SYRACUSE, N.Y. — Why did biometric payment flop in the supermarket industry?
That was the question on the mind of many retailers after Pay By Touch, San Francisco, “regretfully” pulled the plug on its finger-scan payment technology at about 400 supermarkets one minute before midnight on the evening of March 19, according to a statement.
Pay By Touch, owned by Solidus Networks, launched its service in 2002, allowing shoppers to pay for purchases merely by placing their index finger on a finger-scan reader at the POS; their checking account or credit card would automatically be debited. After a flurry of acquisitions, the company became the primary provider of biometric payment systems to food retailers.
Despite the faster and easier — and many believed more secure — payment processing made possible by biometrics, many shoppers were reluctant to pay in this manner.
“Pay By Touch faced a challenge getting significant transactions for the payment service alone,” said Gary Hawkins, owner of Green Hills Farms here, a one-store independent that used Pay By Touch for payment processing as well as in its SmartShop loyalty system. Until last fall, Hawkins worked with Pay By Touch through his consulting firm Hawkins Strategic.
With the additional incentive of targeted offers, Green Hills was able to get about 6,000 households, half of the store's total shopping base, to sign up for SmartShop since its introduction two years ago. Those shoppers largely used finger scans to receive targeted discounts at a kiosk and at the POS. About one-third of those shoppers also paid via finger scans. Green Hills will continue running the SmartShop program using loyalty cards instead of fingerprint scans.
“We thought biometrics was a convenience for the shopper,” said Hawkins. “Instead of digging out their card, they could just use their finger. We had no complaints about it from shoppers — but they had no real passion for it, either.”
In addition to Green Hills, Dorothy Lane Market, Dayton, Ohio, a three-store independent, incorporated Pay By Touch biometrics into its loyalty system, also called SmartShop, as well as in payment processing. About 10% of weekly transactions at Dorothy Lane stores made use of biometrics “for either loyalty only or loyalty and payments,” said Amy Brinkmoeller, director of information services.
Dorothy Lane's Smart-Shop loyalty system will continue to be run by S&H Solutions, Delray, Fla., a division of Pay By Touch that is not part of the bankruptcy, said Brinkmoeller.
At Piggly Wiggly Carolina, a chain that offered only the payment option through Pay By Touch, less than 1% of shoppers signed up for the service since it was rolled out to all 85 corporate stores in 2005, said Rachel Alvarado Bolt, director of information services. Among “loyal shoppers,” she said, between 5% and 7% used the service.
For a time, Pay By Touch appeared to be building support among food retailers with full rollouts at Piggly Wiggly Carolina and two Supervalu divisions — Jewel-Osco (204 stores) and Cub Food (75 locations). Supervalu also offered biometric payment at some stores operated by its bigg's, Farm Fresh, Hornbacher's and Albertsons banners.
But last Dec. 14, Solidus Networks filed for Chapter 11 U.S. bankruptcy protection after determining that it “could no longer support the biometric authentication and payment system as it currently exists, based on lack of funding and current market conditions,” according to a statement.
Earlier this month, Pay By Touch sold its BioPay Paycheck Secure business, based in Herndon, Va., to Phoenix Check Cashing, a company formed by the BioPay management team and investors. BioPay uses biometric identification to identify people cashing checks. The service is installed in 2,000 locations and is used by more than 4 million consumers, according to BioPay's website.
Some retailers were attracted to Pay By Touch because it offered them a way to steer payments through the Automated Clearinghouse (ACH) network, which charges far less for processing than credit and debit networks. However, shoppers who liked earning rewards through credit or debit cards would not sign up for an ACH-only biometric system, noted Hawkins.
Other customers just had “concerns” about using their finger scan, said Piggly Wiggly's Bolt, “though I still believe we could have had greater adoption if we had better education and incentives for store personnel and customers,” she said. A free turkey promotion helped drive adoption not long after the service launched.
While Piggly Wiggly shoppers who regularly used biometric payment “loved using it,” the chain did not get negative feedback from those shoppers when the service was pulled, said Bolt. “People get really upset when we close a store, and we expected that reaction with this but didn't get it, though there was disappointment.”
Shoppers using biometrics did ask what would happen to their personal data associated with the system, noted Bolt, who said they were told it would be destroyed. Piggly Wiggly removed the biometric readers and under-counter computers from each of its checkout lanes.
Both Bolt and Hawkins were displeased by the short notice they got from Pay By Touch that the biometric payment service would be discontinued. “It would have been nice to have had more than two days,” said Bolt. Added Hawkins: “That was inexcusable, especially during a holiday week. They declared [Chapter 11] bankruptcy in December, so they knew the end was coming.”
Pay By Touch did not respond to a request for comment.
Hawkins noted that in the past few years, biometrics has been displaced as a convenient form of payment by contactless credit cards, which consumers simply hold over a reader rather than scan. Some 35 million contactless financial payment cards from MasterCard, Visa and American Express have been issued in the U.S., with more than 400,000 readers in place at 80,000 merchant locations, according to Mohammad Khan, president and founder of payment systems provider ViVOtech, Santa Clara, Calif. Meijer and Wakefern-supported ShopRites are among the food retailers that accept contactless payment.