbuster, but you need to part with personal, confidential data in order to get it.”

At Terry’s Liquor Mart, Zenner does everything possible to educate his customers about what’s being collected: a scan of the driver’s license, the date of birth and the license’s expiration date—that’s it. The feature has inadvertently provided another customer convenience; when a driver’s license approaches its expiration date, the screen flashes to remind the custome
r that it’s time to renew his/her license.

“In the beginning we probably had maybe 20 people that didn’t want to opt-into the system,” Zenner says. “Most of them were waiting in line and seeing otherpeople using their finger to speed through the process. Most of them have sincecaved. Now we’re down to about five holdouts.”

Security of data is becoming equally important in the employeremployee relationship. Biometrics can have substantial impact on managing time and attendance as well, according to Vance Bjorn, chief technology officer of DigitalPersona, a company created in 1996 to “solve the identity problem” concerning the integrity of computer passwords.

“We’re starting to see some movement with payment in the U.S., but we see oneof the main growth areas on the employee side,” says Bjorn. “A drugstore chainin Canada has deployed a biometric-based backoffice system for employees whoneed to access desktop applications for instore computers or registers, andonly managers can open the cash drawer. A fingerprint is much stronger thana password on a Post-It Note. Even if a password isn’t written down, it’s easyto see the manager typing it in, and that could be an enticing target.”

Sign me up
The enrollment process generally takes no more than a coupleof minutes. Each of Wiscombe’s Combos stores scans a customer’s right finger,then the left, and then has the customer fill out some paperwork. In Colorado,Zenner was eagerly awaiting a revision that would enable his store to step pasta “weak spot” in the technology: manual entry. The revision he’s hoping forwould require associates that enroll customers to use the system to first IDthemselves.

“If anything came out with a bad entry, we would know exactly who did it,” Zenner says. “Right now, an unscrupulous employee can punch in an incorrect birthdate, and there’s no way to check it; the date is only as good as the entry.”

Some industry watchers wonder about other marketing and operations challengesfacing biometrics. Jimmy Fortuna, director of global product marketing for RadiantSystems, sees biometric payment as a form of customer convenience that can helplower a retailer’s interchange costs; he also sees a few “chinks in the armor.”Notable hurdles, he says, include a lack of standards among biometric vendorsand minimal marketing power compared to vendors of other new payment systems,such as radiofrequencybased contactless cards.

“With biometrics, you have to have an enrollment process, which requires human supervision,” he says. “I look at biometrics versus something like radio-frequency-based payment, and the populist in me wants to see biometrics deployed broadly, but the realist in me worries that RF might drown it out in the noise.”

Radiant Systems has partnered with Pay By Touch to help retailers integratebiometric readers into their point-of-sale systems, and it has also helped improvespeed of service for retailers with contactless payment systems such as thosebeing used by retail innovators 7-Eleven and Sheetz.

“There’s growing interest in the retail community for both forms of technology,”he says, “and there’s room for both out there.”

While biometric technology is gaining a toehold in retail, it is by no means ready to sweep the industry. Wiscombe says his company has been happy with its impact on check protection and speed of service, but he also says retailers looking to implement the technology need to understand, like he did, that there could be some pain along the way.

“We really do like the technology, but we understand that we’re a guinea pigfor it,” Wiscombe says. “We have just the two stores, and right now we’re theonly two in the area that implement the technology.”

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