Keep an eye on changes in payment methods - literally

By Ralf Gladis

We’re ahead of the game here in the UK when it comes to payments, particularly contactless payments. We think little of swiping our cards, or our phones, across a reader as we access a train station, and is it just me, or do many of us now get a little irritated if we actually have to enter our PIN because a purchase goes slightly over the contactless maximum amount? The watchword for payment right now is convenience and in the UK we are leading the way with almost half of transactions being contactless, according to Mastercard.

In Germany, where payments worth 55.8 trillion euros were made contactlessly in 2017, compared with the UK’s 106.7 trillion euros, there is an expectation that the launch of Apple Pay last December will boost tap and pay transactions. However, In the US, it is a different story. Adoption of Near Field Communication (NFC) contactless payments has been slow. Consumers are reluctant to adopt tap and pay largely because of previous problems when using NFC technology at retail POS terminals. Reports of terminals not working or transactions being delayed don’t help and there is nervousness about using mobile payment solutions.

Changes in Payment Technology

Against this varied global backdrop, two new trends in payment technology are about to become mainstream and they have the potential to change the face of payments completely, enabling retailers to enhance the customer journey and inject even more convenience into their shopping transactions.

The two trends are biometrics and wearables. In both cases they reinforce the increasingly silent nature of future payments, requiring little interaction beyond the slide of a fingertip or a blink of the eye.

Wearables, from smart watches through to fitness trackers and smart glasses, nudge convenience on a step further than the contactless card as long as they are Internet-connected. Firstly, paying with a wearable is closer to the experience of paying by mobile, so there is no restriction in the value of the transaction and no necessity to enter a PIN at the POS or checkout.

Wearable technology

Secondly, wearables come with a sensor, so they are able to determine that the person using the device to pay is the owner of the device, providing they use the correct PIN on their device. This adheres to the Two-Factor Authentication principle, the extra layer of security that protects the user. If the watch, the tracker or the glasses remain on the user’s body, they remain authenticated, so there is no need to enter an additional PIN at the point of purchase.

Two Factor Authentication

What does it mean? It ensures the customer is authenticated against two out of three factors – knowledge, possession and inherence. Knowledge relates to a username, or a password or pin for example. Possession is the item being used to make the payment, such as a debit card, a smartphone or a watch. Inherence, however, relates to the physical characteristics of the customer, which could be the user’s arm, their voice, their fingerprint or the iris in their eye.

This is enabled by the Consumer Device Cardholder Verification Method (CDCVM).  Verification is used to determine whether the shopper presenting the device is its legitimate owner, therefore guarding against fraudulent transactions. This is important in the world of new transaction methods because it allows retailers to benefit from the fraud liability shift, meaning they will not carry liability for fraud if CDCVM has been obtained for the payment.

In addition, NFC payments made via wearable devices offer both retailers and consumers exactly the same levels of security as contactless payments with the bonus of being even faster and more convenient.

Biometric Identification

Wearables are actually considered to be a compliant biometric solution with the worldwide FIDO Alliance, which supports the development of secure, non-password-based logins. This is because of their use of Two-Factor Authentication, a process that we see at the heart of other biometric payment methods now coming to the fore.

Perhaps the most familiar of these is fingerprint recognition, which is well known to many of us because it is a common method for accessing our smartphones. Now, fingerprints are being integrated into payments that are not just quicker, but seamless too, helping to enhance the overall customer experience.  Fingerprint payments, like other biometric methods, will be subject to the Second EU Payment Services Directive (PSD2) which comes into effect later this year. This promotes Two Factor Authentication and it is aimed at cutting payment processing costs for retailers as well as improving security for customers.

Fingerprint recognition

Other biometric payment methods that are growing in popularity include voice and facial recognition. Customers are beginning to use voice with digital assistants such as Google Home and Alexa to order their online shopping. The introduction of PSD2 will help to protect them by demanding additional authentication, so the system cannot be abused or confused by the wrong voice. Facial recognition, too, is very likely to become part of the automated payment experience, which will lend itself particularly well to transactions in brick-and-mortar stores.

Pilot schemes have already been carried out, such as the MasterCard Identity Check (commonly known as ‘pay by selfie’), where a payment can be authorised by the customer by taking a photo of themselves with their smartphone. The photo is compared with a comparison image and if the two pictures correspond the transaction goes ahead. We envision a time when an intermediary app to facilitate this process is no longer needed in the retail environment.    

MasterCard, which said that it would make biometric identification available to its customers this year, either through fingerprints or facial transactions, has come good on its promise with the recent announcement that it has signed a deal with the Royal Bank of Scotland. It will offer a biometric credit card to RBS customers, who will be able to verify payments over £30 with the use of their fingerprint.

This comes hot on the heels of NatWest announcing a similar arrangement with Visa.  This will provide security to customers of both banks, but it also meets their convenience preferences too. MasterCard carried out research with the University of Oxford which found that 93% of consumers prefer using biometrics to traditional passwords or PINs.

Credit cards

In Summary

Given the rapid and revolutionary nature of changes in the payments sector, what does this mean for retailers? Not all will be in a position to invest in the technology needed to process biometric or even wearable payments. POS devices vary widely in their functionality, and at Computop we always advise our retail customers to check the functionality of their POS systems to ensure they are able to include CDVCM as a verification method.

One of the main considerations is whether they have the infrastructure to store biometric characteristics securely and ensure they are complying with data protection rules. Connections need to be made between hardware manufacturers and payment service providers to start the process so that all of these new, exciting payment opportunities can work in practice.

In the UK there is likely to be an appetite from consumers to use wearables and biometric payment methods. However, in other countries, and to target more reluctant customers, retailers can be up-front about their ability to process payments from a fingerprint or a smartwatch. Ultimately, POS terminals will not survive, so it’s fair to say that whilst paying with smart-glasses or with a blink of the eye might seem futuristic now, it certainly won’t be in the years to come.

Ralf Gladis, CEO, Computop

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