Pay By Touch Fades To Black After Chapter 11 Bankruptcy and Contentious Boardroom Battles

Implications: Pay By Touch fades to black after filing Chapter 11 Bankruptcy reorganization in December 2007 and enduring contentious boardroom battles to decide the fate of the company. Pay By Touch used biometrics to authenticate consumers at the POS (Point-of-Sale) for secure check cashing and ACH based purchases. Pay By Touch was successful at bringing biometric technology to the retail payments space, however, processing fingerprint payments didn't take off as expected and the once POS (Point-of-Sale) biometric payments leader officially closes shop. Pay By Touch grew primarily through acquisitions with the help of hedge funds and venture capitalists and went on to raise over $300 million to acquire at least six companies between 2005-2007, however, the company still needed more cash to fund operations. Pay By Touch's owners was also some of its biggest creditors. In court filings Pay By Touch indicated it owed its 30 largest unsecured creditors over $39 million.

Analysis: Pay By Touch uses biometrics to authenticate consumers at the POS (Point-of-Sale) for secure check cashing and ACH based purchases, however, because consumers are accustomed to using credit and debit cards that offer rewards, there wasn't much of a value proposition for the consumer to use its fingerprint for payment. Pay By Touch raised an additional $163 million in capital from Plainfield Asset Management, Och-Ziff Capital Management and Farallon Capital Management to help fund operations. Consequently, Plainfield's $50 million loan was secured with shares owned personally by founder John P. Rogers. Plainfield's stake amounted to a 20% ownership with a "supermajority" voting rights that gave Plainfield a 64% control of the voting shares, which was enough to control the company.

1.  The loan agreement with Plainfield called for Plainfield to assume control of Rogers' shares in the event of a default. Plainfield took Pay By Touch to court alleging that Pay By Touch defaulted because it failed to deliver its 2005 audited financial results by the agreed upon deadline. This led to numerous lawsuits and Plainfield ousted Rogers and created a new board of directors. Eventually, the two sides settled and Plainfield kept Rogers on as a Director only, without any executive responsibilities

2.  In December 2007, Pay By Touch voluntarily filed for Chapter 11 Bankruptcy reorganization after some of its employees tried to bring the company into involuntary bankruptcy. Court filings paint a picture of a company that burned through a vast amount of funding and still managed to face severe cash shortages after reorganizing and liquidating its non-core assets

Takeaway:  Pay By Touch's grandiose plans to build a huge network of fingerprint-ready checkout lines around the globe was ambitious but came up short of expectations. Pay By Touch was viewed as an alternative payments provider who could authenticate and process transactions in real-time. Alternative payment providers such as the defunct Pay By Touch and others are anxious to bring alternative payments to market and they look for ways to reengineer the payments infrastructure to provide faster, better and cheaper payments because  consumers and merchants aren't waiting for banks to fill the product gaps. Although Pay By Touch "fades to black," other competitors are willing to take its place in the biometric payments space.