FPC Brings China’s First Biometric Contactless Payment Card: What Does the Future Hold?

Earlier this month FPC (Fingerprint Cards), a leading consumer fingerprint sensor vendor, announced that it will be working with Chinese hardware secure element vendor CV Microelectronic in order to bring to market Greater China’s first biometric contactless payment card. For this early stage, FPC will utilize its FPC1300 series, featuring an ultra-thin sensor with contactless and energy harvesting capabilities (negating the need for an internal battery), low power consumption, 360-degree-angle readability, ISO compliance, and quick readability and enrollment, as well as equipping the matching software with a sophisticated self-learning algorithm (FPC’s EvoTouch). While this turn of events will no doubt kickstart a market domino effect in the region, the jury is still out on whether the Chinese market will adopt biometric payment smart cards as fast as anticipated by large vendors or take a back seat to mobile payments while Asia-Pacific giants like Alibaba flood the market with their own biometric solutions.

This step was a highly anticipated one for Asia-Pacific and especially China, but it was not the first one in the region. Earlier this year, augmented identity leader IDEMIA chose to partner with FPC for the development of Japan’s first biometric payment card trial—a commendable strategy in preparation for Japan’s hosting of the 2020 Olympic Games. Much like Japan and Korea, China has become a highly absorbent market when it comes to biometric technologies, and it was only a matter of time before the large Western vendors eventually started to mobilize towards it. Happening at the end of 2Q 2018, both integrations fall in line with ABI Research’s predictions for the first (trial) biometric card wave in the Asia-Pacific market, which forecasted 12,000 biometric payment cards by the end of 2018 (data from the ABI Research market data Biometric Technologies and Applications (MD-BIOM-107)).

It’s worth noting that just a few years ago, the Chinese government and major banks decided to “embargo” biometrics and particularly face recognition, mentioning that biometric technologies (particularly the latter) were not mature enough to secure user transactions. While to some degree Chinese policymakers and technology advisors were right in that respect, China is now experiencing a momentous increase in biometric technologies across the entire market spectrum: from consumer electronics to government ID. Most use case scenarios are following a top-to-bottom approach and are guided (or mandated) by the Chinese government towards other market sectors rather than being the result of external market pressure as was the case with other Asia-Pacific countries (e.g., Malaysia, Singapore, Thailand). As such, the biometric payment card market in Asia-Pacific is expected to climb to 39 million card shipments by 2023, marking a 215% 5-year CAGR growth, reminiscent of the mobile payment revolution that swept China and India in the past few years.

When it comes to this first wave of biometric-embedded sensors in payment cards, there are three primary rules that implementers need to fulfil: a) convenience for the end users, b) market evaluation and EMV and ISO compliance, and perhaps most important, c) tread the fine line between security and sensor price for the banks themselves. Sensor price is a major point in the payments market, which unfortunately transcends engineering design. The technology is here, tested, improved, and ready to go, but is the market ready for massive adoption? Payment cards with embedded fingerprint sensors start from US$15 and may go up to US$23. This is a significant increase given the fact that even the latest generation of contactless payment cards may reach US$4.50 a piece, and one that may not be easily justified by banks.

The benefits of the return-on-investment using biometrics in payment cards are primarily around user convenience in transactions, the elimination of passwords, and the inability of fraudsters to access a user’s account (even in contactless form factor) should they manage to acquire a smart card. However, the majority of fraudulent behavior occurs in card-not-present instances rather than card-present ones. Based on data from the U.S. Payments Forum, on average, most countries stand between 20% and 35% for card-present versus 65% to 80% for card-not-present fraud. This means that a 4X increase in card ASPs may not be entirely justified since fingerprint-embedded payment cards will not be able to secure those card-not-present transactions. In addition, biometric mobile payments stand in direct competition to biometric card payments in the Chinese market.

In recent years China has seen an explosive increase in mobile payments. This trend has been cemented deep in the consumer society and is further supported by payment and social media giants like Alipay and Tencent (which also push their own plans for biometrics-based authentication and payments). Added to this is the fact that while ATM growth in Greater China may have reached a plateau, ABI Research predicts that technology upgrades will bring on a new wave of biometric and cardless ATMs, leveraging biometric sensors from the smartphones themselves, which translates to even more market hurdles for biometric cards. This is not to suggest that biometric payment cards will not succeed in China, but rather that they may not transcend all aforementioned challenges and conflicting technologies as fast as expected.

Another hypothesis is that there is considerable evidence (e.g., new policies of country-wide iris recognition as part of government ID) that suggests that China is rapidly approaching an Aadhaar-like biometric identification system similar to the one in India. ABI Research posits that this is a highly anticipated scenario that will further assist biometric integrations in smart cards. There is, however, a grave social challenge hidden underneath this potential but highly likely future scenario. Should the aforementioned prediction come to fruition, Chinese citizens could expect a reform of the country’s social credit system, which is infamous (at least in western societies) for ranking citizens according to credit history and online behavior among hundreds of other hidden factors that the Chinese government refuses to reveal. This will undoubtedly bring about the birth of a biometric surveillance system that will permeate every facet of consumer, telco, enterprise, travel, financial, and government sectors and subsectors. The future will show what is in store, but one thing is for certain: biometrics for banking will certainly be a major part of it.