Biometric security system
Sergey Ponomarev  /  AP file
A U.S. embassy official walks past a monitor displaying biometric data during a demonstration of a new procedure, fingerprint scans, to the media at the U.S. Embassy in Moscow late last year.
By
msnbc.com
updated 1/20/2004 3:59:04 PM ET 2004-01-20T20:59:04

A new government policy requiring the fingerprinting of foreign visitors has ignited howls of outrage in many parts of the world, but for the U.S. biometrics industry, it represents a multi-billion-dollar opportunity.  Later this month, technology companies are expected to bid for a huge contract to build a biometrics identification system for America’s embassies and consulates abroad so that travelers can be screened before they reach the U.S. borders.

Biometrics-identification companies — after toiling for years in relative obscurity — are reporting a growing interest in their products, which typically use details of an individual’s unique physical features — facial, eye or fingerprint patterns — to substantiate their identity.

The catalyst, executives say, is government spending on homeland security in the wake of the Sept. 11, 2001, attacks. The latest project is the U.S.-Visitor and Immigrant Status Indicator Technology, or U.S.-VISIT, which went into effect on Jan. 5.

At present, U.S.-VISIT, which is currently in place at 115 airports and 14 ship terminals, requires U.S. customs officials to digitally photograph and fingerprint visa-carrying foreign nationals. These data are then compared against a government database of possible terrorists and people with criminal histories.

A handful of consortiums, which include firms like IBM, Raytheon and Unisys, are competing for a chance to build the technology for U.S.-VISIT. The winner’s directive: Expand the current border control system and install biometrics measuring systems at U.S. embassies and consulates abroad so travelers can be screened overseas.

“The U.S.-VISIT program is a very big deal for this industry,” said Alf Andreassen, a principal at Paladin Capital Group, a private equity investment firm that runs the Homeland Security Fund, which invests in businesses address homeland-security issues and needs.

The U.S.-Visit program is expected to cost between $7-$10 billion though 2014, according to the Department of Homeland Security.

“Up to now, most of what the Homeland Security has done has involved getting airports up and running with their baggage screening, but now we’re at the point where we are seeing serious money come into this industry,” added Andreassen.

The International Biometric Group, an industry consulting and research firm, predicts that industry revenues from biometrics technologies will grow from $600 million last year to more than $4 billion by 2007, the biggest chunk — about 75 percent — of the demand coming from government-related investments.

U.S.-VISIT is one of the government's most expensive technology contracts, and it is likely to be the first of many.

To date, biometrics has been seen as something more befitting of a James Bond movie than daily life. Businesses have seen the technology as either too complex or too expensive to be taken seriously, but this appears to be changing thanks to government programs like U.S.-VISIT that are pushing for adoption of the technology.

Major Market Indices

While government spending is expected to give the industry a boost, biometrics is not confined to U.S. border control. Governments outside the United States are looking into updating passports, ID cards, driving licenses and other secure documents with biometrics data to thwart counterfeiters.

Cows eyed?
And in response to the mad-cow disease that recently surfaced in rural Washington State, officials are reportedly considering ways to track beef cattle, possibly using retinal, or iris scanning, a biometrics process that uses the uniqueness of eye patterns for identification.

But while analysts agree that the industry is indeed poised for growth, they also say individual investors should be cautious when it comes to investing in the sector. Like any new industry, stocks in the sector are volatile and prone to wild swings.

Identix, a Minneapolis company and recognized industry leader that makes identification systems that use fingerprints and other biological data, has seen its stock price jump 30 percent since late December in response to news of the U.S.-VISIT program.

Other biometrics firms have seen substantial growth in their stock prices noted Jack Mallon, managing director of Mallon Associates, an investment firm focusing on the security and anti-terrorism industries and a division of C.E. Unterberg Towbin.

The Mallon Global Security Index, comprising 175 security companies traded on stock exchanges around the world, rose 56 percent in 2003, outpacing the closely-tracked Standard & Poor’s 500-stock index, which rose 26.4 percent, he said.

“The sophisticated investor has perceived [U.S.-VISIT] as good news for the industry,” he said. “The question is will the homeland security move take this industry to the next level?”

Mallon has his reservations. “It’s a big plus, but it won’t change the industry overnight. What will drive this business is a reduction in the price of technology and developments that make it more accurate and cheaper. As those two trends further develop, we can expect to see a proliferation of biometrics technology in many facets of our society.”

While much of the biometrics industry is still maturing, one area poised for explosive growth is fingerprint scanning, according to Paladin’s Andreassen. Fingerprint analysis has existed for over 100 years and is well understood, he noted, and agencies are switching their databases away from traditional paper and ink fingerprinting systems.

“From a biometrics point of view, the technology for this is getting better and better, Andreassen said. “It will be the standard by which every other technology is judged.”

One company he likes is Florida-based Cross Match, a private firm that produces a fingerprint reader that is used by the U.S. military in Iraq and in Afghanistan, by the U.S. government in its U.S.-VISIT program and to fingerprint prisoners and suspected terrorists.

Other applications are less reliable according to Johnathan Tal, publisher of Homeland Security Research, a company in San Jose, Calif., that follows the industry.

Facial-recognition technology, which maps the features of one face and compares it to those in a database of faces, have yet to show they can operate outside a controlled environment, according to Tal. If it is used to try to identify an individual’s face in a crowded airport, for example, the technology often is not accurate enough, he said.

“There is a tremendous investment opportunity in homeland security; the need is real and long-lasting and it will be with us for some time. Biometrics is part of it, but we don’t think the time is quite right for the technology,” said Tal, adding that those companies that have developed technologies are working to make them faster and more accurate.

Still, company executives remain sanguine about the industry’s potential.

Seth Horn, chief financial officer of IQ Biometrix, reckons U.S.-VISIT has already led to a significant rise in orders from law-enforcement agencies to which IQ Biometrix sells its widely used software program to create composite sketches of crime suspects that can be quickly distributed to other policing agencies within the law-enforcement community.

“The biggest problem we’ve had as a company is that police departments lack funding -- they need to buy patrol cars and guns before they can buy PCs and software,” Horn explained. “But now, with the new homeland-security spending, they are getting bigger budgets for these sorts of things and we have seen our revenue increase accordingly.”

The Associated Press contributed to this report

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