January 30, 2006

Consumers Resist Retail Biometrics

By Evan Schuman, Ziff Davis Internet

News Analysis: Retailers find the argument for speed and efficiency compelling, but some customers and privacy advocates see it differently.

As assistant director of information systems for the $700 million Piggly Wiggly grocery chain, Rachel Bolt has been one of the most vocal proponents of biometric retail authentication systems. At Piggly Wiggly, that system—like almost every other retail biometric system being tested today—is based on fingerprints.

But although Bolt saw initially strong consumer interest and support for the system, that support has lately seen a serious drop.

Bolt said she didn't appreciate how emotionally intense some of the opposition was until she visited a store and saw a 70-year-old woman literally throw a Bible at an employee trying to enroll people in the program.

"She told him that God was going to rain hellfire on him and that he was promoting the devil's work," Bolt said, adding that she took that to mean the customer was not interested in enrolling.

When Piggly Wiggly, which has 114 stores in South Carolina and Georgia, first launched its biometric program in the first half of 2005, it was one of the industry's largest commitments to retail biometrics, and is therefore being closely watched.

"We piloted it in four stores and it worked out extremely well," Bolt said. "The rollout to the entire chain, however, did not go nearly as well as we expected."

The 70-year-old customer was reacting to the concern of some in the religious community that RFID (radio-frequency identification) and biometric programs are similar to a Bible story known as "the mark of the beast." The story from Revelation speaks of limits to sales or purchases "save he that had the mark, or the name of the beast, or the number of his name."

Katherine Albrecht is a consumer privacy advocate whose book "SpyChips" discusses privacy concerns about RFID. Albrecht also lectures about the Mark of the Beast in relation to retail identification issues.

In the Bible, "This mark is specifically described as being in the right hand or in the forehead. Fingerprint systems like [the one being used at Piggly Wiggly] clearly do not meet this definition," Albrecht said.

"However, there is a concern that as we begin using the body to make payments instead of cash or plastic, we could be paving the way for a system like that predicted in the Bible, where something related to one's body is needed to perform the authentication necessary to make a purchase."

Many retailers have a difficult time dealing with such biblical issues, as they see biometric authentication as simply a time-saving alternative to paper identification that is also more easily tied into CRM (customer relationship management) and payment systems.

The benefits of biometric authentication for retailers—and, to a lesser extent, for consumers—relate to speed and better information management. Albertson's is one of the larger retail chains testing the technology today, with Wal-Mart, Target and Costco reportedly testing as well.

A customer paying with a credit/debit card often has to fish the card out of a wallet or purse, have the magstripe swiped, sometimes multiple times before a reading is accepted, and wait for a receipt to be printed and then signed.

Check-writing customers will often delay the checkout line even more, as the time it takes to write a check and find and have the cashier examine one or two forms of identification is not inconsequential.

The biometric checkout is designed to require the customer to quickly present a finger for identification. The almost instantaneous authentication can replace a payment card and a loyalty card. On the CRM front, it would also positively associate specific purchases with a specific customer.

As a practical matter, Piggly Wiggly's Bolt said, the fingerprint approach has some limited drawbacks, beyond potentially facilitating Armageddon close-out sales transactions.

Chief among those drawbacks is that many people simply cannot be fingerprinted. That's the case for some people with thin skin, including those who have it as part of their genetic makeup as well as those who use cleaning chemicals extensively or take a wide range of prescription drugs that slightly thin the skin while treating various autoimmune ailments.

People who have injured their fingers even slightly—perhaps with a knife scrape—can find their prints become either unreadable or altered enough to cause the system to reject the purchase. Also, people whose fingers have limited movement sometimes cannot be scanned properly.

"Our experience has been that the elderly population and construction workers have difficulty enrolling" and therefore in having transactions processed, Bolt said. "You put one scratch on the fingerprint and it's not going to read it."

She said many of those issues can be addressed with more attention at the point of enrollment. Trained enrollers can apply more—or sometimes less—pressure from the fingers to extract more usable scans, she said, and they can also try scanning more than one finger.

Biometric methods other than fingerprints—such as identifying a retinal scan, facial shape or voiceprint—are likely to be explored several years down the road, but such methods are not considered economically viable yet within the razor-thin retail margins in the United States.

Those other methods are currently viewed as more intrusive than fingerprinting, and would probably encounter correspondingly more resistance from consumers. Retailers hope, however, that over time the acceptance of biometrics will increase.

Those U.S. preferences are not globally universal, said Shannon Riordan, the chief marketing officer for biometric authentication vendor Pay By Touch, which makes the system that Piggly Wiggly is using.

"In China, for example, the retina scan is preferable to the finger because they feel [a retina scan] is more sanitary," Riordan said.

In the United States today, though, getting consumers to accept mere finger-scanning is proving tricky.

"We're still trying to get over that hurdle of consumer resistance," Bolt said. "There must be an incentive for the consumer to do it."

Bolt's chain has offered free turkeys and other merchandise for consumers who sign up for the finger scans. "The majority of our customer base does not recognize the value [of biometric checkout] to them. Last week, we enrolled 23 customers. But if I could give them something [that gives them an incentive] to enroll, I could enroll another 5,000 in one week," she said.

Ultimately, there's only so much a chain can do to make its customers feel comfortable with any new technology. "It will all come together when it becomes the norm rather than some outlying technology," Bolt said. "It's just going to take time."

Pay By Touch's Riordan said consumer education and awareness are critical issues in accelerating consumer acceptance of the technology. Pay By Touch has its systems in place at about 300 retail locations, Riordan said, with plans for "several thousand by the end of '06."

"Until we have a stronger and greater presence in the marketplace, that [negative perception] will be one of the greater hurdles to overcome," Riordan said. "The concerns are typically in areas of privacy or security."

Riordan said she has heard the "mark of the beast" concerns and offered a comment that echoes the stance of much of the retail industry: "This is strictly a way to more safely and efficient process transactions and nothing more. Pay By Touch has nothing to do with religion."

Fingerprinting itself suffers from bad associations, courtesy of movies and TV police shows. The perception is that people's fingerprints are taken only when they are accused of crimes.

Pay By Touch tries to stay clear of that association by avoiding the term "fingerprint" altogether. "We don't use that word. We talk about a 'finger image,'" she said.

It's not merely a question of semantics. The traditional fingerprint is created by pressing the finger onto an inkpad and then inking the copy of that fingerprint onto paper.

Pay By Touch's system, on the other hand, scans the finger's ridges and converts the information into a series of stored numbers. That means that, unlike in the traditional police setup, the image of the finger itself isn't kept on file, but numbers and data points that describe the image are saved.

The result, according to Pay By Touch, is that a fingerprint can't be recreated using data from its files. "We don't share any of the information," Riordan said.

Privacy activist Albrecht has been publicly questioning the security mechanisms behind the system, wondering if it would indeed be that difficult to steal a fingerprint and create a fake finger to fool the system.

"Imagine if every time I touched a doorknob or a wine glass, I inadvertently transmitted my PIN number?" Albrecht asked.

Pay By Touch technology has gotten more sophisticated in recent years, and various security challenges to fingerprint authentication—from Gummi Fingers to using severed fingers—may no longer work.

Citing capabilities detailed in one of the company's patents, Riordan said many security threats won't fool its systems. "There's a component of how this works that requires it be a live finger. There needs to be blood pulsing through it," she said.

The retail IT community is still enthusiastic about the long-term potential of biometric authentication for checkout, and the initial implementation hiccups are seen as the natural flow of any new technology.

Vendors have a similar attitude towards RFID technology, seeing huge potential supply chain savings as outweighing deployment issues.

A key reason that retailers want biometric authentication to ultimately work involves the cost of payment systems in their various forms, including labor costs and processing fees; the need to keep checkout lines moving; and the potential sophistication of CRM data and how easily it can be leveraged into more sales and reduced costs.

At Piggly Wiggly, for example, checks are considered to be the most costly means of payment. That's not merely because of the additional time consumers need to use them, but because of bounced checks (accidental as well as deliberate) and the costly systems in place to minimize them.

The second most expensive means of payment is cash.

The payment must be counted at checkout, the total amount of cash must be painstakingly counted and recounted at the end of the shift, and the potential for theft is higher because it is considerably easier to steal, resulting in even more expensive security procedures and devices for monitoring and controlling cash activities.

The anonymity of cash is also a concern for retailers because it undermines CRM efforts, making it the most unstrategic means of getting paid.

That partially explains why Piggly Wiggly is so interested in biometric checkout options. In October, for example, 13.87 percent of all customer transactions were done by check, accounting for 7.5 percent of all sales dollars that month, Bolt said, while 64 percent of all transactions involved a cash payment, representing 46 percent of all revenue the store took in that month.

One of the other attractions of biometric checkout systems is the ability to link authentication with a wide range of payment options, including several that offer much lower transaction fees than MasterCard, Visa and AmericanExpress.

Relatively high bank card fees are angering many retailers, prompting a significant protest demonstration at this month's National Retail Federation tradeshow in New York. To the extent that biometric authentication could be a tool to loosen the reliance that retailers have on those higher-priced cards, it's of keen interest to retail executives.

Pay By Touch, for example, is pushing its eCheck program, in which consumer funds are debited directly from checking accounts, as with a debit card, except that a finger scan replaces the debit card's traditional PIN or—more rarely—required signature.

When a consumer enrolls in a biometric authentication program, he or she is presented with a list of payment choices. Given that consumers will often select the first option, Riordan suggested that retailers make it a payment method with lower cost to the retailer, such as eCheck. That would also generate revenue for Pay By Touch at the expense of the major credit card companies.

With such financial incentives, retailers very much want these systems to work. But getting widespread consumer support is not going to be easy, given perceptions about security and privacy. And privacy activists like Albrecht want to do what they can to make that hurdle even higher.

"Fingerprint systems serve as a de facto loyalty card. The same Pay By Touch system that sends your ID data to the retailer to process your transaction sends your personal information to the marketers, too," Albrecht said.

"This issue is particularly vexing to me, given that I've spent the last six years trying to remind people that they should make their purchases anonymously if they don't want to reveal intimate details about their lives to marketers and the government. There is nothing more perversely opposed to that ideal than paying with a fingerprint, the very embodiment of personal identity in most people's minds."

Those who watch the retail security industry for a living have little trouble understanding the consumer resistance, although most agree that biometrics will likely win over consumers with time.

Mark Rasch, a former federal white-collar crime prosecutor, responded sarcastically to reports of consumers hesitant to use biometrics at their supermarket.

"Who could have predicted that? People who want to buy a loaf of bread and eggs don't want to have their finger scanned," he said.

"The ultimate thing with biometrics in a consumer retail setting is it's all about customer convenience. But why is biometrics more convenient? It's really about preventing fraud—preventing fraud against Piggly Wiggly, not me. Why should I be inconvenienced to protect them? It ends up taking more time, has a greater error rate and doesn't provide the consumer with anything they want."

Rasch, who today serves as a senior vice president for security software vendor Solutionary, nicely sums up the issues behind consumer resistance.

"People just generally don't want to give up fingerprints because they justifiably or unjustifiably believe there's a database being created with their biometrics. This presents unique consumer concerns," he said.

"It does provide the consumer with a little convenience—you don't have to take your card out of your wallet and hand it to a cashier who has to swipe it. But ... There's this direct link to me, which presents privacy concerns, like, 'Hey, what are they doing keeping a record of what I'm buying?'" Rasch said.

"Radio Shack asks for your phone number when you buy something. And people ask, 'Why give a phone number just to buy some batteries?' There's the idea that there's nothing in it for me and I'm giving up some privacy," he said.

"What people don't realize is if they pay by credit card, they already have your phone number. Those are short-sighted privacy concerns. Concerns should be more generic—that every time you pay by credit card, there's a record. When it feels linked to you, there's much more consumer resistance."

Rasch also questioned the ultimate security of the system, and pointed to the permanence of a fingerprint ID, which significantly raises the stakes.

"There's a whole bunch of problems with biometrics technology. It's not nearly as secure as people think it is. You always have your biometrics with you. If the magnetic strip on your credit card is unreadable or if it's stolen, you get a new one. You can't get a new finger—at least not easily. So, that's one big problem," he said.

"The other problem with biometrics authentication is it's one thing in a complicated system. It's another layer where things can go wrong. If the sensor fails, you can't read the fingerprint. Maybe 2 to 3 percent of the time when I present my credit card, it can't be read. Someone can type in the number and if they can't, I give another card. You don't have that option with biometrics."

As a practical matter, Rasch said, many retailers will deal with these concerns by making the system more lenient, so as to reduce the number of customers incorrectly rejected. But making the system more lenient decreases its security value.

"These things can be as sensitive or as insensitive as you want. Consumers don't want to wait in line. So where you have high-volume transactions, you can create a lot of tolerance for false positives. And then I'm going to say, 'If I'm 85 percent sure it's this guy, let it go through,'" he said.

Avivah Litan, a research director at industry analyst group Gartner, said the future of biometrics is a question mark and Pay By Touch knows it.

"Pay By Touch is having some success in various grocery chains around the country, but they have had to diversify their offerings, for example by buying Cardsystems International, a payment processor, because their future revenue streams from biometric payments are still uncertain," Litan said.

However, consumers will likely warm to biometrics and its use will increase, she said.

"Consumer surveys indicate that biometrics is a favored consumer method for authentication, and as long as merchants like Piggly Wiggly can use it to lower their own payment costs, I think we will see fingerprint-initiated payments continue to gain adoption," she said. "The ROI for merchants is too compelling to ignore, as it gives them a lower-cost alternative to credit and debit cards."

Consumer resistance, though, could be a deal-killer for biometrics unless the industry turns things around quickly.

"You can look for alternative payment systems, but you don't have a lot of choices. There's smart cards and biometrics. None of it is really viable in the market," Gartner's Litan said.

"There's not a lot you can do if consumers don't like biometric payments, unless there are some pretty big incentives. But then it's not worth it. The whole reason Piggly Wiggly tried this was to reduce the cost of payments," she said.

Piggly Wiggly's Bolt defended the ROI of incentives, arguing that the incentives are short-term costs to get consumers to try the technology. If they try it and don't want to keep using it, the experiment failed and it stops. If they like it and keep using it, the experiment succeeded and the incentives stop being offered.

Rasch pointed to data thefts—such as the recent announcement that Ameriprise Financial lost the financial data of some 158,000 clients and 68,000 advisers when a company laptop was stolen from an employee's car—as giving another reason that biometric authentication should be evaluated very carefully.

"The privacy concerns are both perceived and real. The perceived concern is that there's a database of my fingerprint. And if someone steals that database, they can commit crimes and have me blamed for it. That's a perceived concern, not a real one," Rasch said. "But there are real concerns with fraud and theft. Companies are always losing personal information. Imagine losing a database of biometrics. Those are much worse problems. I can get a new credit card. It would take a while to get a new finger."