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updated 7/13/2005 2:06:23 PM ET 2005-07-13T18:06:23

Shoppers at Piggly Wiggly supermarkets in South Carolina can afford to forget their cash, credit cards and cheque books this summer. All they need is a finger.

The regional chain, whose slogans include "Shop the Pig", in June became the first U.S. retailer to roll out a new biometric payment system at all its 120 stores, introducing its customers to a technology more often associated with security gates than check-outs.

To pay, a customer places an index finger on a small screen, types in a number on an adjacent pad, selects an account from an "electronic wallet" and walks away.

"They don't have to pay with plastic for any kind of payment . . . plus the transaction for them is very easy," says Rich Farrell, who oversaw Piggly Wiggly's introduction of the system.

The payment system, produced by Pay By Touch, a San Francisco technology company, is also being tested by Albertson's, the second-biggest U.S. supermarket, as well as a number of smaller regional retailers.

In the U.K., the Oxford, Swindon and Gloucester Co-op, a pioneer of self check-out, will launch a pilot this autumn. Similar systems are also being tested in Germany.

If the technology catches on, users will only need to register once before using the same electronic wallet to shop at any retailer offering the system.

Since it was set up in 2003, Pay By Touch has attracted an experienced management team including John Morris, its president, who previously headed IBM's $5 billion Americas' retail industry operation.

Mr Morris says: "We're clearly not a start-up we're a much more mature company. We've raised almost $100 million so far, we have a very seasoned management team and we are working with a very important and powerful group of retailers."

Pay By Touch, he says, will raise an additional $50-$70 million in the next few months, which will give it the capital it needs to break even. An initial public offering is possible next year.

But the system faces powerful competition. Visa, Mastercard and American Express are all pursuing technology shifts of their own with the launch of "contactless" credit cards. Customers pay by passing the card, fitted with a radio frequency chip, over a reader. No signature or number is required for small payments.

Both the contactless and Pay by Touch systems speed up transactions, potentially reducing queues and increasing sales at high-volume outlets such as fast-food restaurants.

Contactless cards are also more secure than existing U.S. credit and debit cards, which rely on old-style and easily copied magnetic strip cards, rather than the silicon chip "smart card" technology used in Europe and Asia.

Richard Reese, who oversees technology developments at Discover Card, the smallest of the "big four" card issuers, says contactless and biometric payment systems are likely to develop together. "We don't believe there's going to be any single solution that will win out over the others," he adds.

But for U.S. retailers, Pay by Touch offers a distinct attraction. It allows customers to pay directly from their own bank accounts, without using a bank-issued debit card. That reduces controversial network handling charges, known as interchange fees. These are currently the subject of an antitrust lawsuit brought by small retailers against Visa, MasterCard and leading banks.

"A debit card transaction is in the range of around 30 cents. Pay By Touch is in the low teens. It's a very, very low-cost transaction," says Piggly Wiggly's Mr. Farrell.

He also hopes the system, costing about $200 per unit, will reduce the number of customers using cash or cheques, which still carry about 45 percent of U.S. consumer spending. In an initial test in largely suburban neighbourhoods, about 15 percent of Piggly Wiggly customers registered with Pay By Touch. However it may be harder to win over rural customers, who traditionally prefer cash.

"There are some people that will not use it because they look it as a Big Brother kind of thing. Others just don't have time to register," says Mr. Farrell.

Pay By Touch's John Morris says skeptical customers can sometimes be won over by explanation of the technology. The system, for instance, does not store information that can be used to generate a fingerprint, but an encrypted series of numbers identifying a combination of 40 data elements for each individual.

Mr. Morris is also convinced that people like the added security. It is, after all, "very hard to steal someone's finger."

Copyright The Financial Times Ltd. All rights reserved.

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