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The Green Sheet Issue 020401-
Issue 020401-
Table of Contents

GS Online - An Evolution: Part 1

No Visa Credit Interchange Fee Hikes in April

Most Experts Say CMS Case Will Be Major Blip on Industry's Radar Screen

Concord Expo Connects with Audience

Paper (Check) Trail Takes Electronic Twist

Taking the Law into Your Own Hands

Score One for Little Guy

No End to Terminal Upgrades

Leading the Pack

And The Winner Is ...


Lead Story:

Big Brother Is Scanning You

I rises and retinas. Faces, hands, fingerprints and voices. When it comes down to proving you are who you claim to be these days, plain old-fashioned signatures and ID cards are not enough.

The need for tighter identification screening has become obvious recently with the explosions of identity theft, credit card fraud - and terrorist threats. Some people are sounding alarms at the apparent invasiveness of scanning individuals' physical traits and compiling them into databases. It's 1984 all over again.

Scanning body parts for identification seems like a step in the wrong direction to some. But the need to protect information - both personal and business-related - and guard access to buildings and computer networks also has elevated the use of state-of-the-art security technologies from excessive to necessary.

Proponents of biometric technology say it's a cost-effective, nearly foolproof way to eliminate fraud and protect access to sensitive information. Biometrics uses physical attributes like fingerprints and irises to establish and verify a person's identity. Since these traits are specific to individuals and cannot be altered, their use as identifiers has far-reaching possibilities in areas as diverse as retail, banking, airline travel, student and employee verification, and health care.

The California Department of Motor Vehicles, overseeing the 24 million licensed drivers in the state, is exploring ways of incorporating biometric features into the licenses, which are used as the primary form of ID throughout the state. Along with the systems being introduced in large organizations for employee identification or network access, biometrics companies have been developing products for uses in stores, check-cashing businesses and home computers. Soon, these companies hope, most of us will have experienced biometric technology in our everyday lives - and in a very positive way.

Two companies are putting biometrics to work for application in financial services. BioPay of Herndon, Va., and Hypercom of Phoenix both have developed biometric solutions to verify identities and help reduce fraud in check, credit and debit card transactions at the point-of-sale.

Both companies base their systems on finger scans, an efficient, affordable and reliable biometric measurement. (Biometric measurements vary in their reliability. Iris scans are accurate but very expensive and difficult to collect or implement. Facial scans often result in misidentifications.)

Biometry is the statistical analysis of biological observations or phenomena, and biometric technology is based on the premise that the person being identified is actually present. Passwords, PIN numbers and smart cards work if they're not forgotten, lost or stolen. Biometric identification been shown to be effective, fast and easy for people to use - placing a fingertip on a reader terminal eliminates fumbling for and swiping ID cards or tokens, or remembering passwords.

Big Brother is not only watching us, he's in the house. For businesses and organizations concerned with reducing risk in conducting financial transactions and identity fraud or in protecting access to government buildings or health records, he's welcome company.

This is good news for ISOs; with the cost of systems - both hardware and software - decreasing, retailers, e-tailers and banks are jumping on the biometric bandwagon at rates that are increasing by leaps and bounds.

The New York City-based integration and consulting firm International Biometrics Group (IBG), in its Biometric Market Report 2000-2005 released in September 2001, forecasts an annual industry growth rate of more than 70 percent for the next two years. According to IBG, the financial services industry is expected to show the most rapid adoption of biometric technology, with revenues increasing at an average annual rate of 72%. The health care field follows with an average annual increase of 56%.

Money-wise, the industry is expected to grow from a little less than $400 million in 2000 and $524 million in 2001 to nearly $2 billion by 2005. Other report highlights indicate that large-scale public sector biometric usage, currently 70% of the biometric market, will be surpassed by private-sector deployments, and biometrics sales for home PC and network access will reach $423 million in 2005.

As more businesses and organizations begin to use the technology, they will need to purchase or lease and then install the finger-scan readers, video cameras, signature tablets and telephones necessary to make it all work, and this is where most of the revenue will be generated. Today's leading biometric companies will face challenges to their standings in the marketplace from mergers and acquisitions, and they also will have to compete with much larger technology firms entering the biometric field.

George Orwell's "1984," written in 1949 as a statement against the totalitarian dictators of the Axis Powers countries, painted a grim picture of what the world of the future would look like. It's not difficult to imagine what Orwell would say if he could see us now. In 2002, it's hard not to be a little alarmed about the erosion of our civil liberties.

Our faces are filmed at intersections because drivers run red lights and our license plates are photographed as we whiz past hidden cameras set up to catch speeders. Our grocery purchases are tracked when we use club cards to qualify for store discounts.

We're warned to shred all those unsolicited credit card applications that arrive daily. We shouldn't put outgoing bills in our mailboxes because crooks steal the enclosed checks. "They" know every Web site you visit and how long you stay there.

There are security concerns at airports, on bridges and highways and at major events where crowds gather. Some of the biggest stories that came out of the Olympics in Salt Lake City and the Academy Awards in Hollywood this year revolved around the steps organizers had to take to keep everyone safe.

Here are two ways this controversial, state-of-the-art technology is being applied to increase levels of security in payments transactions and identity verification. BioPay Tim Robinson, President of BioPay, looked to his background in check processing and verification to find a niche for biometrics. Since banks and check-cashing businesses already were collecting ink fingerprints, his idea was to collect digital finger scans to verify identities. Robinson said that there is less resistance to the whole fingerprint/finger scan issue among people who don't have bank accounts - the ones who use the check-cashing facilities' services to begin with.

"They're already being fingerprinted. Ink prints smear. Instead, we're capturing an 'e-print,' " he said. "The preconceived aversion in the middle class to fingerprinting doesn't exist in the unbanked community.

"Collecting electronic finger scans is a better experience for the unbanked. The entire process is sped up - the lines move faster because transaction times are shortened. We have happier merchants cashing more checks and reporting higher sales, and there are no issues with customer acceptance. Our system gives an increased element of stability to those who are enrolled."

There are hundreds of thousands of scanned index finger prints in BioPay's proprietary database. Grocery and liquor stores who cash checks for their customers and other merchants with multiple locations are using the system in 17 states. Merchants are assured a high rate of identification verification.

"We guarantee the face value of all checks cashed. We've wiped out fraud. We offer a .55 percent guarantee rate, double that of check-verification services," Robinson said.

Customer enrollment in the BioPay system requires less than two minutes. Both index fingers are scanned; a template of that image, along with a digital photo of the customer driver's license, phone and social security numbers, all are entered into the system. When the customer comes back the next time, they only need to put their finger on the reader screen.

Robinson said the BioPay database is the largest commercial, non-governmental electronic fingerprint database in the nation: "BioPay-enrolled merchants share only negative check-cashing information. No customer enrollment data is shared." The system offers merchants excellent reporting and math features, he said.

Robinson is enthusiastic about ISO opportunities with BioPay. "We are using this powerful technology to focus on financial transactions. Currently, we're growing our payroll check-cashing and check-guarantee programs. The next phase will involve moving to use fingerprints to initiate the entire transaction.

"We are open to suggestions from our reps and appreciate the creative juices flowing out there in the ISO world. The sky's the limit. We have products here today with good profit margins and excellent support materials. Leases or purchases and discounts are available; there are even international opportunities.

"We believe it's inevitable that in the near future that the world will use biometrics in everyday situations. It will be a mainstream way for merchants to initiate payments."

One of the challenges facing biometrics companies will be getting people to enroll. "Customers don't believe it works," Robinson said. There are mechanical bugs to work out, too. Repeated applications of hand lotion - and time - tend to wear down the ridges of the whorls on fingertips, for instance. Hypercom Hypercom Corp. brings biometrics to the point-of-sale. Like BioPay, Hypercom's primary focus is to reduce fraud; its application has uses in financial payments security and identity verification. It also uses a simple but reliable finger scan to provide an additional element of security, for both the customer and merchant, in credit and debit card transactions.

With card-payment fraud costs in the United States expected to exceed $4 billion this year and trust in the industry eroding, George Wallner, Chairman of Hypercom, said the need for the industry to take preventive measures against fraud has reached the urgent level.

"The problem is only going to get worse in the future. The need to bring fraud under control, and indeed eradicate it, demands that the industry take action now," Wallner said. "Ensuring the positive identification of the account holder has always been the goal of the electronic payments industry, and we now have the means of achieving that objective."

Fingerprint-derived ID has the potential to eliminate more than 90 percent of all card-related fraud, a much higher level of security than smart cards provide on their own.

"We have developed a technology that can cost-effectively eliminate fraud. We use a low-cost finger-scanning pad connected to the POS terminal that is a very cost-effective means of linking cards to cardholders. This is not done at the point-of-sale now."

Wallner emphasized that his company's biometric solution steers clear of privacy infringement and civil-liberties issues because it doesn't process, transmit or store fingerprints.

Hypercom's scanner creates a digital vector from the image of the fingerprint. "Nobody gets fingerprinted. We don't collect fingerprints," he said.

The fingerprint images are not unique, are never transmitted from the point-of-sale and are not stored in a database. It is not possible to recreate fingerprints from the vectors, which are low-resolution outlines of the lines and ridges with a 256-byte value.

The finger scans are added to and compatible with current security features like magnetic stripe and smart card technologies. When used in conjunction with a specific card number, the vectors provide a reliable and foolproof method of identity verification. The result is a system that allows positive identity verification without actually knowing the unique fingerprints of consumers.

"The ultimate objective of the card industry is to prove that the cardholder is who he or she claims to be. While smart cards are more secure than magnetic stripe cards, neither can prove that," Wallner said. "With or without smart cards, fingerprint-derived identification offers a rapidly deployable security solution. It is a very powerful proof of identity that cannot be lost or stolen.

"Finally, there's one very definitive advantage to placing fingerprint scanners at the point-of-sale. What crook, knowing that he is using a stolen, lost or counterfeit card, is going to place his finger on the scanner?"

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