Stan Swearingen, CEO of IDEX Biometrics
Over the past 10 years, the introduction of contactless payments is the only notable change within the payment cards market.
Overall, the physical look, feel and functionality of the payment card has not changed until very recently where innovation is beginning to drive new security features, use cases and open-up new end market opportunities, transforming not just the way people use and interact with their payment cards, but also the payment card ecosystem.
Contactless card payments have been a resounding market success, and although the debut of mobile payments was expected to disrupt contactless card usage, it has, in fact, had little to no impact. According to its latest research, eMarketer expects that 13.2% of the global population will be using mobile payments by the end of 2018. By 2021, that proportion is expected to grow to 17.2%[i]. Considering there are 7.2 billion people on this planet, current forecasting hasn’t met the initial high-expectations for what was expected to be a rapid uptake of mobile payments.
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In fact, the widespread popularity of contactless cards has stunted mobile payment adoption and as a direct result, only 1% of British consumers currently opt to use mobile payments for everyday purchases such as lunch or clothes, over a card or cash.
Security concerns are stated as the primary reason for low usage and adoption rates[ii].
Today the PayTech market is at a tipping point, being driven by customer demand and further fuelled by banking and financial institutions who are looking towards innovation and technology in order to differentiate from their competition. As a result, mobile payment technologies, such as biometrics, is being mirrored onto the physical card driven by the consumer’s understanding, comfort and familiarity of using biometric tech, paired with an ability to utilise existing POS infrastructure, to enable card portfolio differentiation and to future-proof security for Card Present (CP) transactions.
Traditionally vendors at the top of the payments value chain have been leading the innovation charge and this is true of past developments, including the move from static data authentication (SDA) to dynamic data authentication (DDA) and the introduction of contactless. However, the rise of the biometric payment card has provided a platform for smaller and more agile FinTech disruptors to take the mantel, creating big innovative waves up the supply chain. With the industry now being driven by consumer demand, smaller players are ideally positioned to react in an agile manner to address market expectations, able to deliver new advancements in the field for trials in a matter of months, as opposed to years.
Today, many ecosystem players at the component and sub-card assembly level are looking towards next-generation biometric payment cards to diversify and expand technology portfolios into new areas including energy harvesting, secure enrolment and flexible biometric sensors in order to draw out additional market value. In turn, this has encouraged increasingly healthy market competition with smaller more agile players demonstrating innovation can be driven and created lower down the value chain, not limited to large international conglomerates. By expanding the ecosystem, shifting influence, increasing partnerships and a more competitive environment has been created, which will ultimately benefit the whole market.
Hello Biometric Payment Smart Card
Silently in the background, a group of disruptive fintech’s have been busy creating the next innovation wave to rock the industry and transform the physical card as we know it. Not only will this address security concerns, but it will break down barriers to bolster the popularity of the contactless card. Make way for the biometric smart payment card.
Due to its highly unique nature, a fingerprint is extremely secure and therefore an ideal technology to layer on additional security features within end markets, including payments, where multi-factor authentication is becoming the norm. However, getting a fingerprint sensor on a card has – until now – been a challenge. Cards are extremely thin, lightweight and are passive in nature with no built-in active power source. This is where innovative fingerprint recognition systems come into play, now ready to be attached to the everyday payment card used across the globe.
The use of “off-chip” fingerprint technology allows card manufacturers to simply add a very thin fingerprint sensor to any card. This means costs are kept to a minimum, allowing the technology to be deployed at low cost.
This, combined with the ability to remotely enroll from the comfort of your home, means that the use of biometric payment technology will be accessible to all. As a result, IDEX anticipates that each banking customer will deploy as many as 100,000 biometric cards to their account holders by the end of 2018 and that biometric bankcard issuance will grow into many millions from 2019.
People making card payments will no longer have to compromise security for convenience, thanks to a frictionless approach that utilises the now familiar biometric authentication, with no consumer habit change required. With the £30 transaction cap becoming a thing of the past, along with the need for a PIN or signature, biometrics will prove even more convenient than cash, further moving us towards a cashless society.
The reality also is that it isn’t just the payment landscape that biometric smart cards are making waves in, the innovative technology is driving significant convergence opportunities thanks to the synergies shared between payments and other applications including identification, access control, ticketing, and loyalty.
Benefits beyond transactions
In addition, the use of such biometric technology in the payment space will help to address the global issue that is financial inclusion. Using biometric authentication, individuals that face challenges with illiteracy or health limitations that affect memory will be able to once again enjoy the shopping experience without fear of not being able to enter a pin or sign their signature.
While the market’s priority is to create a frictionless experience, security threat vectors continue to evolve and cybercriminals are on the lookout for ways to outsmart security protocols. The industry must therefore always be two to three steps ahead to adapt and add layers of security. Smaller and more agile players in the market are ideally positioned, closer to the action with their finger on the pulse, or the card, constantly testing innovations to address threat vectors before they become a problem.
Make way payment giants
Phil Sealy, analyst at ABI Research comments: “Not only will the introduction of biometric smart payment cards be the innovative step the industry needs to combat fraud and security concerns by future proofing the traditional payment card, but the technological awakening will raise the importance and profiles of previously overlooked, yet agile, players in the ecosystem.
“What this means for the payments landscape is that big leads in innovation are more commonly coming from the smallest players at the bottom or on the fringe of the metaphorical value chain, being fed through card to manufacturers and then delivered to issuers – turning the traditional chain of command on its head. For example, biometric chips can be created, tested and delivered by independent specialists, direct to card manufacturers, who then work directly with card issuers to get product to market via banks.
“Market giants can now make the most of agile fintech partners to bring innovations to the market faster, safer and more effectively than ever before. These new key partnerships are creating a healthy collaborative ecosystem, making smaller players, traditionally operating at the component or sub-card assembly level, more important and influential than ever before,” states Sealy.
Bringing the market together
Differing levels of market maturity and diverse payment landscapes, which are regional specific, means that biometric card adoption is being driven by different priorities. In more mature regions the priority may be to address card present fraud, but in emerging economies the priority might extend to the established of higher trust levels to ensure proof of life in social applications.
Although the underlying technology remains the same, this clearly demonstrates how innovative payment card technology is suitable for both established and emerging economies. In fact, we often see those further behind in adopting innovation actually find it easier to leapfrog to the latest trend. For example, when China migrated to its PBOC chipcard standard, they skipped first level contact-based card issuance, jumping straight to contactless payments.
In the mature Western European market, we will start to see biometric smart cards penetrate the highstreets, driven by not only consumer demand, as digital security increasingly becomes part of a consumer purchasing decision, but also by the banks and issuers, who are looking towards biometric payment cards to not only address CP fraud rates, but to also bring a level of differentiation to help combat the threat of neo/challenger banks.
Security is fast becoming a product differentiator, suitable not only for the mature, but having tangible use cases across a variety of market types. Now there needs to be a collaborative approach between all parties in the payment technologies value chain to encourage adoption and issuance of next-generation biometric payment cards. The reality is that there is a real benefit for all parties across the complete payments ecosystem, spanning from the payment networks all the way through to the issuing bank and consumer. Close ecosystem collaboration will create a stronger value chain, driving increased levels of innovation, create and forge new partnerships and economies of scale in order to directly meet consumer demand, and ultimately drive a clear ROI.
Biometric authentication places consumers at the centre of innovation, rather than being victims of it. By working seamlessly with current contactless POS systems used in retail and banking infrastructures, consumers needn’t learn or remember anything when using this technology, they simply use their own unique identity. Now it is up to the market to work collaboratively and put the consumer first.