By Jeffrey Green (@epaymentsguy)
When Apple included a biometric function on the iPhone 5S, it sparked speculation that paying via mobile commerce soon could be simplified through the touch of a finger.
A South Dakota-based company has a similar goal for paying at the point of sale (POS).
It has been just more than five years since POS biometrics-payment provider Pay By Touch shut its doors after management mishandled $330 million in venture capital, a situation that likely caused merchants to cool on the technology. But, that doesn’t appear to be a concern for Nexus USA, which is slowly developing a similar service in Rapid City.
The project began earlier this year at the School of Mines and Technology, where some 50 select students and four faculty members initially participated in proof-of-concept testing of the Smart Pay system on campus. Some 600 students eventually signed up when the company opened the enrollment, according to Alan Maas, president of Nexus USA, a subsidiary of patent owner Hanscan Identity Management.
Maas, who is from Madison, South Dakota, tells PYMNTS.com he convinced the company’s owner, Dutch oil tycoon Klaas Zwart, to let him pursue the campus as a testing ground to bring the Spanish firm’s technology to the U.S.
“We’ve made more progress in six months here than they’ve had in years there, he says, referring to Hanscan’s efforts in Spain. “It’s a different way of life here. There are people eager here to help out, and we’ve had a lot of backing.”
Pay By Touch’s technology used algorithms to create unique identifiers for individuals’ fingers, and the company discarded original fingerprints taken when enrolling. Hanscan’s biometric technology goes a step further in that it also detects live hemoglobin activity in the finger during scans, thus alleviating the potential for fraudulent access using cut off fingers or print recreations using artificial materials such as latex, which reportedly was used to fool Apple’s ID Tech system.
Nexus is in the very early stages of development, and it plans to remain solely in Rapid City “for as long as it takes,” Maas says, as it develops its Smart Pay system and learns the nuances of the payments industry and the best way to introduce biometrics to the market. As of mid-November 2013, the company had just two merchants using its system, a Seattle’s Best Coffee shop in the Hotel Alex Johnson and a Hookah lounge called Infrits.
Security First Bank is providing its payments support, and by the middle of this month, the company expects to be integrated into most of the country’s leading point-of-sale (POS) systems, which should help to expand the testing ground to include more Rapid City merchants. Nexus also expects this month to begin supporting automated clearinghouse transactions; it had been supporting just credit card use to load value into a Smart Pay prepaid account.
Nexus is charging merchants 2 percent of the sale, but the rate eventually should drop to closer to 0.5 percent as the system matures, Maas says.
Thus far in testing, the system itself has not generated any false positives or negatives, and the only errors have occurred because of user error, Maas says.
Oh, and the company also has hired Antonio Banderas as company spokesman.
Apple’s introduction of an iPhone biometric function may mean consumers are ready for an alternative to having to remember so many user names or passwords for mobile app access and, perhaps, payments. But, one of the main obstacles for smartphones to emerge as a POS payment mechanism is that they haven’t been able yet to overcome the simplicity of pulling out a payment card and swiping it in a terminal.
Placing a finger on a terminal to pay achieves that goal, but what it doesn’t do is support direct two-way communications with merchants. However, if consumers like the biometric option for POS payments, expect mobile to play a role in the exchange of reward or coupon data via SMS text messaging, with the value then being exchanged the next time the user pays. It’s at least a possibility.
Pay By Touch was founded in 2002, and when it shut its doors in spring 2008, it had grown to 3,000 locations and 3.6 million users nationally. At the time, the network had the backing of such key industry players as Discover, Citigroup and various small and large retailers, including supermarkets own by SuperValu that included Cub Foods and Jewel-Osco.
So it’s not to say there isn’t a payment industry interest in biometrics. But, the difficulty will be making it work in an environment with so many different new “solutions” competing for merchants’ attention.