Biometric payment card market outlook buoyed by abrupt turn to contactless in the US
When last Biometric Update spoke to Idex Biometrics CEO Vince Graziani, he was fairly new to the position, and speculation was rife that the pandemic would accelerate the momentum towards contactless payments, boosting the case for adopting fingerprint biometrics in payment cards. That speculation has been borne out, and nowhere in the world have contactless payment increased more than in the U.S.
Graziani had realized while doing his due diligence for the Idex position that many of the people in America who had contactless cards not only did not use them, they were not even aware of them.
“Most people I talked to didn’t even realize they had a contactless card in their wallet,” he says. “It actually became sort of a running gag for me.”
Around two out of three people Graziani spoke to had them, but there was no incentive in the market for people to use them, or for any stakeholder to invest in encouraging them to do so. Just recently, he heard about American Express an incentive to its customer to pay with a “tap” rather than a “swipe.”
“So even the payment networks are now encouraging the contactless use of the card,” Graziani notes.
Contactless transactions in the U.S. went up by about 150 percent per month from March to November, and the number of Americans who use contactless payment cards has leaped from less than 10 percent to more than half. While this may be low compared to Europe, where more than three-quarters of payment card transactions are contactless.
As the incentive changes in the U.S., however, the whole shape of the biometric payment card market could change. Merchants are beginning to encourage the technology’s adoption, but legacy business processes, such as around receipts or loyalty programs, can undermine those efforts, and many employees do not yet understand or use contactless.
The pace of change is distinctly different now, however, and Graziani told Biometric Update he had just had a call with a large U.S. credit issuer.
“When I took this job, I anticipated that the bigger banks in Europe would do the big pilots, and then eventually it would catch on in Europe, and then hopefully, fingers crossed, Americans would reluctantly adopt it, unlike what they did with chip and PIN, because people would just see the advantages,” Graziani explains. “What’s really happening now with COVID is that people like retailers are seeing the benefits of this type of card. They’re all scrambling for ways to offer their clients a contactless checkout experience. Many of those same large retailers are the same retailers that issue their own credit cards.”
The card’s use in-store is typically incentivized with discounts, but the biometric card incentivizes use outside of stores, adding to issuers profit.
Not only is there the ‘top-of-wallet’ effect that issuers want, but fraud exposure compounded by raised contactless transaction amount limits is also reduced.
“The ROI calculation on having biometric contactless transactions is pretty easy for them to do if they can reduce that fraud exposure,” Graziani says.
Card issuers are now also thinking about how to authenticate online purchases with the card, through the NFC capability of the user’s smartphone. Companies that issue their own cards and are associated with technology want to be among the first to offer fingerprint biometric security on their payment cards, according to Graziani, and capitalize on “the cool factor.”
This creates the sort of market conditions in which a dramatic inflection point in adoption is possible.
“If a major well-known branded card launches a fingerprint biometric, I think all the others are going to feel like ‘I have to have this technology as well or I won’t be able to compete,’ based on the conversations we’ve had with many of the issuers,” Graziani observes.
Further, with companies like Ticketmaster already saying it plans to support mandates for proof of vaccination for event entry, the biometric payment card could pick up an additional use case.
With only “slightly specialized software” pharmacies could be enabled to download a token indicating the user’s vaccine status to the secure element of the card. A slight update to POS software would be necessary, but very doable, Graziani says, and no change in hardware would be necessary, because the NFC communication is two-way already.
To prepare for the mass market launch of fingerprint-enabled smart cards, Idex is testing feverishly, though you might not know it from a glance at Idex’ facilities. A robot employed by the company is among the technologies keeping the tests up on a near-constant basis, to meet the stringent user experience and technology standards set by Visa and Mastercard.
“You have to be able to hold the card 4 centimeters above a POS terminal, and at various angles, and it has to be able to harvest enough energy to approve the transaction,” Graziani points out. “First it powers up just the fingerprint sensor, captures your image, then it powers up the secure element so it can compare to the fingerprint that’s stored there.”
If you walked into lab, he says, “it would seem like nothing’s happening, because you would just see these various test stations sitting there and there may be two or three people in there, occasionally changing the hardware out and loading new hardware in.”
The one team that must work on-site is a small group dedicated to testing Idex Biometrics’ anti-spoofing capabilities. Materials like play-dough, glue, gelatin, and fingerprints printed on foil or paper must be rejected. After all, fraudsters will attack somewhere, and with a huge potential market opening up sooner than expected, fingerprint smart card payments must secure payments against them.