I.D. Verification Technology Business Plan

The biometric security industry reported an estimated $601 million in revenues in 2002, and industry revenues are expected to reach $4.04 billion by 2007 (International Biometric Group, Market Report 2003).

Banks and governments are looking for methods to prevent credit and identification fraud. In a post-September 11th world, measures need to be taken to ensure security and safety and prevent fraud and ID theft. In 2002 alone, credit card and identity theft costs banks and government over $47 billion dollars in losses (FTC Overview Report, 2003).

Identity theft, stolen credit cards, phony checks, benefits fraud, network hacking, and other impostor scams to defraud businesses, government agencies and consumers costs billions of dollars per year. It is a problem that drives up prices of goods, increases taxes, complicates routine transactions, and strains law enforcement resources. Until recently, the only way to way to attack the problem has been to add expensive screening and administration procedures; steps such as hiring security guards, maintaining accurate databases, reviewing identity documents, administering password systems and asking personal questions have proven to be costly measures, that are easily defeated by enterprising crooks.

4.1 Market Segmentation

The potential domestic customers for Bionex include:

The Government Sector, which will be the leading biometric market through 2007 with over $1.2 billion in annual spending (International Biometrics Group). For law enforcement, the military, the judiciary, education, and social services, use of fingerprint authentication solutions from Bionex are suitable for deployment in many government operations, including:

• Government entitlement programs: Identifying and validating the correct person (fraud in government entitlement programs is estimated at over $10 billion a year — General Accounting Office, Biometrics Consortium.)
• Law Enforcement: Identifying criminals and controlling access in jails and prisons.
• Education: Attendance systems for distance learning and Internet based classes.
• Military: Secure and verified authentication to classified information, physical access to authorized areas, and military equipment control.
• Government services: Secure physical and electronic voting systems, voter registration, vehicle registration, citizen ID projects, and state licenses.

The Healthcare industry is expected to be one of the fastest growing supporters of biometric technology. Increased activity in this sector can be attributed to the Health Insurance Portability and Accountability Act of 1996 (HIPAA), a law that addresses the way that healthcare is managed and administered in the U.S. In addition, in 2002 there were 5,801 Hospitals across the United States (Hospital Statistics, published by the American Hospital Association) with security and IT spending budgets increasing 8% from 2001 (American Hospital Association). The ability to positively identify an individual is absolutely essential to the healthcare industry. Biometrics, when deployed properly, will provide solutions for administering prescriptions and service, accessing and storing medical histories securely, and verifying access to proprietary information.

For the Corporate IT market among the country’s top 1500 companies, IT security is a critical issue, since most information now resides in electronic form. The most widely used methods of controlling access to computers and data in the Corporate IT environment are passwords and PIN numbers, which are rarely changed, often forgotten, frequently shared, often used in plain sight and easily defeated using common hacker programs. Gartner Groups states that password maintenance costs $400 to $600 per user per year, and that 20 to 50 percent of all calls to company help desks are from people needing their passwords reset. As a result, passwords provide poor protection from data theft, and poor network security, at a high cost. Replacing passwords and PIN numbers with fingerprint authentication devices from Bionex will make access to corporate information more efficient and more secure.

The Banking and Financial industries will follow with an anticipated $672 million in spending through 2007 (International Biometrics Group). According to the 1997 US Census there were 588 credit card issuing banks and 11,036 federally chartered savings banks in the country. In 2002, there was over $14 billion in credit card and account fraud (Federal Trade Commission ID Theft Survey Report 2003). Due to the strong demand for secure networks and transactions, Bionex has developed secure biometric platforms for Financial Services institutions, enabling a range of biometric technologies for background checks, credit and debit transactional verification, physical access or internal network security systems, and ATM and teller authentication solutions, all while addressing major biometric concerns such as interoperability, integration, accuracy, and enrollment.

The Travel and Transportation industry will reportedly spend $556 million on biometrics through the year 2007 (International Biometrics Group). Additionally, biometrics are explicitly cited in two pieces of recent U.S. legislation, including the Aviation and Transportation Security Act (signed in November 2001), and the Enhanced Border Security and Visa Reform Act (signed in May 2002), each of which calls for the implementation of biometric technology to enhance homeland security. In 2002, there were 635 certified public airports in the United States (National Bureau of Transportation Statistics 2002). These airports are targets for terrorism, and are also potential sites for such criminal activities as theft, smuggling, and evasion of law enforcement authorities. Using biometrics to ensure personal authentication and provide increased homeland security will reduce labor costs and increase aviation security to meet today’s demands. With fingerprint authentication solutions from Bionex, many operations can be implemented securely, such as:

• Checking airline employee backgrounds.
• Controlling and managing physical access rights to all authorized areas of the airport.
• Control and managing user access to airport computer network/database.
• Securely matching passengers to their IDs, passports, visas, boarding pass, and baggage.

4.2 Target Market Segment Strategy

Bionex will focus development on the fingerprint technology segment of the Biometrics Industry. We will specialize in the following fingerprint-based biometric solutions for the following target markets:

1. Civil Identification (national governments, state governments, major cities)
   • Driver Licenses
   • Passports
   • Government Entitlement Programs
   • Immigration and Border Control
2. Financial Authentication (banks, financial institutions, retail merchants)
   • Credit Cards
   • Debit Cards
   • Automatic Teller Machines (ATMs)
   • POS Systems
3. Physical Access (healthcare, corporate IT, homes)
   • Access to computers
   • Access to networks
   • Access to buildings and rooms

4.3 Service Business Analysis

Bionex operates in the Finger-Scan segment of the biometric technology industry. The industry is comprised of 8 segments:

Finger-Scan, Facial-Scan, Iris-Scan, Voice-Scan, Signature-Scan, Keystroke-Scan, Hand-Scan, and Middleware.

The table below outlines market share commanded by each segment. Fingerprint-based technologies are projected to account for 52.0% of 2003 industry market share, far and away the largest technology segment in the industry.

2003 Comparative Market Share by Technology

Source: Copyright 2003 International Biometric Group

The following table displays total biometric revenues projected from 2002- 2007. A steady, fast-paced growth is anticipated for the biometrics industry.

Total Biometric Revenues 2002-2007 (millions)

Source: Copyright 2002 International Biometric Group

4.3.1 Competition and Buying Patterns

There are 18 leading biometric fingerprint companies with established brand names and distribution patterns in the USA; these companies have a distinct advantage in the biometrics security arena. But new, small companies are succeeding on a regular basis with cost-saving innovations, newer technology, and implementation advantages. Lower product costs, lower failure rates, and lower education curves than the established competitors are essential to successful entrance into the market. In order to effectively enter the biometrics market, products must also deliver faster performance, more complex security algorithms, and better privacy solutions. 

Bionex will succeed based upon the capability of its products. Our solutions are competitively priced, easier to implement, provide faster performance, and more complex security platforms. Bionex expects high future market share in our market segment (biometric financial and ID verification).

Biometric Verification is a huge and growing market, including both transaction and identification-oriented needs. The market for biometric transactions currently contains three unique solutions from Biopay, Pay-By-Touch, and TouchCredit. This clearly defined market represents one of the fastest growing segments in the financial industry. The market for biometric identification contains two unique solutions from Biometrics Access Corporation, and Identix, respectively.

Bionex differentiates itself from the competition by providing solutions that are scalable to both the retail and internet level. Both physical and non-physical biometric security can be retained and ensured by the Exigency technology. Until now, biometric providers have focused on only one side of the market, leaving the other side exposed to the same problems they are trying to solve. Bionex solutions, unlike existing biometric payment systems, does not store any data, images, or account information on any database or server. This offers users the highest level of privacy, and anonymity. 

4.3.2 Main Competitors

There are 341 Biometric companies in the world. In the USA, there are 151 biometric companies; of those, only 93 focus on fingerprint biometrics (Biometric Information Directory). Our company is seeking to penetrate the Biometrics Financial and Identification markets. Our main competitors in the market include:

• Biometric Access Corporation (BAC) is a systems integration and software/hardware development company that provides identity verification solutions for retail financial transactions, time and attendance and PC/network security. As the sole proprietor of our SecureTouch finger image authentication products, BAC designs, develops, manufactures and markets several hardware and software applications to provide complete user solutions.
• BioPay was created in 1999 to offer businesses unprecedented tools to eliminate fraud, increase revenue and improve customer convenience. BioPay’s integrated biometric technology takes advantage of the advances and reduced prices of hardware and software not available until recently. Consumers can now use their fingers to conveniently cash checks, make purchases, and, most importantly, protect their identity.
• Identix is the world’s leading multi-biometrics security technology company. As the industry leader in both fingerprint identification and facial recognition technology, Identix is positioned to respond to the growing demand for biometric products and solutions across multiple security markets. By offering solutions that enhance privacy, provide credentialed authorization, increase security and convenience and reduce the likelihood of a possible breach or fraud, Identix truly does empower identification
• Pay By Touch is the premier provider of tokenless authentication at the point of sale, offering retailers and shoppers a secure and efficient checkout experience. Pay By Touch is a service that allows your customers to pay for purchases by using a simple, secure method of finger imaging at the point of sale, completely eliminating the need to carry cards, checks, or cash.
• TouchCredit™ Financial Services, Inc. is a leading provider of web-based identity authentication and biometric verification solutions. TouchCredit’s products can help significantly reduce online payment fraud and ensure transaction and account access integrity throughout the complete electronic processing life cycle.

Our top five competitors all focus on secure biometric transactions and authentication, but none of them yet provide a cost-effective biometric credit card, or ID platform for widespread integration into any of the potential markets. Nor can any of these existing companies can provide customers with any sort of solution for both biometric internet and retail transactions. Failures on their part such as poor accuracy, long transaction times, privacy issues, system integration and enrollment issues still have not been solved. Even if the competition improves their existing technology and solves some issues, they will still have to deal with privacy concerns, integration problems and the significant costs associated with maintaining and protecting the databases, not to mention that their systems still will not provide a dual internet and physical transaction platform.

Bionex sees competition failure as a major opportunity to exploit the market, using our patent pending Exigency technology for use in Xenosys, Xenevex, and BioXen products. Successful penetration will render their technology obsolete and establish Bionex as a leader in the Biometric industry.