Cogent Systems Inc.'s fingerprint identification system is already a big hit with government agencies, police departments and border patrols, but the true frontier for its technology is the corner store.
Despite more than $80 million in contracts for border control in Morocco and Jordan, as well as identifying foreign visitors for the Department of Homeland Security, it's Cogent's $5 million contract with a company called Pay by Touch that points the way to the future.
Reason: There are more dollars to be made chasing retail transactions than terrorists.
"I travel quite a bit, but I buy things a lot more," said Jon Siegal, executive vice president of San Francisco-based Pay by Touch, a biometric payment service that allows customers to use their fingerprint like a credit card.
South Pasadena-based Cogent developed a technology that can match a fingerprint against a database of millions of people in a matter of seconds. Like other security-technology companies, it's had an exciting post-9/11 run, full of government contracts.
Cogent reported $14.4 million in net income for the second quarter ended June 30, double the year-ago quarter. Revenues rose 130 percent, to $39.3 million. Nearly all of it was for government or security clients.
"They are striking where the iron is hot with the government business and the security business the commercial market just isn't quite there for widespread adoption," said Brian Gesuale, analyst with Raymond James.
Commercial applications for biometrics which use unique aspects of the human body, such as iris scans, facial recognition and fingerprint matching to identify individuals are just beginning to open up.
The segment was just $275 million worldwide last year out of an overall market estimated at $1.2 billion, according to Joel Fishbein, a senior technology analyst at Janney Montgomery Scott LLC.
The deal with Pay by Touch is an attempt to expand this market. Cogent's checkout terminals incorporate its fingerprint-matching technology with Pay by Touch's billing and customer service platform.
Piggly Wiggly Carolina Co., a Southeast grocery chain, launched an earlier version of the Pay by Touch system in four stores at the beginning of the year. After a few months of testing, Piggly Wiggly said it would use the service throughout its chain.
Albertsons Inc. will start using the Pay by Touch system with Cogent's technology by the end of the year. Analysts say large retailers such as Wal-Mart Stores Inc. are considering rolling out some form of biometric check-out systems. "We are actively in talks with all the major big box retailers," said Siegal, although he wouldn't discuss specifics.
One benefit to retailers is the ability to eliminate credit card fees. In low-margin businesses such as grocery stores, the 3 percent fee on credit card transactions eats away at profits. The fee for an automatic cash transfer from a bank for a fingerprint transaction could be less than 1 percent, Fishbein said.
The overall biometrics market is expected to reach $4.8 billion by 2008, up from $719 million in 2003, according to the International Biometrics Group. Fingerprint biometrics makes up 70 percent of the market.
Cogent's share is about 9 percent. Motorola Inc. has 19 percent and Sagem Morpho Inc., a Tacoma, Wash.-based subsidiary of French aerospace and security conglomerate Safran, has 48 percent, relying heavily on law enforcement and defense clients.
Cogent Chief Executive Ming Hsieh, who is considered a luminary in the field, has been developing strategies for the retail market, Gesuale said. "We get the sense he's doing a lot of behind-the-scenes work in forging relationships with partners that will help them sell into the commercial markets long-term," he said.
Several competitors are also targeting the retail space. Berkeley-based UPEK Inc. makes the fingerprint readers used in the new International Business Machines Corp. ThinkPad laptops. (UPEK was a 2004 spin-off from Swiss-based STMicroelectronics N.V.).
Melbourne, Fla.-based AuthenTec Inc. also provides fingerprint unlock technologies for computers and PDAs, while Palm Beach Gardens, Fla.-based Cross Match Technologies Inc.'s commercial clients include Merrill Lynch & Co. and Federal Express Inc.
Fishbein said that once it gets started, the commercial segment of biometrics will ultimately overtake government uses. "If customer acceptance comes forward as a means of convenience and identity theft protection, it could be a home run," he said.
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