What are biometric payments? A quick guide for businesses

Payments
Payments

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  1. Introduktion
  2. The history of biometric payments
  3. How biometric payments are used
  4. Types of biometric authentication
  5. The rise of biometric payments
  6. Biometric payment benefits
  7. Biometric payment challenges
  8. The future of biometric payments

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 behavioral 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 increasingly being used in various sectors including banking and retail to provide a faster and more protected payment experience, and 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 to ancient civilizations, 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 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 to the mainstream, letting users unlock their devices and authenticate payments using their fingerprints.

By the 2020s, biometric technology has become widespread and is 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 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 toward more secure and user-friendly transaction methods, revolutionizing the way payments are authenticated and processed.

How biometric payments are used

Biometric payments are used for a variety of applications, 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 only authorized personnel can access sensitive patient information. Biometrics are also being incorporated into patient identification processes.

  • Digital wallets: Biometric authentication is increasingly used 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 incorporate biometric payments in various public services including social welfare programs to ensure benefits are distributed to the right individuals.

Types of biometric authentication

  • Fingerprint recognition: This method is the most favored among biometric options, likely because of its widespread use in smartphones.

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

  • Other biometrics: Technologies such as voice and iris recognition are less prevalent, possibly because of technical challenges and lower levels of user comfort and familiarity.

The rise of biometric payments

Today, biometric payments are more popular and widely adopted than ever. Users appreciate advantages such as convenience and improved security over traditional methods such as PINs or signatures, and as more retailers adopt biometric readers and security protocols evolve, user trust and adoption rates are likely to increase. The global biometric card market is projected to hit almost $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 familiarized 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: Users increasingly prefer payment methods that combine convenience with high 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 awareness of hygiene and the desire to minimize physical contact. This shift, which helped bring biometric payments to the mainstream,​​ could have long-lasting effects on consumer behavior.

  • Financial inclusion: Some view biometric payments as 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 is particularly impactful 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 help build consumer trust and facilitate wider adoption by establishing a consistent user experience across devices and platforms.

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

  • Limited infrastructure: The infrastructure required for biometric payments isn’t universally available, 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 ages 18 to 40 who were unfamiliar with biometric payments show more openness to using biometrics than those older than 40.

Biometric payment benefits

For businesses, adopting biometric payment systems offers a suite of benefits for operations and 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 personalization: Biometric systems can provide businesses with valuable data on customer behavior and preferences. This data can be used for personalized marketing and loyalty programs, boosting 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 protected are more likely to remain loyal to a brand, knowing their personal and financial information is protected.

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

  • Regulatory compliance: With increasing regulatory focus on data protection and customer privacy, biometric payments can help businesses stay 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 have several advantages for customers, outlined below.

  • Security: Biometric data is unique to each individual and 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 protect against fraud and unauthorized 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 time spent waiting in line in retail environments.

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

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

Biometric payment challenges

Though biometric payments offer several advantages for businesses, they also come with challenges and concerns that need 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 properly secure biometric data could lead to severe legal and financial consequences.

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

  • System reliability: No technology is infallible, and biometric systems can sometimes fail to recognize legitimate users or mistakenly authenticate the wrong person. 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 specifically address biometric information. Businesses must comply with a patchwork of regulations, which can be particularly challenging for businesses operating in multiple regions.

  • Evolving technology: As technology swiftly advances, biometric systems have the potential to become quickly outdated. 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 a breach can have long-lasting implications for affected people.

  • 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 current challenges and expand the technology’s applications. Here are some key trends and innovations shaping the future of biometric payments.

  • Integration with emerging technologies: Biometric payment systems are likely to become more integrated with other emerging technologies such as blockchain, Internet of Things (IoT), and artificial intelligence (AI). Blockchain could be a secure and decentralized 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: 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 to more aspects of daily life.

  • Advancements in biometric modalities: Future innovations might 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: Future biometric payment systems will likely 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 anonymization or encryption.

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

  • User-centric design and accessibility: Innovations will likely 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 might use multimodal biometrics, combining two or more biometric identifiers to increase accuracy and security. For example, a payment system might 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.

The content in this article is for general information and education purposes only and should not be construed as legal or tax advice. Stripe does not warrant or guarantee the accurateness, completeness, adequacy, or currency of the information in the article. You should seek the advice of a competent attorney or accountant licensed to practice in your jurisdiction for advice on your particular situation.

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