A future beyond card payments

How we pay for goods and services has changed substantially over the past few decades. Credit cards were a significant innovation in the payment industry, allowing consumers to purchase items without cash, saving tons of shoe leather required in frequent visits to bank tellers. The first credit card in the US was introduced by Diner's Club in 1950 and was accepted by a limited number of restaurants and hotels. In 1958, American Express, already a leading international money and travel system, introduced its first card.

The 1960s brought a wave of new products, with Bank of America launching the Bank Americard product in 1966. This network later became what we know today as Visa. A competing group of California banks introduced Master Charge (later MasterCard) the same year. The first rewards cards launched in the early 1980s with early offerings from American Airlines and AT&T. During this time, card technology remained essentially static from a consumer’s viewpoint (a piece of plastic with embossed numbers and a magnetic stripe) through the end of the century. The networks and bank issuers made substantial technology investments over the decades to migrate from paper-based to computerized processing over these years. However, cards were still primarily represented simply as a string of numbers (growing to the sixteen-digit standard personal account number on most cards today).

While Europe and other markets started introducing chip-based cards based on the EMV (Europay, Mastercard, Visa) standard in the 1990s, the United States didn’t widely adopt this technology until the mid-2010s. Banks and startups tried contactless cards in the 2010-2014 era. Still, mobile payments didn’t gain substantial ground in the United States until 2016, with the introduction of Apple Pay, enabling contactless NFC-based payments on Apple smartphones. Google launched NFC payments for Google Android phones quickly following Apple Pay’s introduction.

EMV and NFC payments introduced broad support for tokenization, a cryptographically secured representation of the underlying account number. By enabling many tokens to point to a single account, the payments industry opened the way for cardholders to have many forms of payment. Some early versions of these were like a Fitbit with an NFC chip for American Express cards in the early 2010s.

Innovation beyond card: Amazon’s Just Walk Out technology

The next wave of payments innovation is the extensive use of QR codes and biometrics we’re seeing that enable check-out-free experiences. Amazon Go stores, for example, opened in 2016 and were among the first retailers to offer a checkout-free shopping experience. The stores utilize advanced technology, including computer vision and sensor fusion, to detect when a customer picks up an item from the shelf and adds it to their cart. Customers need to scan a unique QR code to enter the store. Each customer generates their code through the Amazon app on their smartphone. Once inside, items added to their real-life shopping cart are automatically added to their online account's shopping cart. They’re charged automatically when they leave the store without interacting with a cashier or using a traditional payment method like a credit card. Receipts are sent digitally within a few minutes of exiting the store. Amazon Go stores have been praised for their speed and convenience, allowing customers to skip long checkout lines and complete their shopping quickly–a significant and unique value proposition for American consumers who highly value time and convenience.

Building on their Just Walk Out experience, full-size Amazon Fresh stores launched in 2020, taking the checkout-free shopping experience one step further by allowing customers to use the Amazon app to check in and pay for their purchases. Upon entering the store, customers scan a QR code generated by their Amazon app on their phone, and their Amazon account is charged automatically as they shop. The stores offer a more traditional shopping experience, with items displayed on shelves rather than in vending machine-like cases. Amazon Fresh stores also provide a wider range of products than the smaller Amazon Go stores.

The current generation of Amazon experiences, across Amazon Go, Amazon Fresh and Whole Foods, also enable customers to use their palm print as a biometric payment identification. At my local Amazon Fresh store, which opened last year, I use my palm to scan into the store. Next, I can collect my groceries directly off the shelf into my bags. Finally, I simply use my palm again to scan out. I am typically emailed a receipt within one hour and have had no errors. I have been particularly impressed when shopping with family (everything works just as well) and when I have, on several occasions, helped a few shorter shoppers retrieve items from a top shelf. I expected this would be hard for computer vision to detect, but I was not charged for items I handed to another shopper.

Biometric identification: next-gen card payments

Palm recognition technology (branded Amazon One in these cases) is an innovative form of biometric authentication that allows individuals to verify their identity using the unique patterns on their palms. The technology analyzes the unique lines, ridges and creases on an individual's palm and uses these patterns to verify their identity. Amazon filed initial patents for palm readers in 2019, leading to the introduction in select stores in 2020 and wide rollout in 2021 and 2022. Earlier efforts at palm recognition in the 2010s, from companies like Noatta, included devices that you had to stick your hand into for a scan. Consumers use Amazon’s palm reader by simply holding their hand over the reader, which is more friendly than sticking your hand into a box!

To use palm recognition technology, an individual must first register their palm with a system that uses it. During registration, the individual's palm is scanned and analyzed to create a digital template of the unique patterns on their palm. This template is then stored in a secure database and can be used to verify the individual's identity in the future.

When an individual wants to use palm recognition technology to authenticate their identity, they simply hold their hand to a palm scanner. The scanner uses infrared light to capture an image of the individual's palm and analyze the unique patterns on their palm. The scanner then compares these patterns to the digital template created during registration to verify the individual's identity.

One of the advantages of palm recognition technology is that it is highly accurate. The unique patterns on an individual's palm are highly distinct, making it difficult for someone to replicate or use them to impersonate another individual. Additionally, because the technology uses a physical characteristic rather than a password or PIN, it is much more secure than traditional authentication methods.

Palm scanning works by holding your hand a few inches above a reader. Connecting my palm print to my Amazon account required a one-time registration, which can be done at checkout or on a dedicated machine. I can manage the credit or debit card the palm print uses from my Amazon account. The palm print, in this way, becomes a token for access to my wallet and the tokenized version of my credit card account. I still think of this as paying with my card, although I am also paying with my palm.

Pay by face technology, which uses facial recognition to authorize payments, is also becoming more common. This technology is currently being used in China and other parts of Asia, where consumers can use their face to pay for everything from groceries to transportation. The technology is still in its early stages, but it has the potential to revolutionize the payment industry by making transactions more secure and convenient. Facial recognition technology is highly accurate and almost impossible to replicate or falsify, making it a secure payment method. It also eliminates the need for consumers to carry cash, credit cards, or even their mobile phones, as payments can be authorized simply by scanning their face.

Similar in structure to palm payments, facial recognition technology – more common today for use on smartphones, secure access to buildings, and more– is a biometric technology that uses artificial intelligence and machine learning algorithms to analyze an individual's facial features and match them to a database of known individuals. The technology analyzes various features, including the distance between the eyes, the nose and mouth's shape, and the jawline's curvature. Initial key providers of facial recognition include Japan’s NEC, IBM, and other core infrastructure providers.

To use facial recognition technology, an individual must have their face scanned and analyzed, creating a digital template of their unique facial features. This template is then stored in a secure database and can be used to match the individual's face to their identity in the future.

When individuals want to use facial recognition technology to authenticate their identity, they simply stand in front of a camera or hold up their mobile device to take a selfie. The camera captures an image of their face, and the technology uses advanced algorithms to analyze the image and identify the individual based on their unique facial features.

Facial recognition in payments

Here in the United States, a few companies are starting to launch facial recognition payments. One example is PopID. They offer several face-based biometric solutions, including payments, loyalty, and building entry. PopID has experimented with card payments and the US Automated Clearing House bank-to-bank transfer network. A one-time setup is required, but your credential is part of your body from then on.

Biometric payments present an additional evolution in security. Early cards, as noted above, were simply pieces of cardboard or plastic with unencrypted numbers both imprinted visibly on the card and encoded in the magnetic stripe. Anyone with a cheap magnetic reader could read, write and steal the data. Introducing chips with EMV, NFC, and tokenization creates a new layer of security because a single token can be canceled or rejected without affecting the underlying card. At the same time, a stolen token device, whether a physical card, a mobile phone, or other NFC form factor, can still be used to make payments. With biometrics, you have a unique identifier (your face or palm print) that is very hard to replicate (or perhaps impossible to steal), which, in turn, references a token. 

Similarly, mobile payments are also highly convenient, as consumers can make purchases from anywhere using their mobile phones and do not need to carry cash or credit cards. Mobile payments are also becoming more common in brick-and-mortar stores, with many retailers now offering mobile payment options at their checkout counters. This allows consumers to pay for their purchases quickly and easily without fumbling with cash or credit cards.

Challenges with emerging payments technology

The rise of new payment experiences can revolutionize the payment industry and change how we think about money. By making transactions more secure, convenient and seamless, these technologies make it easier than ever for consumers to make purchases and manage their finances. However, these technologies also come with their own set of challenges.

One challenge is the issue of privacy. Facial recognition technology, in particular, has raised concerns about potential abuse, as it can be used to track people's movements and activities. 

The United States traditionally lagged in the adoption of new technologies around “card” payments. As companies throughout the United States invested in technology and processes for first-generation payment cards, there was a built-in disincentive to invest additional dollars for upgrades. The issuing banks primarily bore the cost of fraud, meaning that individual merchants had little reason to invest in upgrades. Meanwhile, the first implementation was often to a newer standard in other jurisdictions.

A few key events led to a significant change in the United States. Major hacks of credit card data, for example, incidents at TJ Maxx and Target (two US discount retail chains), led to enormous costs for banks to reissue millions of cards and much customer frustration. In turn, the payment networks created an enforcement mechanism that required merchants to upgrade to EMV-capable terminals (many of which also supported NFC). This mechanism is called the liability shift. Following the shift, which started in 2015 but varied depending on the merchant category, a merchant who accepted only magnetic stripe payments would be responsible for fraud on cards that did support EMV or NFC payments. As the cost shifted to merchants, the networks created an incentive and penalty structure for merchants to upgrade their payment terminals. (This also paved the way for the acceptance of mobile payments with new terminals that accept NFC, and thus also Apple Pay and Google Pay).

It’s a first-mover disadvantage: Diners Club launched the first credit cards in the United States, but we were behind in establishing technologies such as EMV chips, contactless cards, and mobile payments. Some countries, especially in markets like Africa, have leapfrogged traditional cards, moving directly to account-to-account mobile payments and bypassing US network constructs entirely.

You must pay for something whenever or wherever you need to conduct commerce, but making the payment isn’t the point; it’s just a by-product. Payments are often called the plumbing of commerce. We all want fresh, clean water to come from the tap, but few of us want to worry or think about how it gets there. Similarly, we want to buy what we want when we want it, without worrying about bad actors having access to the money in our accounts. Payments are evolving to be more secure and more convenient. As they do, we can look forward to a future where payments simply work and fade into the background of commerce.