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


A clear leader in this space has yet to emerge.

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 PayPal's (NASDAQ:EBAY) latest technology using face recognition to facilitate payment transactions is successful, wallets may soon become a relic of the past.

Though currently being tested in just a dozen select retailers in London, if successful and rolled out on a larger scale, 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 (NASDAQ:GOOG), or a Windows (NASDAQ:MSFT) phone. With it, the user can search for nearby merchants that participate 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 (NYSE: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 (NASDAQ:FB). With that action, the 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, to initiate the "charge" payment. When the transaction is complete, the 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 looks a lot like another person who gains access to their smartphone and/or electronic image, is still unclear. If all systems are a "go," Sky News reports that PayPal intends to release the product to at least 2,000 merchants in United Kingdom 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 years have introduced innovations in the 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 adoption of PayPal's latest test, this may 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 are rumors in the air that the next generation of Apple iPhone devices will include a fingerprint sensor concealed beneath the phone's touchscreen. Speculation 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 question, 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
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