With reports of data breaches becoming increasingly common, the lack of effective financial data security mechanisms has become a matter of serious concern. Among the most publicized of those breaches that have contributed to this growing concern are those which recently affected Home Depot(HD) and Target, but these are by no means isolated cases. Data breaches have become more and more frequent. According to the Identity Theft Resource Center, to date there have been more than 778 million records exposed in thousands of data breaches. (For related reading, see article: Are You A Target For Identity Thieves?)

Innovative technologies are now addressing these security concerns. Among the foremost technologies paving the path for the future of data security is biometrics. Biometrics is certainly not a new concept, but until the iPhone 5S, featuring a Touch ID fingerprint reading sensor, hit the market, biometrics were largely relegated to high-security facilities. When Apple purchased AuthenTec in 2012, it may have been among the first smartphone companies to provide biometric technology, but it certainly was not the last. Samsung quickly followed suit with a similar technology in the Galaxy S5. (See article: How Apple and Samsung Compare... And Coexist.)

In just the last year, the application of biometrics has virtually exploded.  It is now seen as a secure method for providing authentication in order to prevent fraud in online banking. According to recently released research data, the use of biometrics in financial and banking services is expected to top $8 billion by the year 2020. (For related reading, see article: A Big Bet On Cyber Security.)

Biometrics in Banking

The projected increase in biometrics in the banking industry is largely driven by concerns that traditional authentication systems have become less reliable and increasingly vulnerable to hacking. Nasdaq reported that last year, there were more than 700 breaches. As mobile device usage grows, older authentication systems have also come to be viewed as increasingly burdensome, as users struggle to enter card details on small mobile screens. (To read more about steps that can be taken by credit card users to ensure the security of their accounts, see articles: 7 Ways To Protect Against Credit Card Hacks and Four Ways To Protect Your Credit Score.)

Biometric authentication in the banking and financial sectors can help to reduce such challenges, as it offers a quick, simple, and more secure method for accessing confidential financial data stored within an app, which can then be used to initiate payments or money transfers.

As the dawn of a digital payment age advances, the banking industry has begun to investigate increasingly innovative methods of authentication. While the use of thumbprints is included in this array of methods, the tools for facilitating unique identification that are emerging are by no means combined to identification systems based on fingerprints.

What Is Behind Biometrics

The field of biometrics is actually quite broad and includes the use of anything uniquely inherent to a single individual for the purposes of identification. This certainly includes fingerprints, but could also include the iris and retina, as well as the sound of an individual's voice. The ability to identify an individual in the most secure manner possible is of vital importance to the banking industry, particularly in light of increasing concerns regarding security and the prevention of fraud. This rising concern has made investing in biometrics quite attractive to venture capitalists

New Companies Providing Biometrics Security Measures for Financial Services

A plethora of companies are now implementing biometrics in an effort to boost security in financial affairs. Among these companies is OCBC Bank, which recently announced that its banking customers would be able to view balances for investments, cards, and bank accounts on their smartphones using just their finger. The implementation of biometrics in OCBC Bank's system is based on Apple's Touch ID technology, which eliminates the need for a login process for mobile banking. Currently, the service is only available for iOS devices that feature Apple's Touch ID fingerprint sensors.

Funding is also being generated for other technology that can be used to ensure a secure, and foolproof, identification process, which is so critical to such sectors as the banking industry. EyeVerify, the creator of Eyeprint ID, for instance, announced the completion of a Series A equity funding round last summer to the tune of $6 million. Companies participating in that round of funding included Wells Fargo and Sprint. As a result of that round of funding, EyeVerify will be able to spur mass adoption of its distinctive Eyeprint ID biometric technology in a more direct manner in various markets, including financial services.

Nymi is yet another company to benefit from investors who are willing to pour funds into biometrics investing. The Canadian firm raised $14 million in Series A funding this past fall. Investors in that round included Relay Ventures, Ignition Partners, Salesforce Ventures, and Mastercard ( MA). Nymi has partnered with a Halifax bank in the UK for a pilot involving the use of ECG-reading bracelets. At the time at which Nymi closed their Series A funding, they had already received an order for 10,000 of the wearables. The distinctive bands used in the pilot are able to record a customer's heartbeat and then synchronize this with a digital device. Through the use of a Bluetooth connection with the band, customers are able to login to the banking app. Nymi has stated that the cardiac signature in the band offers far greater security than any other type of biometrics technology currently available, including facial or iris recognition.  

What You Need to Know about Biometrics Investing

As the future of the banking industry becomes increasingly interconnected with biometric technology, more and more investors have begun to direct their own funds toward the financing of biometrics initiatives. Prior to taking such a plunge, however, it is important to conduct due diligence.

Investors considering investing in biometrics targeted at the banking industry will discover there are certainly numerous reasons for doing so, including the potential for unparalleled growth and the opportunity to invest early in the adoption cycle within a developing marketplace. While potential profits associated with early-stage investing in a technology such as biometrics are undeniably appealing, investors must ensure they do not fall for the hype surrounding the industry. Biometrics can be quite broad in nature, including everything from iris scans to fingerprint identification to cardiac signatures. Taking the time to understand as much as possible about the technology behind a new security measure is vital to protecting your investment.

Biometrics can provide a number of important security measures. Do not assume that a company is a sound investment simply because it boasts that its technology is based on biometrics. Prospective investors considering investing in biometric technology in the banking industry would do well to take the time to understand as much as possible about the technology, why it makes sense in that particular application, and whether the technology has the potential for widespread adoption. 

The Bottom Line

Biometrics for the banking industry is still in the early stages, but it is quickly evolving into a global standard. Investing in biometrics now could prove to be a lucrative opportunity as banks around the world begin the race toward heightened security. 

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