Biometric payment cards’ path to mass market
There is a general consensus among fingerprint sensor providers and other stakeholders that millions of payment cards will be secured with fingerprint biometrics within the next few years. The early trials of biometric payment cards in 2018 are, as recently reported, widely expected to be followed by more trials, with certifications and initial production roll-outs planned before the end of 2019. Goode Intelligence predicts the market will reach 579 million units by 2023, and the enthusiasm with which consumers have embraced the convenience of biometric smartphone unlocking can be taken as an indication that adoption will be rapid if it means less fraud, less cancelled cards, and less spending limits on contactless cards.
Consumers appear to be won over. Surveys have consistently indicated people would prefer them, and even pay a premium for them. An international survey (PDF) from Fingerprint Cards showed that half of consumers would pay extra for a biometric bank card, but as public comfort with biometrics is growing quickly, and the survey was conducted a year and a half ago, it may have risen since then, as FPC’s Marketing Director Ulf Ritsvall tells Biometric Update.
“That was before biometrics reached the 65 percent penetration rate it has today with smartphones,” he says. “This was when it was maybe at 25 percent.”
Challenges remain, however. The first trials were hailed by those conducting them as successful, but if millions of biometric payment cards will be deployed, it will be with some significant differences from the first generation tested last year.
“We learned all we could learn, and we need to get to the product that can be ready for mass market,” Mastercard Executive Vice President, Identity Solutions Bob Reany told Biometric Update in an interview.
While mass adoption of payment cards with fingerprint sensors may happen soon, exactly when, and who will take what share in the market, is an open question.
Gemalto Director of Biometrics Fred Martinez says in an interview that the company was very happy with the innovation made to produce the first prototype for trial, but already knew it was far from a finished product. “You have some concerns about how the card will behave in the field, especially after several months of usage,” he says. “In particular because it is a very complex product. It is the most complex product we have done for a banking card. You have lots of components inside, lots of connections, and all of it must fit in the ISO format of the banking card, which is very challenging.”
The next generation of cards will need to be contactless, which means it must meet different requirements for power harvesting and efficiency. They must also enable convenient remote enrollment, meet targets for standard production practices and quality, and of course, meet the ever-descending target price.
Power harvesting is a much greater challenge for contactless transactions, which are already a common transaction method in most developed markets. Providing enough security for banks to lift the amount restrictions on contactless transactions is a big part of the appeal for those markets, but running a biometric process on a wirelessly-powered device requires engineering innovation.
“When you change the power harvesting, you change some of the computing power et cetera,” Reany explains. “It’s looking really good in the prototypes, and we think that they’re going to make the certification, but we’re not going to certify anything that’s not ready. We did switch it up a little bit on the requirements of the tech, so even though there were some really good learnings from the first gen, the second gen has to go through its own paces.”
Power efficiency is part of the reason IDEX Biometrics CEO Stan Swearingen says off-chip sensors are better for biometric smart cards. The sensor substrate can be larger, reducing the processing load and therefore the power draw needed, and the ASIC chip can be combined with other elements for further efficiency, according to Swearingen.
“The fabs have finer and finer pitch in their process, and the finer the pitch you go to the more you can integrate and the lower the power, because we’re off-chip,” he explains. “The silicon guys, they can’t use advanced semiconductor processing. The cost would be prohibitive.”
NEXT Biometrics CEO Ritu Favre tells Biometric Update that while the chip design is important, the type of sensor used differentiates her company’s offering. NEXT’s One Touch Flex CT Module is an off-chip solution, but uses the company’s “ActiveThermal” technology, rather than a capacitive sensor.
“Capacitive technology, due to the RC loss, if you’re trying to get a signal from the center of the sensor out, you’re going to see a loss in that signal the bigger your sensor gets,” she explains. If thermal sensing can deliver the required biometric performance with a lower processing, and therefore power load, it could position NEXT well to take significant market share.
Favre acknowledges that as the three main sensor players, NEXT, FPC, and IDEX all have strengths and weaknesses. Each must balance between sensor size and processing power, in order to meet the biometric performance requirements. The different approaches on offer include the capacitive on-chip solution from IDEX, which first launched its low-power sensor for contactless smartcards a year and a half ago.
Reany confirmed ongoing Mastercard partnerships with IDEX, Gemalto, and IDEMIA, but says the company is keeping an open mind, and has relationships with several other suppliers.
“There’s a bunch of them, because as somebody who just wanted to get the thing to market, we weren’t clear on who was going to be able to do that,” he notes.
Continuing innovation has driven down the amount of power needed to perform biometric authentication and payment authorization on the card, enabling the next wave of trials, which will all be contactless, according to Reany. “The energy harvesting in the NFC environment is looking good, and I wouldn’t have said that a year ago,” he admits.
Enrollment has emerged as the other major technical challenge for biometric payment cards. The first set of eight Mastercard trials all involved enrollment on tablets at a bank branch, Reany says, but a convenient and effective remote enrollment process is necessary for mass adoption. There are several different ways to achieve this, including with an associated mobile app. The one that seems to have the most traction is a sleeve which MeReal Biometrics co-Founder and CEO Philippe Blot describes as “a battery in paper.”
“We’re fortunate we’re a first mover and as a first mover you get insights into things that your competitors don’t,” says Swearingen. “And one of the first things we saw with Mastercard a few years ago was how important enrollment is for the biometric performance of a smart card, and then the need to do that in a remote way. Which created a pretty interesting innovation challenge.”
Mastercard revealed the sleeve developed in collaboration with IDEX in May. Reany says the enrollment solution is working, and the user experience is steadily improving, though he says Mastercard will also explore the process with smartphone apps, at least for those manufacturers that allow third-party access to the NFC chip.
All stakeholders are convinced of the importance of enrollment to user experience.
“I can’t overemphasize how important the enrollment process is to the overall experience,” says Swearingen. “A good quality enrollment will lead to a phenomenal customer experience. A poor enrollment will lead to a very poor experience, and we just can’t afford to have poor experiences with this application.”
Favre emphasizes the importance of sensor size for the enrollment experience, as well as user experience more generally. This is where the advantage of being both off-chip, as well as a rare non-capacitive player in the market comes in, she says.
“We, as well as IDEX, and Synaptics for that matter, are all considered off-chip technologies, which means that you can make a larger sensor, depending on what material you’re in,” Favre explains.
NEXT’s flexible sensors are more durable at larger sizes, she says, as well as raising the difference in the type of sensing used again. “There’s an issue with the capacitive technology the larger you get.” She says size to cost ratio is another differentiator for NEXT’s sensor technology in the payment card market.
Blot is not convinced that NFC payments are going to be a preferred payment method in the long term.
“When you have opened the discussion to the chip, you have many holes of security possible in the transaction process: in the point-of-sale, at the payment gateway, in the back-end,” he argues. “The cryptographers, PhDs, R&D labs will tell you that if power is coming from outside there is a security issue because we request the card to give answers.”
Based on its original market of providing cards for a range of uses such as identification, account storage, and payments for the casino market, MeReal offers a multi-application approach, instead, with an integrated power source and a range of possible features.
“We present the toolbox,” Blot explains. “The basics are enrolling your fingers directly on the card without any additional device, and proposing multi-application channels for multi-application services.”
Reany believes the trials have validated not only the concept, but also consumer acceptance, and even preference.
“If you said ‘would you like a biometric card?’ to a consumer on a piece of paper, you get one level of confidence,” he asserts. “And if you said, ‘hey, you’ve used this thing for a month, what do you think?’ and 91 percent of them said it was more secure and 81 percent said it was more convenient, okay; now you’ve got something.”
The general timeline is agreed upon, but is far from certain. The timeline can hardly be certain, so long as some of the technology and engineering issues are still being debated.
“It’s not really mature yet,” Martinez says. “There are some prototypes, but especially for NFC versions, we don’t see volumes in the millions in the next months. They’re not really ready for that, but we have to have an agile run-up so we are ready to incorporate modifications on the design of the card.”
“There’s more activity now then I’ve ever seen,” Favre claims. Still, she cautions, “I’ve been sort of around the smart card space for quite a while, peripherally, through my career, and I believe that it always takes a little bit longer than everybody wants it to.”
Before production launches, the cards must first be certified. For them to be certified, the engineering and manufacturing processes will have to be further refined.
“They have to show me how its going to get to be mass produced before I’ll do all these certifications on it, and it’s got to be mass produced at the price point that the economics work out,” Reany insists.
Once they are certified, banks and other issuers will control the pace of roll outs. If certification happens on schedule, however, many will not have had time to conduct their own trials, and not all will be comfortable going straight to a bulk order.
“We have a lot of demand from the banks, so we have to prioritize,” Martinez explains. “We don’t want to do tens of pilots each month, we would rather provide really good support on each pilot.”
Issuing institutions will take a variety of approaches, based on a range of factors, including their client base and corporate brand identity, according to Ritsvall.
“Some banks are benchmarking. The other ones are more, ‘Ok, yes this will happen, but maybe it will happen for us two or three years from now.’ They are prepared to be forced. So it depends on the kind of bank.”
At the same time, fintechs and other non-banks, which are regulated differently, could provide early proving grounds. Ritsvall notes that Swedish fintech giant Klarna is already using both a payment card, and biometrics through its mobile app. He also compares the broader situation to contactless payments, which he says took seven years to proliferate from their first production roll-outs, only ending in most markets when Gemalto and IDEMIA could no longer sell non-contact cards.
That will likely make for a steady stream of adopting institutions – at some point. Favre reiterates the independent research NEXT has previously cited, which forecasts 800 million cards by 2022, but only after establishing a market foothold in 2020.
“I would say that to me feels about right – as right as something can feel. But it still could push another year, year and a half, because again, unless the banks feel like its completely vetted out, nothing’s going to break, nothings going to stop working, they’re going to wait.”
The mission for card suppliers and their partners, therefore, is clear. All major players claim to be closing in on production-quality cards, and Mastercard continues to engage with various providers. As for market share, Reany puts it bluntly: “The ones that can get their costs down are the ones that are going to win.”
He is not the only one who thinks so. “The first question the banks are asking today is ‘What is the cost of the card,’” Ritsvall says.
Part of the emphasis on cost can be traced back to the original motivation for Mastercard to pursue biometric cards, which was financial inclusion. Millions of underserved potential customers can enter Mastercard’s ecosystem, with security enhanced by biometrics.
“This all comes down to one thing; scale,” says Reany. “If I can get scale on these things it will get to everybody quicker and governments will be able to afford them.”
The constant price pressures will make the balance challenging for companies to turn a profit, though stakeholders see many different markets for biometric smartcards, some of which may have higher yields. Fingerprint Cards plans to extend its margins with advanced products and packaged products.
While all stakeholders see payment cards coexisting with other payment methods, perhaps including mobile payments, Blot sees many possibilities. “If you want to believe there’s a half-billion payment card market in the future, that’s one possibility,” he says. “But does it have to be mono-application? Reader-dependent? Point-of-sales only? NFC point-of-sales only?”
It seems that major production volumes should be expected in late 2019 at the earliest. It also seems likely that there will be significant market share for all. “Billion-unit markets don’t have one supplier,” Swearingen points out.
Reany is optimistic, but declines to commit to forecasts or specific time frames. When pressed, he mentions that he is a sailor.
“Sailors have intentions, not plans.”