There have been many highly publicized efforts to introduce biometric authentication into the merchant space, such as Amazon’s palm payment technology. While widespread adoption of biometrics in retail has yet to occur, intriguing use cases continue to emerge.

In a recent PaymentsJournal podcast, Christopher Miller, Lead Emerging Payments Analyst, and Don Apgar, Director of Merchant Payments at Javelin Strategy & Research, discussed the scenarios where biometric verification has proven effective for merchants, the challenges hindering widespread adoption, and the future of identity verification technology.

The Rise of Biometrics: Transforming Authentication and Payments

Over the past few years, biometric technology has gained traction in three key areas.

The first is consumer authentication for rewards and loyalty programs. For example, some fast-casual restaurants have implemented facial recognition software at kiosks to quickly connect users to their accounts.

“It is primarily used as a means of reducing friction for the consumer and potentially rewarding loyal customers with a unique experience,” Miller said. “Lurking behind that is the notion of authenticating payments, because the store or the merchant can of course have payment information on file that is authenticated by your biometric, but that’s not necessarily the driver or the problem that the merchant is trying to solve.”

The second area is payment authentication, where biometrics enhance identity verification. In the EU, for instance, it’s increasingly common for issuing banks to request biometric authentication through their apps when customers transact with a card. This additional security layer helps reduce risk, fraud, unauthorized transactions, and even returns.

Many merchants have also adopted biometric authentication to minimize fraud, particularly when renting out high-value goods.

“If you want to secure a bulldozer for a weekend project with a credit card, it’s important that the merchant who is renting the bulldozer knows that you who are renting this are actually the person who owns that credit card, and you haven’t given them a bad card, or one that eventually is going to be declined,” Miller said. “Because once you leave with the bulldozer, it’s over, and that’s a big loss.”

The third area of biometric adoption is replacing traditional payment devices with biometric credentials, such as in pay-by-palm, facial scanning, or fingerprint recognition. In these cases, the customer presents a biometric credential linked to their payment method, authorizing and completing the transaction seamlessly.

The Merchant Perspective

From a merchant’s perspective, there are two main barriers to biometric adoption. For in-store biometrics, the primary challenge is the cost of the systems such as optical scanners or fingerprint readers. For major merchants with thousands of point-of-sale stations and checkout lanes, this expense can be significant.

The other challenge is the consumer adoption process, which often involves multiple steps and introduces friction.

“About 20 years ago there was a pilot with a company called Pay By Touch that enabled you to pay with your fingerprint in the grocery checkout,” Apgar said. “But that required consumers to pre-register and to put their payment card and their fingerprint in a database. Then the reader could access and translate the fingerprint into the payment card. In the case of the bulldozer rental, that would require me to have my fingerprint on file with the issuer.”

To address these issues, companies like CLEAR, which provides identity verification at airports and stadiums, offer reusable biometric credentials. CLEAR already has a large customer base that has enrolled for streamlined airport authentication. These existing customers could use their credential at any merchant that partners with CLEAR—or a similar network—without needing to re-enroll.

“The emergence of reusable networks of biometric credentials goes a long way towards solving some of the consumer friction problems,” Miller said. “In the same way that it was impossible to expect that consumers would establish a unique credit line at every store that they shop. The same consumer logic that led to the general-purpose credit card is likely to lead to at least a small number of general-purpose biometric credentials.”

Out of Alignment

Though consumer adoption may present a challenge, consumers have shown they are not opposed to biometric authentication. In fact, many routinely use biometric credentials every time they pick up their mobile devices. In many cases, they also rely on biometrics to make payments through digital wallets.

“One of the advantages of Apple Pay in the e-commerce environment is that if you pay by Apple Pay online, you can use your fingerprint on your iPhone as an authentication method,” Apgar said. “Validation and identity confirmation is much more important in e-commerce and in remote transactions than it is in in-lane, in-store transactions, because in the e-commerce space, merchants have liability for identity fraud.”

Retailers bear the full burden of chargebacks in e-commerce transactions, giving them a strong incentive to verify consumer identities. However, cart abandonment remains a major concern, as businesses strive to balance security with a seamless customer experience. In an ideal scenario for merchants, payment methods would free, transactions would be irreversible, and consumer identities would be fully authenticated.

“Consumers want the ability to charge back a transaction if the package doesn’t arrive like it’s supposed to,” Apgar said. “They like having the card issuer, in the case of card payments, being able to intervene as the arbiter if the merchant doesn’t deliver as promised. There is a cost to that, and there is this back and forth; the needs of consumers and merchants aren’t entirely aligned.”

Another point of contention between merchants and consumers is privacy. Payment authentication is often seen as a threat to privacy, as a record of a consumer’s purchases can paint a detailed portrait of their behavior.

“There are ways that those connections can be severed such that nobody knows that a person, who is actually me, bought these embarrassing items at this embarrassing store,” Miller said. “Rather, it’s some token of a card that I have that is confirmed by another party, and that’s less good for the merchant, if only because they can do less with the data at the end, but also because they’re less able to monetize the data that they’ve gathered around consumers.”

The collection and use of consumer data have long been sources of tension in the marketplace, and this issue is unlikely to be fully resolved. The introduction of biometric data adds another layer of complexity, raising critical questions about who stores this data and how is it secured.

The Impetus to Implementation

The cost and privacy concerns likely mean that the return on investment for biometric authentication investments isn’t there for merchants right now. However, issuers are also involved in these transactions and may have a stronger incentive to implement biometric authentication in retail environments to reduce fraud and risk.

The expense will likely be lower for issuers since they wouldn’t need to install fingerprint readers or other physical devices. Instead, they are more likely to leverage existing mobile apps to collect biometric credentials. Some banks have even discussed how implementing a biometric authentication program for their customers could strengthen their relationships.

“If there’s a place where this is more likely to happen, it is issuer-driven,” Miller said. “It is mobile-gathered and performed, and it is possibly part of a larger grab by those issuers. It’s interesting to think of banks becoming potentially identity-confirming sources of their own. Certainly, the larger banks might have the ability to take their networks of 30 or 50 or 100 million customers to create biometric authentication methods for their own purposes.”

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