Biometric technology is in the throes of an identity crisis. Biometrics relies on matching algorithms that analyze the physical or behavioral traits that differentiate one individual from another, such as fingerprints, the retina or iris of the eye, or the patterns of an individual's voice.Through its use, financial institutions could reduce costs related to identity theft, while simultaneously assuring consumers that their financial assets are protected.

Banks, for example, might rely on biometrics to determine whether a credit card is being fraudulently used. Insurance carriers have identified fewer needs for biometrics, with the reduction of fraudulent claims being one of the more logical applications.

But amid the positives, biometric technology comes equipped with several negative attributes, industry observers say. And it is these concerns that have many providers uncertain about biometrics' role in their operations.

One concern is the belief by many that biometrics is an invasion of their privacy. Moreover, consumers are concerned that the technology is a nuisance because it is slow to confirm verification. Providers, on the other hand, see biometrics as a potential cost burden to their operation.

One positive development surrounding biometrics, though, is that the invasion of privacy factor seems to be dissipating. A nationwide survey by New York City-based Columbia University repudiates some of the concerns over privacy in a recent survey.

Privacy concerns dissipating

Of those polled, 83% stated that they approve of the use of finger imaging, and don't regard it as an onerous ritual. Also, consumer groups view biometrics positively since it might mean eliminating passwords or personal identification numbers that have proven to be a measure of frustration.

While privacy concerns are easing, the high cost of implementing the technologies is one drawback that could delay its widespread use for at least a decade, according to a recent study conducted by Needham, Mass.-based TowerGroup.

Ultimately, an institution would have to retool every customer touch-point with new biometric hardware. Moreover, they would have to shoulder costs for training personnel, educating consumers through marketing materials and integrating biometric technologies with existing IT systems, TowerGroup explains.

Window of opportunity?

TowerGroup also found that a lack of perceived convenience means that "consumers will resist adapting to these technologies if they prove unreliable, or if the authentication process-whether it entails iris scanning or hand recognition-requires too much time," says Jean-Paul Carbonnier, an analyst in TowerGroup's retail brokerage and investing practice.

Some industry observers paint a more optimistic picture for biometrics. In a report entitled "Security Fears: FSIs (Financial Services Institutions) Face Up To Them With Biometrics," Newton, Mass.-based e-business consulting firm Meridien Research Inc. predicts that using biometrics to secure financial transactions is going to increase volume due to improved accuracy, greater availability and reduced costs.

But Meridien notes that adoption of biometrics is "likely to move at a faster rate than in the past because of increased security concerns sparked by the terrorist activity in the U.S."

In the aftermath of September 11, "a paradigm shift is inevitable as the financial services industry, faced by increasing pressure from consumers, begins to adopt additional measures to safeguard transactions and minimize the risk of stolen identities," says Christine Barry, a Meridien analyst and author of the report.

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