New Customer Touch Points - InformationWeek

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5/21/2006
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New Customer Touch Points

Biometric fingerprint-payment options can transform retail businesses, but setup costs, integration, and customers' security concerns pose challenges. Despite their 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. Executive

Fingerprint-payment transactions in the United States can now be found at many gas stations, as well as liquor and convenience stores. For example, the Express Mart in Arnold, Mo.—part of privately held Home Service Oil Co.—recently introduced a gas-price promotion to entice customers into using biometric payments.

But the most visible early adopters have been retail grocery merchants, including Albertson's, the second-largest U.S. supermarket retail chain; Minnesota-based Hornbacher's; Missouri-based IGA stores; and Piggly Wiggly Carolina.

In mid-2005, Piggly Wiggly began enrolling customers in a pilot implementation of fingerprint payments at 85 stores. The service grew to include more than 25,000 shoppers. "The primary justification was to provide our customers with a payment alternative that was fast and easy," says Rich Farrell, VP of information services at Piggly Wiggly.

Pennies On The DollarCustomers enroll by providing their fingerprint and bank-account number to the merchant, who can link an individual's fingerprint to a credit-card or checking-account number. Merchants prefer linking the fingerprint to checking accounts because it facilitates automated clearinghouse (ACH) transactions that lower payment-processing costs. This is a critical feature: ACH and personal identification number (PIN) debit transactions are far less costly for merchants than credit-card and signature-debit transactions (see chart). To finish enrolling, customers must also select a search code. Once enrolled, customers simply place their finger on the scanner and enter their search code at checkout.

"We're enrolling customers every day and launch occasional promotions to motivate more customers to enroll," Farrell says.

Both customers and merchants find fingerprint-based payment convenient. For starters, card clutter or forgetting the wallet altogether is no longer a problem for the customer. Merchants will benefit from improved sales due to easier and faster checkout, improved loyalty tracking, and reduced fraud risk.

"We conducted a three-month pilot installation to validate the benefits and determine an acceptable ROI," Farrell says. "Lower transaction fees, improved checkout speed, and customers' excitement about the service were the primary reasons the service was rolled out." Piggly Wiggly found the fingerprint-payment option increased customer store visits by 15% and total spending per customer by 12%.

"Each customer using the service saves us at least 25 cents for that transaction, "Farrell says. "On large transactions, we can [save up to] several dollars in fees compared with credit-card transactions."

CIOs charged with exploring biometric-payment alternatives must take an analytical and holistic view of cost, however. First, the infrastructure will require the upgrade and replacement of the point-of-sale (POS) communication infrastructure, as well as the supporting systems. In addition, back-end integration with CRM and inventory-management systems may be needed. For example, in 2004, most major grocery and department stores began implementing large-scale, customer-centric CRM integration projects.

Costs for biometric-payment systems vary depending on the size and scope of the project, but "initial setup costs can be budgeted at approximately $1,000 per shopping lane and include equipment, software, and installation," says Shannon Riordan, director of marketing at Pay By Touch, a provider of fingerprint-based payment technology based in San Francisco. "Depending on merchant transaction volumes, recurring costs range from 8 to 16 cents per transaction."

Additional challenges involve integrating the biometric scanners with front-end readers, PIN pads, and POS systems. For us, "the solution design and implementation were fairly easy," Farrell says. "We wrote software for our POS systems to integrate with the Pay By Touch finger scan and our payment terminal. The biggest challenge was training the store personnel."

CIOs must also consider that consumers worry more than ever about identity theft. In 2005, the Federal Trade Commission attributed 37% of all fraud-related complaints to identity theft. Privacy critics fear that unlike a compromised PIN, which can be reset, a stolen fingerprint could result in permanent loss of identity.

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