Will PayPal's Face Verification System Kick Off the Future of Payment Technology?

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Ever been standing in a checkout line only to realize that you're unable to pay because you've left your wallet, cash, or credit card elsewhere ? Or perhaps you're like the 83% of respondents to a recent PayPal survey who said you'd rather not carry a wallet at all. If PayP al's ( EBAY ) la test technology using face recognition to facilitate payment transactions is successful, wallets may soon become a relic of the past.


Though currently being tested in j ust a dozen select retailers in London, if successful and rolled out on a larger s cale, PayPal's face verification technology would require nothing more than a smartphone and your smile to shop . Here's how it works : Users sign up for a PayPal account (which is linked to a checking, savings, debit, or credit card account) . Then, he or she downloads the PayPal app for iOS , Android ( GOOG ) , or a Windows ( MSFT ) phone . With it, the user can search for nearby merchants that parti ci pate in the photo technology, or simply see that they do with the PayPal insignia posted on the retailers storefront, similar to the Visa (V) , MasterCard ( MA ) , Discover (NYSE: DFS ) , and American Express (NYSE: AXP ) logo decals merchants have posted for years.

When ready to purchase, the user accesses the PayPal app (which is linked to his or her PayPal account ), to drag an animated pin down the screen and essentially "check in" to the merchant, similar to the functionality used in Facebook ( FB ) . With that action, t he user's name and electronic headshot appear in the merchant's payment system . With customer approval, the cashier clicks on the person's photo from the merchant interface, t o initiate the "charge" payment . When the transaction is complete, t he customer receives an alert via phone with the amount paid , along with PayPal's usual receipt.

For users and merchants, the face verification technology may signal a greater potential for convenience, and operational constraints . In a promotional video released by PayPal UK , one merchant also noted that the technology fostered interaction between customer and cashier, helping staff to literally put a face to a name . That said, the protocol for what happens when a person doesn't look much like their photo, or look s a lot like another person who ga ins access to their smartphone and /or electronic image, is still unclear . If all systems are a "go," Sky News reports that PayPal intends to re lease the product to at least 2,000 merchants in United King dom by the end of this year . Whether or when the product will make its way the United States market has yet to be addressed by PayPal.

Though the past several y ears have introduced innovations in th e mobile payments space and made the idea of a "virtual wallet" more mainstream, technology like Apple's (NASDAQ: AAPL ) Passbook app, the Samsung Wallet (OTCMKTS:SSNLF) (which is now available on GooglePlay ), and MasterCard'sPayPass still haven 't come close to nullifying the role of the physical card in all payment transactions. Based on the success and adoptio n of PayPal's latest test, this ma y be one of the initial signals that a rapid race within the payments technology -- one that will send physical wallets into the past -- is ready to launch.


Apple filed a patent in August 2012 describing "an electronic device that may include a graphical user interface (GUI) that may be manipulated by a user to confirm or decline a payment transaction using a selected payment instrument," providing evidence that Apple will indeed dig deeper into mobile payments. On top of that, there arerumors in the air that the next generation of Apple iPhone devices will include a fingerpr int sensor c oncealed beneath the phone's touchscreen. S peculation about this feature began when Apple purchased biometrics innovator Authentec in 2012 for $356 million, and the rumors were further fueled when a patent correlating to the technology was made public in July 2013.


Despite the billions of dollars in opportunity on the table, a clear leader in the mobile payment industry has yet to emerge . The quest ion, of course, for investors isn't whether the market will evolve quickly, but who will capture the greatest share of the market-and how-as it does.

Twitter: @WellnessOnLess



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Stocks , Technology

Referenced Stocks: EBAY , FB , GOOG , MA , MSFT

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