Pay By Touch Solutions, which provides merchants with a payment system that authenticates customers using fingerprint biometrics, reported in October it secured $130 million in new financing. San Francisco-based Pay By Touch will use the money, which essentially triples the funds at its disposal, to grow in the U.S. and abroad. The company also plans to move into such vertical markets as banking, health care and hospitality, says John Rogers, Pay By Touch founder, chairman and CEO.
Shortly after announcing the funding, Pay By Touch agreed to purchase substantially all of the assets of CardSystems Solutions Inc. for an undisclosed price. The announcement came the same day that CyberSource Corp. withdrew its offer to buy CardSystems, an Atlanta-based card processor at the center of the world's largest breach of card data.
Rogers says the company "will look to cross-sell its biometric technology to CardSystems' existing merchant base." CardSystems provides merchant payment processing to about 120,000 companies.
More than 100 merchant locations are testing or are fully launching Pay By Touch systems. That includes more than 80 supermarkets operated by Piggly Wiggly Carolina Co. Others include stores operated by Cub Foods, Albertson's Inc., Thriftway Stores Inc. and Roundy's Inc.'s Pick n' Save. Rogers says signed contracts will add 500 more stores by year's end and thousands more, including video stores and gas stations,in the first quarter of 2006.
With Pay By Touch, consumers who register in the voluntary program have their fingerprints scanned to create a digital file stored in a central database. That file is compared with another one made when the consumer's finger is scanned at the point of sale, enabling the consumer to shop without bringing along a purse or wallet. Once the print is authenticated, the payment is made using a preregistered debit or credit card.
Shoppers also can enroll with a personal check and route their transactions through the automated clearinghouse system, thereby avoiding payment card interchange costs for the merchant. Merchants decide which payment types to accept.
Indeed, merchants are looking for ways to reduce their interchange costs, Rogers says. He notes that tap-and-go cards that also tout consumer convenience, such as MasterCard's PayPass, do not offer that advantage. Rogers says some of the retailers using Pay by Touch are anxious to drive more payments into the ACH system. "They won't allow Visa and MasterCard in the [Pay By Touch] wallet," he says.
Rogers notes Pay By Touch is in talks with electronic funds transfer networks in hopes that they will change their rules to enable payments authenticated using Pay By Touch, even if the consumer does not present a card or enter a personal identification number. He adds that one network, which he would not name, has certified the company's recently acquired ATM Direct system, which authenticates network-switched payments made online.
Moreover, Rogers says, Pay By Touch expects to begin selling at retail stores Pay By Touch readers, at about $15 each, for home-computer use by early next year. He says some banks may opt to use the readers to secure customer access to online banking sites. "We believe biometrics is the end-all solution," Rogers says.
U.S. consumers, however, have not embraced computer peripherals for payment purposes. Indeed, industry observers were puzzled by Pay By Touch's growth strategy, which suggests that the company expects to face significant hurdles signing up consumers and merchants for its core biometrics payments business.
"If the prospects were very strong for their core business, why talk about expansion all over the place," says Gwenn B?zard, partner and research director at Aite Group, a Boston-based consultancy. "What it probably means is that the biometrics payment space is not big enough for the company to sustain significant revenue growth over the next few years."
Pay By Touch officials, though, responded in a statement that POS payments still are the company's core business. "Our goal right now is pervasive penetration of consumer environments," the statement notes.
A variety of issues do play against Pay By Touch's hopes to grow its core business. For one, what if a merchant opts to embrace a competitor's system, such as BioPay's? Merchants typically do not have enough countertop space to support fingerprint readers for both systems, notes Jonathan Penn, an analyst at Cambridge, Mass.-based Forrester Research.
The emergence of contactless, radio frequency identification payment systems, such as MasterCard's PayPass, also is competing with biometric options for countertop space, B?zard notes.
Pay By Touch's statement notes that the company has several plans to entice merchants, including automatically linking the process for store credit card approval to new-user registrations. Also, in the fast-food sector, the company plans to offer a finger scanner with screen technology to allow repeat customers to file their own orders automatically.
Included in the $130 million in new financing is $75 million in senior secured notes, with major investments from New York-based hedge fund Och-Ziff Capital Management, which led the financing, and San Francisco-based Farallon Capital Management. Plainfield Asset Management also participated, and UBS Securities acted as placement agent for Pay By Touch. The additional $55 million was raised in a convertible promissory notes offering, with major investments from three of the Getty Trusts; Ron Burkle, founder and managing partner of The Yucaipa Cos.; and Rembrandt Ventures.
(c) 2005 Cards&Payments and SourceMedia, Inc. All Rights Reserved.
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