Farewell, Pay By Touch, Farewell

Pay By Touch has come to the end of the road. In a press release issued today, the company said it was ceasing all remaining biometric operations:

Solidus Networks, Inc., DBA Pay By Touch, regretfully announced today that it will no longer process biometric transactions on behalf of its merchant customers and consumer membership base, as of 11:59:59 pm March 19, 2008.


Alas, this is no surprise. The company was overextended, and bankruptcy is a terrible position for a start-up trying to right the ship. The employees and new management brought in gave it a valiant effort.

A few post-mortem observations about the company are in order.

Consumer Adoption of Biometrics

It’s tempting to consider biometrics a loser in the consumer space. Ben Worthen at the Wall Street Journal does a nice job talking about biometrics’ value as well as its shortcomings. Biometrics is very sci-fi. And yes, it is too spooky for a large percentage of people. Inside Pay By Touch, we found there were two types of people who wouldn’t sign up: those who were concerned about privacy, and those who were against it on religious grounds (mark of the beast). If you follow Crossing the Chasm theory, there was also the mainstream part of population that would wait to adopt.

But there were early adopters. Pay By Touch processed several hundred thousand biometric transactions per month. Now in the grand scheme of things, those numbers pale in comparison to the volumes processed by Visa, MasterCard, American Express and the overall number of transactions occurring at grocery stores. But processing several million transactions over the course of the year is nothing to sneeze at. It shows that consumers were indeed willing to use biometrics for adoption.

I do think the adoption curve for biometrics is longer than for, say Twitter or RFID-enabled credit cards.

Economics of Biometrics

Biometrics requires both hardware and software. The hardware is pricey, and it does need to be replaced periodically. One thing about the field is that vendors continually innovate. Hardware gets more durable and reliable, and prices do come down. I had the chance to test different vendors’ new biometric readers. A lot of effort is being put into biometrics out there. I remember one of my favorites during testing was actually from Casio. It performed well, and brought back childhood memories of my wristwatches.

But the cost of installing and replacing the biometric readers is an issue.

Installing in the grocery lanes also took money. Each lane in each store had to be outfitted. Pay By Touch had to be ready for the different POS versions the stores were running: IBM, NCR or Retalix. Always with some different configuration or customization.

Pay By Touch’s biggest play for grocers was shifting consumers to ACH. ACH is much cheaper than PIN debit, signature debit or credit cards. So, of course, Pay By Touch couldn’t charge too much per transaction. This meant that operational costs needed to be kept low, the company kept small and lean. This didn’t happen, of course.

Level of Certainty in Authentication

Pay By Touch was very focused on a high degree of confidence in its authentication of each consumer, each transaction. There are two measures for how the biometric authentication performed: false rejects and false accepts. False rejects were cases where the consumer was legitimately trying to authenticate, but the system rejected him. False accepts were cases where the system wrongly identified a consumer as someone else.

The company’s bias was to avoid false accepts. One false accept could become a major news story undermining confidence of consumers in using Pay By Touch. And the system was quite good at avoiding false accepts.

The focus on avoiding misidentification meant that false rejects ran higher. False rejects were more acceptable – no one’s checking account would be wrongly debited. Early on, the company had a bad problem with false rejects. But a lot of work reduced that number significantly to a barely noticeable level. And that was important. Too many false rejects also undermine consumers’ confidence in the system: “Oh that fingerprint payment system never works.”

A lot of time was spent improving biometric authentication at the in-store hardware level, in-store software level and the hosted server level.

What Would Have Been Better for Pay By Touch

Hindsight is always 20/20. But it’s clear the gobs of money raised and multiple business lines hurt the company. Pay By Touch really needed to be run as a small company for a while. Keep the focus simple – ACH payments in multi-lane grocery stores. The company would have run in the red for a while, and needed infusions of funding. But it would have time to work through the operational levers and to bring costs down. Work in concert with the grocers to shift consumers toward ACH usage (e.g. better product discounts for ACH users; higher discounts funded through CPGs’ trade promotion dollars).

Expansion into other areas would come after prudent consideration of what was needed to succeed. One good, but admittedly tough example: provide grocers with lower credit card interchange for biometrics than for mag strip cards due to lower loss from fraud.

Also, this is a company that really could have used the guidance of a traditional VC firm. The hedge fund investors ultimately were little more than silent money. Still not sure why hedge funds parked money in an illiquid, high risk start-up.

It’s Over

So now the remaining Pay By Touch employees are left to find new jobs. Creditors won’t see much of what they’re owed. Merchants have to tear all that hardware and software out of their stores.

But Pay By Touch’s acquired division S&H Solutions will carry on (independently or as part of some other company). It’s got a strong loyalty marketing business and some momentum from SmartShop implementations. And the biometric check cashing business, formerly Biopay, lives on as Phoenix Check Cashing. Good luck Jon Dorsey.

And someday, some start-up might try to do mainstream consumer biometrics again.

I’m @bhc3 on Twitter.


About Hutch Carpenter
Chief Scientist Revolution Credit

24 Responses to Farewell, Pay By Touch, Farewell

  1. jcanca says:

    Hutch…well stated by a good man…..

  2. Goldfinger says:

    Mr Rogers
    As I wake up this morning I find myself disgusted with your self centered me first approach.

    I came to PBT knowing the chance for success was 50/50. During my time on the front line I’ve become a true believer in what we’ve created and felt the odds had increased due to our budding success and ever improving results.

    Following many succesful meetings speaking with retailers/CPG’s and even consumers the receptivity of the smart shop/payments combo has been unlike anything I’ve ever been a part of selling. So much so that with true leadership I am of the belief that given the right business model, we had the value prop to make this dog hunt.

    Your ego combined with many misguided decisions pushed this once proud ship directly into our iceberg of death.

    In the process you made a mess of many lives who bought into the dream, we having stood by your side only to see this once capable ship come to an untimely demise behind a too proud incompetent captain who failed to realize his limitations.

    Defeat when you knew victory was eminent is always the worst kind of loss.

    Our fate was sealed by your selfish/reckless behavior.

  3. Bitten says:

    I took a job with S&H in Delray Beach, FL back in May 2007. I worked there for three weeks and was layed off because of PBT’s woes. Two weeks into the job the old CEO of S&H held a meeting with everyone and told us about PBT’s financial issues. He told us not to worry and went out of his way to say our jobs were secure, blah, blah, blah. The next week they were laying off people. Either this guy was a bold-faced liar or he sincerely thought things would not be that drastic. Hard to tell, but if they had done their homework a little better maybe they would not be in trouble.

    I don’t know how S&H will do. They were banking on this PBT thing to lift them higher. I guess if they didn’t get sucked in too far they might be alright. This lax economy amy send them packing after a while.

    There’s something very wrong with a company that hires someone for a few weeks and then lays them off.

  4. Biometric payment is a good idea and merits to be continued.

    With some PBT staff and a little funding, we would like to continue. It would save jobs, investment and maintain confidence in a smart technology.

  5. askmrlee says:

    I will miss Pay By Touch. I enjoyed using this at my favorite Whole Foods and I’m sorry to see this disappear. I will add this to other deceased future payment technologies such as my Smart Card Visa, Smart Card Amex Blue and soon my Amex ExpressPay keyfob. No word yet on my Citi PayPass fob which I hate because it’s the size of a huge USB key. ExpressPay was small and thin like a grocery rewards card.

    Despite the high-technology, PBT was a pain to enroll and use. I had to register when a PBT employee was present at the store, enter my info on a kiosk and have the PBT employee verify my ID and credit card. The process took about 10 minutes. PBT only accepted Discover and Amex credit cards or ACH. No Visa or MasterCard.

    When I wanted to use it, I had to remember to hit the unmarked green “Enter” button on the terminal. (There was no sign to remind PBT customers how to use the system). I had to enter my 7 digit ID number and roll my finger on the pad. Worst of all, if the purchase was over $25, I still had to sign the receipt, since card association rules still require a signature for these purchases.

    This Whole Foods also accepts ExpressPay, so guess which one was easier to use? Since I had this linked to my Amex card, there was no ACH debit savings.

    Safeway’s FastForward allows me to pay with my existing club card or by entering a phone number + PIN. No cards, no prints, no signature. ACH payment with no additional hardware. Of course, this is done all through their quasi-bank Blackhawk Network and they have the infrastructure to do so.

  6. Thomas Bailey says:

    I think Pay By Touch is a great idea, but failed possibly because it was ahead of its time. Pay By Touch users could easily avoid pickpockets by not carrying cash, credit cards, ATM cards, or checkbooks, as the system makes them unnecessary. Perhaps something similar with a shorter, simpler enrollment process would improve its chances of success.

  7. Thomas – Pay By Touch definitely had a growing fan base. It really took some getting used to – enrolling your fingerprint, adding your checking account info, then actually paying with your finger. But it was getting traction, with a few hundred thousand transactions per month. Your point about the enrollment needing to be simpler and faster is spot-on. That was an area of ongoing product development for the company.

  8. askeptic says:

    Pay by fingerprint has got to be one of the dumbest ideas ever conceived. Who wants to leave their “credit card number” on everything they touch? It’s completely amazing the company was able to raise any money at all for this, let along $340 million. A fool & his money are soon parted; the investors deserved to lose on this.

  9. askeptic – I understand your skepticism re: biometrics. That was a common misconception – that the oils left by your fingerprint would be easy to lift from a sensor and duplicate. They aren’t.

    The other thing to keep in mind. Should it ever be that easy, wait until people lift your finger prints from drinking cups, computers, door knobs and everything else.

  10. askeptic says:

    Hutch – It is very easy to lift latent prints, I did it myself as a kid, using pencil-lead dust and Scotch tape. You don’t need to get them off of the sensor itself (that would be fairly awkward anyway, since the clerk is standing there–unless it’s the clerk that does it!). Use Google to research the “gummy bear attack”–it pretty much destroyed the idea of relying on fingerprints for security, and that was done in 2003.

  11. askeptic says:

    Hutch – Let me restate that more clearly: People can easily lift your finger prints from drinking cups, computers, door knobs and everything else. At the moment, they have no reason to do that. Why on Earth would you want to create a system that lets people use those prints to drain your bank account?

  12. bud says:

    i love the idea of paying by finger print. i did not know that it ever existed. i would like to see it expanded to other functions where picture i.d. is required. i have had potentially serious problems caused by inadvertantly forgetting my picture i.d./drivers license when it was required. are there any other companies providing this equipment and service?

  13. Bud – for a fairly sci-fi technology, there was surprising adoption of biometrics by consumers. It’s a market that needs time for people to get comfortable with it. Biopay (http://www.paychecksecure.com/Default.aspx) is using biometrics for paycheck cashing services. There are others out there. We’ll see it again.

  14. askeptic – the expense of lifting and re-creating any individual’s fingerprint with sufficient integrity to be used in biometric readers strikes me as a barrier to fraud. If it is this easy, many of our national security facilities using biometrics seem to be at risk.

  15. Pingback: Data Privacy, Data Ownership and Who You Trust « I’m Not Actually a Geek

  16. How do I add this to my RSS reader? Sorry I’m a newbie 😦

  17. Pingback: Google and Microsoft now driving SaaS’s disruptive innovation « I’m Not Actually a Geek

  18. Pingback: Foursquare + Square = Killer Small Business CRM « I’m Not Actually a Geek

  19. Pingback: Foursquare + Square = Killer Small Business Social CRM « I’m Not Actually a Geek

  20. Pingback: Foursquare + Square = Killer Small Business Social CRM [Convergence Point] « The SiliconANGLE

  21. Pingback: Foursquare + Square = Killer Small Business Social CRM | CloudAve

  22. Trillion T. Van says:

    LOL,,,there is a Chinese company called LIVE BY TOUCH doing the PBT stuff…..this technology is going to shine in CHINA !!

  23. GalTheory says:

    Pay-by-touch had the right idea wrong level of user and business issue why they didn’t start biometrics for healthcare or security and identity management or even in the banking industry for bank to adopt then consumer would get the comfort level. I’m very much worried about privacy issues but not when it comes to identifying myself so people concerned with privacy don’t really care about their banks or financial companies and privacy since they have all their data anyway. I believe it’s government aand the hall monitors that disurb people privacy (googles of the world) . I wish biometric were mainstream I hate going to the DMV I renew my passport through the 24 hour service. I would rather pay 259 then spend a day at DMV. Wow, can’t wait for government run healthcare then Ill never go to the doctor. Too bad about pay by touch what happened to their technology did they sell it to anyone? Did anyone find out what was up with he CEO and his past did that have anything to do with managent
    Of the compmay? Lastly, is there any or another start ups that will are actively investing in biometic as part of the payment of finacial value chain? Thx

  24. Pingback: Consultant-Led Innovation | I'm Not Actually a Geek

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: