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PayPal trials photo verification to boost security

PayPal

PayPal is trialing a new system which can recognize a user's photograph, in an effort to boost security and speed up the process of smartphone payments, the company said on Thursday.

The pilot scheme, which is taking place in Richmond, London, allows customers to "check in" to stores on their phone. The process means retailers can verify the customer's identity and process their mobile payment, by looking at their photo.

The new system is designed to reduce the risk of fraud and save time, as the customer does not have to access their credit card. For instance, a stolen mobile phone could not be used to make payments, because the retailer can use the photo to recognize who is registered to use that PayPal account.

The company also said the new system boosted security because consumers do not have to worry about typing in their credit or debit card details.

(Read more: These 'smartphone saturation' stats could prove Apple wrong)

Security is certainly a concern for the public when making mobile payments. A survey by eDigitalResearch earlier this year found that over 50 percent of the 2,000 people surveyed identified security issues as a major disincentive to using remote payment methods. Some 40 percent said the possibility of fraud was a major concern regarding mobile payments.

However, Daniel Lucht, director at Research Farm, which publishes reports on the mobile payment sector, cast doubts on consumer take-up of the PayPal scheme.

"There are wide-spread data privacy concerns in Europe — and the U.K. especially — and so I don't think people will like shopping with their photos," he told CNBC on Thursday. "The app might be a bit too familiar, and freak people out."

Lucht added that generally, U.S. consumers were much more amenable to this level of familiarity, which was why similar payment systems had taken off in the U.S.

He identified Starbucks as the "biggest player out there" in terms of mobile payment, and said the coffee chain's app was especially popular because they had related it to their loyalty offers.

"PayPal should look at linking their app to loyalty points or offers, instead of focusing on photos," he said.

(Read more: This Is the Future for Smartphones: Broadcom CEO)

Rob Harper, head of retail services at the PayPal, said the photo verification had gone down well with retailers in the trial, as it brought a more personal element to mobile payment.

"This is another step on the journey towards a wallet-less high street, where customers will be able to leave their wallet or purse at home and pay using their phone or tablet," he said. "We predict that by 2016 this will become a reality."

The company, which is owned by eBay, has already rolled out the new system, called "check in to pay", in the U.S. and Australia. It now hopes to have it available in 2,000 U.K. locations by the end of 2013. A PayPal spokesperson confirmed that retail brands including Oasis, Coast, Karen Millen and Warehouse planned to sign up to the scheme.

By CNBC's Katrina Bishop. Follow her on Twitter @KatrinaBishop

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