Biometric payments are transactions that use biological characteristics to verify a person's identity before processing a payment. Biometric payments rely on unique physical or behavioural traits, such as fingerprints, facial recognition, iris scans or voice recognition. These methods provide a more secure way to conduct transactions because biometric data is more difficult to replicate or steal than traditional payment methods. This technology is being used increasingly in various sectors, including banking and retail, to provide a faster and more protected payment experience. As a result, the global biometric card market is expected to grow at a compound annual growth rate of nearly 118% between 2024 and 2029.

Below, we'll discuss what businesses need to know about biometric technology and how it's being applied to payments, including how biometric payments work and the benefits and risks associated with using them as a business.

What's in this article?

• The history of biometric payments
  
• How biometric payments are used
  
• Types of biometric authentication
  
• The rise of biometric payments
  
• Biometric payment benefits
  
• Biometric payment challenges
  
• The future of biometric payments
  

The history of biometric payments

Biometric payments date back to ancient civilisations, in which physical traits such as handprints and facial features were used for identification. Modern biometrics emerged in the 1800s, when French police officer Alphonse Bertillon developed a method to classify criminals based on body measurements. This led to the adoption of fingerprints for identification, notably with Sir Edward Henry's fingerprint classification system, which was developed in the late 1800s.

Biometric payment systems began to gain traction in the early 2000s, when Pay By Touch introduced one of the first fingerprint-based payment systems. The 2010s saw a major shift as biometrics moved from government and institutional use to consumer devices. Apple's introduction of Touch ID on the iPhone 5S in 2013 brought biometric technology into mainstream use, allowing users to unlock their devices and authenticate payments using their fingerprints.

Now, in the 2020s, biometric technology is widely used and has been integrated into smartphones for a variety of applications, including payment authentication. The development and adoption of biometric smart cards and payment systems, which use biometrics to authenticate transactions, demonstrate the evolution and integration of biometrics into the financial environment.

Biometric payments provide higher levels of security than those protected by passwords or personal identification numbers (PINs), and can typically facilitate quick and convenient transactions. The evolution of biometric payments showcases a shift towards more secure and user-friendly transaction methods, revolutionising the way in which payments are authenticated and processed.

How biometric payments are used

Biometric payments are used for a variety of applications, as outlined below.

• Retail transactions: Customers can use biometric identifiers, such as fingerprints or facial recognition, to authenticate payments at points of sale. Biometrics are integrated into in-person and online transactions.

• Banking and financial services: Banks and financial institutions are integrating biometrics into their systems for account access and transaction authentication. Biometric smart cards, for instance, use fingerprint sensors to authenticate transactions. Biometrics can also be used to access online banking accounts.

• Healthcare: In healthcare settings, biometric authentication can secure access to medical records and ensure that only authorised personnel can access sensitive patient information. Biometrics are also being incorporated into patient identification processes.

• Digital wallets: Biometric authentication is being used increasingly in digital wallets, where users can authenticate payments or access digital tickets, boarding passes and other services using biometric data.

• Government and public sector: Governments are incorporating biometric payments into various public services, including social welfare programmes, to ensure that benefits are being distributed to the correct individuals.

Types of biometric authentication

• Fingerprint recognition: Out of all of the biometric options, this is the most favoured method, probably because of its widespread use in smartphones.

• Facial recognition: Facial recognition is becoming a more commonly accepted form of biometric authentication, probably gaining popularity through its integration with smartphone wallets such as Apple Pay and Samsung Pay.

• Other biometrics: Voice and iris recognition technologies are less prevalent, possibly because of the associated technical challenges and lower levels of user comfort and familiarity.

The rise of biometric payments

Today, biometric payments are more popular and are being more widely adopted than ever. Users appreciate the advantages of convenience and improved security over traditional methods, such as PINs or signatures. What's more, as more retailers adopt biometric readers and as security protocols evolve, it is likely that user trust and adoption rates will increase. The global biometric card market is projected to hit almost US$18.4 billion by 2029, indicating a growing acceptance and integration of biometrics in payment systems.

The growing adoption of biometric payments has been influenced by these factors:

• Smartphone integration: The integration of biometric technology in smartphones and other personal devices has familiarised customers with biometrics, leading to a higher acceptance rate for biometric payments. Apple Pay and Samsung Pay, both protected by biometrics, are examples of how biometric authentication is becoming a standard feature for mobile payments.

• Preference for convenience and security: More and more, users are preferring payment methods that combine convenience with high levels of security. Biometrics are easier to use (no need to remember PINs or passwords) and harder to breach compared with traditional methods. This dual benefit is a major driver behind the adoption of biometric payments.

• Impact of the pandemic: The COVID-19 pandemic has accelerated the adoption of contactless and biometric payment methods because of heightened hygiene awareness and the desire to minimise physical contact. This shift, which helped to bring biometric payments into mainstream use,​​ could have long-lasting effects on consumer behaviour.

• Financial inclusion: Some view biometric payments as being a tool for financial inclusion. By letting people use their biometric data for authentication, those without access to traditional banking or those who cannot remember PINs or passwords can participate in the financial system. This has a particularly significant impact in regions with high illiteracy rates, or where access to traditional banking is limited.

• Technological advancements: The development of biometric payment cards, which incorporate a user's biometric data directly into the card, is rising. These cards combine the familiarity of card payments with the security and convenience of biometrics, potentially accelerating the adoption of biometric payments in traditional retail settings.

• Regulatory influence: Regulations and standards, such as those developed by the FIDO Alliance and EMVCo, are guiding the deployment of secure and interoperable biometric payment systems. These frameworks are helping to build consumer trust and are facilitating higher levels of adoption by establishing a consistent user experience across devices and platforms.

Although a 2022 NMI survey found that 55% of consumers aged 25 to 40 had used biometric payments, less than 10% of consumers aged 57 and above had experience with them, hinting at opportunities for increased education and infrastructure development. Factors influencing awareness and utilisation are outlined below.

• Limited infrastructure: The infrastructure required for biometric payments isn't available universally, thus restricting users' opportunities to adopt this technology.

• Security concerns: Some customers have expressed apprehension about how their biometric data is stored and used, affecting their willingness to use this payment method. How businesses and governments address these concerns will play an important role in the broader acceptance and adoption of biometric payment technologies.

• Generational divide: There's a noticeable difference in acceptance rates between age groups, with the NMI survey finding that people aged 18 to 40 who are unfamiliar with biometric payments show more openness to using biometrics than those who are over 40.

Biometric payment benefits

For businesses, adopting biometric payment systems offers a suite of benefits for operations, as well as advantages in a competitive market.

• Quicker transactions: Biometric payments accelerate the checkout process, reducing transaction times and increasing the throughput of customers. This can lead to higher sales volumes and improved customer satisfaction.

• Enhanced security and reduced fraud: By adopting biometrics, businesses can greatly lower the risk of fraudulent transactions and loss due to fraud. Because biometrics are more difficult to replicate or steal, the integrity of transactions is greatly improved, protecting the business and its customers.

• Data insights and personalisation: Biometric systems can provide businesses with valuable data on customer behaviour and preferences. This data can be used for personalised marketing and loyalty programmes, which boosts customer engagement and retention. By understanding buying patterns and preferences, businesses can tailor their offerings to meet their customers' needs.

• Operational cost reduction: Integrating biometric payment systems can lead to cost savings in various areas, including a reduced need for physical security measures, a lower incidence of losses related to fraud and decreased resource requirements for transaction verification processes.

• Customer trust and brand loyalty: Implementing advanced security measures, such as biometric authentication, can elevate a business's reputation for safety and innovation. Customers who feel as though their transactions are safe are more likely to remain loyal to a brand, knowing that their personal and financial information is protected.

• Competitive edge: Adopting biometric payment technology can position a business as a leader in innovation and differentiate it from its competitors. Offering new payment options can attract tech-savvy customers and improve the overall brand perception.

• Regulatory compliance: With an increasing regulatory focus on data protection and customer privacy, biometric payments can help businesses remain compliant with industry standards and legal requirements, by offering protected and authenticated transaction methods.

• Global reach and inclusivity: Biometric systems can cater to a global audience, transcending language and literacy barriers. This inclusivity can expand a business's market reach and cater to a diverse customer base.

Biometric payments also offer several advantages for customers, as outlined below.

• Security: Biometric data is unique to each individual and is difficult to replicate or steal, making biometric payments more secure than those protected by traditional methods, such as PINs or passwords. The biometric authentication process adds a layer of security that helps to protect against fraud and unauthorised transactions.

• Convenience: Biometric payments simplify the transaction process, eliminating the need to remember and enter PINs or carry multiple cards. Transactions can be completed with a simple scan of a fingerprint or face.

• Transaction speed: The use of biometrics can reduce transaction times, cutting down on the transaction time and the time spent queuing in retail environments.

• User experience: Biometric systems are generally easy to use and create a swift and intuitive payment experience.

• Financial inclusion: Biometric payment systems can help to include people in the financial system who may not have access to traditional banking services or who find it challenging to remember PINs.

Biometric payment challenges

Although biometric payments offer businesses several advantages, they also come with challenges and concerns that require careful consideration.

• Cost: The initial setup for biometric payment systems can be costly and complex. Businesses need to invest in the necessary hardware and software, and it can be expensive to integrate these systems into payments and information technology (IT) infrastructures.

• Data privacy and storage: Storing and managing biometric data raises serious privacy concerns. Businesses must comply with data protection regulations, such as Europe's General Data Protection Regulation (GDPR) or the California Consumer Privacy Act (CCPA), which require stringent measures to protect consumer data. Failure to secure biometric data properly could lead to severe legal and financial consequences.

• User acceptance: Although many customers appreciate the convenience and security offered by biometric payments, others may be hesitant to use these systems because of privacy concerns or discomfort with the technology. Businesses need to address these concerns transparently and inform customers thoroughly about how their data is used and protected.

• System reliability: No technology is infallible, and biometric systems can sometimes fail to recognise legitimate users or authenticate the wrong person by mistake. Such errors can lead to customer frustration and potential security breaches.

• Legal and regulatory challenges: The legal landscape regarding biometric data is evolving, with various jurisdictions enacting laws that address biometric information specifically. Businesses must comply with a patchwork of regulations, which can be particularly challenging for businesses which operate in multiple regions.

• Evolving technology: As technology advances at a swift pace, biometric systems have the potential to become outdated quickly. Businesses need to be prepared for ongoing investment in technology upgrades to maintain security and user satisfaction.

• Data breach liability: If a business's biometric system is breached, the business could face serious liability in terms of financial losses and reputational damage. The unique and permanent nature of biometric data means that a breach can have long-lasting implications for the individuals affected.

• Dependence on third-party providers: Many businesses rely on third-party providers for biometric payment technology, which can introduce risks related to the provider's stability, security practices and potential for data breaches.

The future of biometric payments

The outlook for biometric payments is marked by continuous innovation, with advancements poised to address the challenges being experienced at present, as well as to expand the technology's applications. Here are some key trends and innovations that are shaping the future of biometric payments.

• Integration with emerging technologies: It is likely that biometric payment systems will become increasingly integrated with other emerging technologies, such as blockchain, the Internet of Things (IoT) and artificial intelligence (AI). Blockchain could offer a secure and decentralised way to store biometric data. AI and machine learning can improve the accuracy and speed of biometric processing, reducing false positives and negatives.

• Wider adoption across sectors: Looking beyond retail and banking, biometric payments are expected to see broader adoption in various other sectors, including healthcare, government services and transportation, bringing the biometric payment experience into more aspects of daily life.

• Advancements in biometric modalities: Future innovations may introduce more advanced or nuanced biometric modalities, such as heartbeat recognition, gait analysis or vein pattern recognition. These new modalities could create additional layers of security and be used in conjunction with, or as alternatives to, existing biometric methods.

• Enhanced privacy measures: It is likely that future biometric payment systems will incorporate more sophisticated privacy-enhancing technologies. These could include methods that dictate how biometric data is processed and stored for maximum user protection, possibly using techniques such as anonymisation or encryption.

• Global standardisation and regulation: The development of global standards and regulations for biometric payments could promote wider adoption and interoperability across borders and industries. Harmonised standards would also help to address privacy and security concerns on a global scale, building trust and consistency in biometric payment processes.

• User-centric design and accessibility: It is likely that innovations will focus on making biometric payment systems more user-friendly and accessible to diverse populations, including those with disabilities or technological limitations.

• Hybrid biometric systems: Future systems may use multimodal biometrics, combining two or more biometric identifiers to increase accuracy and security. For example, a payment system may require fingerprint and facial recognition to authenticate a transaction, providing an added layer of security.

• Expansion into new payment environments: Biometric payment methods could expand into new environments, such as peer-to-peer payments or cryptocurrency transactions.