Biometrics–Ending the Identity Crisis
Updated: October 13, 2004
This article was originally published in Retailspeak Magazine
In the action movie Minority Report, lead man Tom Cruise has his iris scanned in a store of the future. A virtual store associate then offers him personalized promotions based on his shopping preferences. While this vision is a far cry from our in-store experience today, biometric solutions are making serious inroads into tackling internal fraud.
Jim Crawford, vice president of Retail Forward, a retail and consumer products marketing consultant, sees internal solutions as key to the immediate future of biometric technologies. He says: "Biometrics can be used to verify the identity of employees at the POS and other locations such as restricted stock rooms. The technology has the power to reduce internal fraud and practices such as 'buddy punching'—when employees clock in for their absent friends."
The importance of this kind of solution is clear when you consider that employees are responsible for a very significant percentage of retail fraud. In addition, while security guards and technologies exist to minimize customer fraud, no such measures are effective against crimes perpetrated by employees.
Peter Dodd, a United Kingdom reseller manager, EPOS Products, Toshiba TEC, explains that current methods of preventing employee fraud all have inherent security risks. He says: "Retailers that want to reduce employee fraud can choose to use binary or traditional keys, magnetic cards or buttons on POS devices to identify the store associate on duty. In each case, different opportunities exist for fraud because keys and cards can be replicated or swapped between members of staff."
Retailers are interested in biometrics because the technology eliminates all of these risks. It depends on fingerprints and other biological information, which is always unique to the person involved. In addition, retailers that implement solutions on the employee side no longer need to invest in keys and cards or replace those that are lost or damaged. In addition, they can easily protect access to restricted areas of the store or to sensitive data stored in the back office.
Marek Rejman-Greene of BT Expedite says: "Biometric solutions that reduce employee fraud are already big business in the United States. The turnover of employees is so great in large stores that retailers need secure solutions to protect against fraud. This means they can accurately determine which cashiers and other staff are working, as well as when and where."
Customer Solutions
Customer-facing biometric solutions also have an important role to play in the future of retail according to Crawford. He says key applications will centre on reducing fraud associated with bad checks, credit cards, and debit cards. At the same time, Kush Wadhwa, European director of the International Biometric Group, believes that biometric solutions could even become a competitive differentiator for retailers.
He says: "In the right environment, biometric solutions can be positioned as something that makes the shopping experience more convenient. In addition, cost savings from reduced fraud can be passed on to the customer. The retail POS is a strong environment for biometrics as a replacement for PIN numbers or cards." Because verifying the identity of customers and employees using biometrics has a great potential to reduce fraud and enrich the shopping experience, many believe the technology will grow significantly in the near future.
The International Biometric Group, a technology-neutral, vendor-independent provider of biometric services, strategy and solutions since 1996, predicts that revenues from biometrics in the ATM and retail sector will increase from $33.8 million in 2004 to $243.5 million in 2008. As well as impressive growth in the industry, its ‘Biometrics Market and Industry Report 2004-2008’, says ATM and retail will be one of the biometrics industry’s largest growth areas, representing 5.2 percent of global biometrics revenues by 2008. The full report is available at:
www.biometricgroup.com/reports/public/market_report.html
The State of Play
This predicted acceleration in deployment of biometric technologies reflects recent advances in technology. Inexpensive biometric solutions that work reliably are already available across a number of retail applications.
Dodd says: "Retailers can identify employees and customers accurately by scanning a portion of the fingerprint and matching it with another piece of data on record such as a name. The technology can be used in the same way to identify a group of customers, such as members of a loyalty scheme."
The cost of deploying biometric solutions is also falling, both for internal and customer-facing applications. Wadhwa says: "Biometric solutions that are used to verify the identity of employees and customers are relatively inexpensive today. As a result, they are increasingly scalable for retailers that want to deploy them across multiple stores."
Technology Challenges
In terms of technology infrastructure, biometric solutions are natural successors to other technologies such as smartcards that validate customer identity at the POS. Chip and PIN deadlines are set for 2005 in Europe, but the United States is currently less prepared for the next generation of POS authentication technologies.
In spite of this difference, retailers on both sides of the Atlantic face a number of challenges before they can implement biometric solutions. One key difficulty relates to integration issues arising from disparate IT systems.
Crawford says many retailers still collect data from their POS systems by running one-way dial-up polls. This means it is difficult to access POS data in real time in a way that would be required for biometric authentication.
Wadhwa agrees that biometrics deployments can be complex. He says: "Often, lots of integration work is required to make biometrics work. Retailers must enable information flow from the POS to check authorization, CRM, and ERP systems. Achieving this can require significant initial investment."
As a result of the integration challenges, sophisticated database and middleware technologies are increasingly important. In fact, research from The International Biometric Group shows middleware to be the fastest growing technology in the biometrics sector. Worth $48 million in 2003, it is expected to generate revenues of $400 million by 2008.
Privacy Issues
Much greater than the technology challenges facing retailers are privacy concerns being aired by consumer groups. Crawford says the success of the technology ultimately depends on how it is presented to customers. Asking for details such as phone numbers without explaining how they will be used, for example, will be damaging to perceptions about the technology.
He says: "There are groups that object to everything from e-commerce sites to customer loyalty schemes. These are fringe elements that will always have issues with biometrics. On the other hand, around 70 percent of consumers are already members of loyalty schemes and just want to know how information about them will be used."
Where groups have a moderate approach to biometrics, they can be real partners in the process of implementing solutions that will stand the test of time. However, this depends on retailers’ policies around how information will be used.
"We cannot predict the impact of privacy concerns on the adoption of customer-facing biometric solutions," says Dodd. "What is clear is that a great deal of education will be required. For example, most consumers do not yet realize that these solutions simply match a name to a print stored on file. They do nothing more than current systems that match a magnetic strip with customer names or account details."
Privacy concerns can also be allayed by retailers’ approach to handling biometric data. This can be stored in a local store system, restricting functionality to a single store. Alternatively it can be saved on a centralized system, which requires retailers to have solid privacy policies in place.
Wadhwa says: "To allay privacy concerns, retailers have the option to put biometric information on a swipe card that the customer takes with them. This is then presented at the POS for each transaction, and the identity of the card holder can be confirmed with a fingerprint. Where the only record of a customer’s information is retained by the customer, biometrics becomes much less threatening."
Retailers must consider privacy issues carefully before they finalize project plans according to Rejman-Greene. This will involve engaging with users and implementing codes of conduct. It will also be a matter of running trials to see how customers react to the technology in a real-world environment.
The ROI Test
While handling privacy concerns is critical to the future of biometrics, the genuine test will be whether the technology can deliver rapid return on investment (ROI). For example, while most agree that biometrics will be deployed widely to reduce internal fraud, many question whether the technology will become ubiquitous at the POS.
Rejman-Greene says: "In the next three to five years, it is unlikely that biometric solutions will be widely implemented at the POS. This is because Chip and PIN is on the way and this is judged to be an effective solution to tackle retail fraud at present."
So retailers must assess the value of biometric solutions on a case-by-case basis. Wadhwa says: "Stores in low-income, high-fraud areas may benefit from biometrics implementations while stores in affluent areas might not." As always in retail, ROI will be the bottom line.
