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Best New Ideas in Money: The technology that should finally make your wallet obsolete

First it was the credit card and smartphone, but soon you will pay for things using your ‘biometric wallet’ — that is, your own body. Read More...

Aram Sinnreich recently went grocery shopping at a Whole Foods Market in his hometown of Washington, D.C., and realized he had left his wallet at home. He had no cards and no cash, but he had no reason to worry — at least, not about paying for his food. “I used my iPhone to pay, and I unlocked it with my face,” he said.

That’s when it struck him: We are just one small step away from paying with our bodily features. With in-store facial-recognition machines, he wouldn’t even need his smartphone. Sinnreich, associate professor of Communication Studies at the American University in Washington, D.C., said he got a glimpse of the future that day.

Biometric mobile wallets — technology that uses our faces, fingerprints or retinas to pay for things, even if we don’t have our phones — already exist. Technology companies including Apple AAPL, -0.04%   and Amazon AMZN, -0.28%  , are waiting for people to become comfortable enough to walk into a store and pay for goods without a card or device, said Sinnreich, author of “The Essential Guide to Intellectual Property.”

Removing the last physical barrier — smartphones, watches, smart glasses and credit cards — between us and Corporate America will be the final frontier in mobile payments. “The deeper the tie between the human body and the financial networks, the fewer intimate spaces will be left unconnected to those networks,” he added.

Companies are refining biometric services

After a slow start, the global mobile-payment market is expected to record a compound annual growth rate of 33%, reaching $457 billion in 2026, according to market-research firm IT Intelligence Markets. As payments move from cash to credit cards to smartphones, financial-technology, or fintech, companies have been honing their biometric services.

Biometric technology, meanwhile, is infiltrating every other aspect of our digital lives. Juniper Research expects mobile biometrics to authenticate $2 trillion worth of in-store and remote mobile-payment transactions globally in 2023, 17 times more than the estimated $124 billion worth of transactions last year.

Juniper, a U.K.-based company that provides research on the global high-tech communications sector, said it expects growth to be driven both by “industry standardization initiatives” like Visa’s Secure Remote Commerce, and smartphone vendors introducing different forms of biometric authentication.

“Using biometrics as a method of payment is going to be pretty popular in the future,” said Hannah Zimmerman, associate attorney with Fey LLC in Leawood, Kansas. She said this will be propelled by “the globalization of commerce” and the fact that companies in the U.S. will want to find new ways to facilitate cross-border transactions.

Frictionless payments lead to more spending

It will make shopping easier for consumers and, if studies on mobile payments provide a barometer, more lucrative for companies. A study carried out by researchers at the University of Illinois at Urbana-Champaign found that the number of purchases increased by almost 24% when people used Alipay mobile payments.

Using a mobile wallet made people more likely to spend more on food, entertainment and travel, but it didn’t affect spending on education or health care. However, people using mobile payments spent an average of 2.4% more than those who did not use them. One theory: If we don’t handle credit cards or cash, we don’t consider the consequences.

People who use Amazon’s Echo smart speaker spend 66% more on average at the online retailer than other consumers, according to a survey of 2,000 Amazon customers from Chicago-based research firm Consumer Intelligence Research Partners. Of course, people who have the money to buy smart speakers may also have more to spend.

Still, it provides a window into the world of frictionless spending: Echo owners spend $1,700 annually at Amazon versus $1,3000 for Amazon Prime members — who must pay a $99 a year subscription — and $1,000 for all Amazon customers in the U.S. (Amazon did not respond to a request for comment.)

Facial recognition is already widely used

Facial recognition has already made its way into financial services. Mastercard and Visa have security features that require people to use their face to log into their accounts on their phones. Apple’s iPhone X enables people to use “Face ID” to unlock their phone, and Samsung’s Galaxy S8 and S8+ has an iris scanner. Amazon’s Rekognition facial-recognition service can also identify both objects and people.

The facial-recognition market is projected to double to $9 billion between 2018 and 2024, according to Mordor Intelligence, a consulting and analytic firm.

Juniper predicts that 80% of smartphones will have some form of biometric hardware by 2023, representing just over 5 billion smartphones. That has traditionally meant fingerprint sensors, but facial recognition and iris scanning will become more prominent over the next five years, with adoption surpassing 1 billion devices, it says.

China’s biggest mobile-payment platforms, Ant Financial Services Group, which operates Alipay, and Tencent Holdings Ltd., which runs WeChat Pay, have already launched facial-recognition machines at points of sale. They typically require customers to register for the first time via SMS.

Wedome, a Chinese bakery chain, last year said it would offer “smile-to-pay” Alipay machines at 300 stories in Beijing. The facial-recognition process takes up to 10 seconds. In 2017, KPro, a KFC brand in Hangzhou, China, introduced Alipay facial-recognition technology at points of sale.

‘Neo-liberal takeover of the body’

“Every technological necessity exists in the real world and is used commercially,” Sinnreich said. “It just hasn’t all been integrated into one biometric-payment method yet because it would creep people out.” He said it’s Silicon Valley’s endgame: “It’s the neo-liberal takeover of the human body.”

The Federal Trade Commission has taken action against a variety of fintech companies alleging false advertising and nondisclosure of material information related to customer funds. https://www.ftc.gov/news-events/blogs/business-blog/2018/02/venmo-settlement-addresses-availability-funds-privacy New products must keep in mind “important consumer-protection principles,” from mobile payments to virtual currencies to crowdfunding, the FTC said.

Financial-services companies have a vested interest in making sure it’s more difficult to steal their customers’ identities, said Eva Velasquez, CEO of the Identity Theft Resource Center, a San Diego-based nonprofit organization that supports victims of identity theft. “They are deeply incentivized to fight and deter fraud. Biometrics are very hard to fake.”

Apple and Samsung SSNLF, +0.00%  have sold tens of millions of smartphones enabled with fingerprint technology, another relatively easy way for people to provide identification without having to carry a wallet, smartphone or credit card. Like all biometric information, however, if it’s lost or stolen, fingerprints can’t be changed like a password.

No federal law to regulate biometrics

Legal experts say that presents a problem. “There is no generally applicable federal law that regulates the private sector’s collection and use of biometric information in the U.S.,” Zimmerman, the attorney, wrote in a 2018 paper, “The Data of You: Regulating Private Industry’s Collection of Biometric Information.”

In 2014, the U.S. Office of Personnel Management said the fingerprint data of 5.6 million people was stolen. Officials said at the time that there was no evidence that they had been abused, but could present a counterintelligence problem in the future. Lifted fingerprints or molds of users’ fingerprints can fool fingerprint readers, Zimmerman said.

Three states — Washington, Texas and Illinois — have enacted statutes governing biometric information privacy.

“The current lack of regulation is surprising given that biometric information is permanent and unique to each individual and, thus, creates a concern for identity theft,” Zimmerman said. Other states have proposed bills for such laws.

Mobile-payment services will evolve slowly

Sinnreich, the communications professor, believes biometric payments will happen in the U.S., but only when people are comfortable with it. The amount of data we could eventually give up would leave people exposed to a life of “digital redlining,” he said. “What does it mean that we are inviting these networks into our bodies and interpersonal relationships?”

The Chinese government has used facial recognition to identify people and, last year in the U.S., the Orlando Police Department said it was testing Amazon Rekognition to help prevent crime. Amazon has acknowledged that this technology can be used by law enforcement.

Companies could also profile customers and do what online retailers like Amazon and eBay already do: Tempt them with items based on their previous purchases. “Whether you’re a government or corporation, there’s an incentive to encourage citizens to adopt total surveillance in order for the system to work better,” Sinnreich said. “How much I tip an Uber driver today could affect how much I might pay for a mortgage in 20 years.”

Consumers are understandably spooked by the prospect of governments, law enforcement and corporations identifying us through facial recognition, or even our voices and fingerprints, the Identity Theft Resource Center’s Velasquez says. “Some people will say, ‘You can have my biometrics when you prize them from my cold dead fingers.’”

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