Investing in Biometric Security

After a string of catastrophic security breaches last year, I lamented the United States’ slow transition to higher-security consumer banking.

In that lamentation, I pointed my flashlight at a company called SmartMetric (OTC: SMME), which claimed to have built a security-focused computer that could fit “inside” a credit card.

The company had developed a wafer-thin ARM Cortex computer that could carry a biometric scanner, the requisite sensor software, and as much as 128 GB of storage. Despite being a complicated data security apparatus, it was so small that it could fit into a wallet’s credit card slot.

I called it “a marvel of modern-day miniaturization” but warned that the company was in quite a bit of debt and had no partners to bring this device into the market.

This week, nearly one year later, the company has finally provided a brief update on the progress of this machine.

According to an announcement from the company, manufacturing of this card — which it interchangeably calls the EMV payments card, biometric card, and biometric data card — has been outsourced to Asia.

Though the product has existed for a couple of years, it has never been mass manufactured. This is a sign that mass manufacturing is on the horizon for the machine.

The reason this counts as a major update is because the company was previously expecting to build a whole new factory in Israel as well as custom-built manufacturing equipment that would allow the fragile components of the card to withstand the harsh lamination process that credit cards go through.

In the company’s most recent quarterly report, it announced that it had developed a new pre-lamination encasing technique that could allow the circuit boards to be heat- and pressure-shielded as well as secured from tampering in the standard lamination process. SmartMetric said this discovery would save “significant capital and lead times in achieving high volume manufacturing.”

While this is a favorable announcement that could change the course of the company in the long term, the financial situation is still poor.

SmartMetric reported a loss of $1.25 million for the nine months ending in March 2015. While this is approximately half of the losses the company suffered in the same period last year, it has accumulated a deficit of more than $20.5 million in its quest to bring smart security products to market.

In the time since I last mentioned SmartMetric, the stock has doubled in value. If investing in volatile penny stocks is something you indulge in, the 52-week high is double the current price.

But if security is your thing — and I would hope it is, since you’re reading about security tech — there are some more solid options for you.

NXT-ID, Inc. (NASDAQ: NXTD) is a biometrics company that went public in 2013 with a somewhat quirky product called the Wocket smart wallet.

Rather than attempt to put digital security inside the card like SmartMetric, NXT-ID put a reprogrammable mag-swipe card in a wallet-sized computer. The computer, which looks like a hybrid of an iPhone and a wallet, has a touchscreen that allows the user to choose which account the card will be used with based on secure voiceprint or PIN.

NXT-ID also has face recognition and facial biometric scanning technology, as well as cloud-based identity management solutions.

After the company’s humble $1-per-share IPO, the stock value hung for more than a year around $4. This summer, it’s dropped down to near-IPO prices and is currently in the $1.25 range.

Earlier in August, the company issued an executive order announcing that it was “gearing up for general sales” of its Wocket device and that its first software update for pre-ordered devices already out in the public would be available shortly.

Because payment companies and banks are broadly switching to EMV cards and other secure forms of payment in a fragmented, uneven way, NXT-ID needs to be aggressive with compliance issues across dozens of formats. This is a primary issue with the technology.

By the same token, most legacy point-of-sale terminals can’t handle lots of these new security protocols anyway, so the mass migration, like the one I mentioned last year, continues.

Good Investing,

Tim Conneally

 @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.