Will Fintech’s Love Affair With Biometrics End Badly For The Global Payment Giants Touting This Match Made In Heaven?
2015 was a banner year for fintech, mobile payments, and biometrics. Nearly 100 smartphones are currently shipping with native biometric authentication and nearly every major bank, payment processor, identity broker, handset manufacturer, and leading tech player is hyping their mobile biometric offering. Just a mere 2 years ago, even after Apple’s groundbreaking introduction of the iPhone 5s, biometrics was routinely dismissed as unreliable, frightening, fringe technology—more the stuff of science fiction then the realm of daily consumer experience. However, by the close of 2015, weekly announcements plugging new smartphones, banking apps, and payment players integrating biometrics were routine.
Nowhere was this more apparent than at the Money20/20 Conference in October 2015. More than 10,000 financial service, payment and high-tech industry leaders converged on Las Vegas to hobnob with scores of fintech wannabes and digital money analysts and advocates all clamoring to display expertise and insight into the mainstream adoption of biometrics as an enabler of mobile commerce.
Market legends from Visa and MasterCard to First Bank and Chase, along with Samsung, Google, Facebook, and more too numerous to list were tripping over each other to embrace biometrics as mainstream technology. A year earlier at the 2014 edition of Money20/20, keynote attendees were entertained with a gag biometric video The Future of Dough-PayByAss. But by 2015, as the event’s major sponsors all touted biometric offerings, the technology was clearly no longer a laughing matter and well beyond the crude musings of a satirical video.
Biometrics Embrace Encouraging and Confounding
Therefore, as we enter 2016 with biometrics hype gaining steam, a deep breath and some broader perspective is warranted. While the palpable biometric buzz evident throughout the past year in product announcements, on and offline articles, interviews, and analyses, as well as at events such as Money20/20, has certainly elevated biometrics’ prestige, the seemingly endless discussions of biometrics are, in reality, both encouraging and yet somewhat confounding.
Encouraging in that the unprecedented depth and intensity of interest and media coverage reflects a genuine mainstream commercial embrace of biometrics. This is extremely positive news for a technology industry that has been waiting for more than a decade to break free from its niche application in criminal and civil government markets.
Confounding in that very financial service behemoths, the Citi’s, American Express’s, and First Bank’s of the world, along with the chieftains of payment processing Visa and MasterCard, that are flaunting the ‘newfound’ and wondrous capabilities of biometrics to enable a ‘frictionless consumer experience,’ seem almost willingly ignorant to the inevitable impact biometrics will have on the future of their business.
Two Key Adoption Drivers of Biometrics: PIN/Password Replacement and ‘Stealth’ ID
According to these newfound financial service converts, biometrics is about two things. The first is PIN and password replacement for mobile device and in-app transaction authentication to reduce friction and increase the completed transaction rates. The second is using ‘stealth’ behavioral biometrics; confirming user identity by capturing data on the way users interact with their devices. There are several companies, including BioCatch and NuData, that provide this capability to ‘unnamed major retailers and financial service providers.’ Providers that do not notify their customers that this data is being captured and used to identify them.
Stealth biometric capture has proven historically disastrous for the biometrics industry and it remains unclear what kind of backlash may occur when consumers discover this information is being captured and used without their knowledge or consent. Facebook is currently facing multiple lawsuits in the US and has had to turn-off features in the EU based on its own stealth use of biometric facial recognition.
Beyond these two drivers, the more compelling rational behind the embrace of biometrics by mainstream players may be purely defensive; a means to co-opt potential threats to their core business. Banking, payment, even e-and m-commerce players are embracing biometrics to expand their reach into the ‘disruptive’ world of fintech and insulate themselves from innovation driven disintermediation.
Cloud Based Biometric Disruption
Established financial service players have long depended on the highly technical and highly regulated nature of their business to resist disruption. The emerging mobile economy has fundamentally transformed the marketplace by creating a hyper-connected world where fintech innovation threatens their long-standing market stranglehold. Even as these ‘gatekeepers’ embrace biometrics as a means of retaining market power, they seem to fail to fully grasp its truly disruptive nature, which extends far beyond simple pin and password replacement or stealth risk assessments.
Biometrics is far more than an effective way for payment, banking, commerce, or even social media players to ‘kill passwords’ and reduce consumer ‘friction,’ or a stealth way of gathering Personally Identifiable Information (PII). Biometrics—properly integrated, managed, and applied within a consumer centric identity framework that includes both consumer ownership and control of PII and anonymous identification—may indeed pave the way for eliminating the gatekeepers altogether.
Irrefutable biometric authentication at the point of payment will render much of the existing payment processing infrastructure obsolete. Third party biometric authentication delivered via Biometrics as a Service (BaaS) or more broadly Identity as a Service (IDaaS) will offer far more efficient and cost effective fraud and theft mitigation than today’s dated, bloated, and slow (in digital terms) nearly $2 trillion a year payment processing industry. Cloud-based identity services will radically reduce transaction risk allowing this new class of BaaS or IDaaS players to provide direct transaction authentication at the point of payment near instantaneously at a far lower cost.
21st Century Identity Revolution
The true disruptive potential of biometrics is likely being been overlooked in the mad rush to jump on the biometrics bandwagon. Perhaps it is the result of a limited understanding of biometrics capabilities or perhaps a strategically driven denial. Either way, this misreading of biometrics is the quintessential elephant in the room and may prove ultimately fatal to those who fail to recognize it for what it is.
In much the same way that the 19th Century was the era of the Industrial Revolution, and the 20th Century was the era of the Digital Revolution, the 21st Century is poised to be the era of the Identity Revolution. Identity is more than a characteristic to be vetted or verified. Identity is becoming the organizing principal of the emerging global digital ecosystem. An organizing principal that is poised to transform many global industries, including payment processing, as consumers, citizens, and employees trust biometrics to secure their digital transactions allowing them to regain control over their PII.
Biometric ‘Love Affair’ Gone Awry
Conventional wisdom among biometric naysayers perpetuates a long list of the ‘dangers’ of biometrics Biometrics are unreliable. Biometrics will irreversibly compromise consumer privacy. Biometrics are irrevocable and once compromised forever lost. The mainstreaming of biometrics will be cataclysmic for both the individuals and organizations that adopt them. The embrace of this technology is irresponsible at best, perilous at worst. . . A litany of context-free, myths based on technical misunderstanding and discredited threats.
The real peril, however, of mainstream adoption of biometrics, particularly for players in the payments arena, may come in quite a different package. A $2 trillion industry reliant on antiquated infrastructure and propped up by outmoded risk models being ultimately displaced by the widespread availability of instantaneously biometric identity verification delivered via the digital cloud. Not exactly a match made in heaven!
January 6, 2016 – by Maxine Most
Articles in the FindBiometrics Industry Editorial Section contain opinions and perspectives held by the individual authors and do not necessarily reflect the views and beliefs of FindBiometrics.