Merchants and financial-services companies have always been uneasy allies. In 2004 alone, U.S. merchants paid finance companies almost $40 billion in credit- and debit-card transaction fees, accounting for nearly 20% of the banks' payment revenue. Because many merchants operate on thin margins, they're fed up with the high cost of relying on banks to process customer transactions. For a retail warehouse like Costco, total payment-transaction fees can run as high as 22% of pretax profits, according to a recent report by Bernstein Research, a consulting firm for institutional investors.
Currently, merchants pay a fixed fee plus a percentage of the transaction amountalso known as interchange feesfor accepting a card as payment. Credit- and debit-card transaction fees constitute the third-largest expense convenience stores face after rent and labor costs, says the National Association of Convenience Stores.
Because of these high transaction costs, merchants are constantly seeking technology innovations to level the playing field with their banking brethren. For some merchants, migrating to fingerprint biometric payment options is a good solution.
Biometrics refers to the measurement of unique human characteristics, such as a person's fingerprint, voice, iris, or hand geometry. Fingerprint payments let retail customers simply place a finger on a specialized scanner, register the transaction with their bank account, and walk out of the store with their purchase.
For merchants, pay-by-finger can lower costs and boost revenue by circumventing higher credit-card transaction fees, speeding up checkout times, promoting customer loyalty, and reducing fraud. For consumers, fingerprint biometric payments offer safety and convenience.
Financial-services companies are closely watching merchants that are adopting these payment systems. Moves by merchants to alternate forms of payment could cut into their revenue stream.
Despite the financial benefits, biometric payments add another level of complexity for merchant CIOs that will ripple from the storefront to the corporate data center. Business-technology leaders considering biometric payments must acquaint themselves with the costs, implementation challenges, and concerns about security and privacy. Executives need to assess the organizational and operational impact of the fingerprint-payment system technology.