Snap of a Face on Mobile Seen as Hoyos Labs Path to IPO

Hector Hoyos founded his latest startup on the bet that biometric scanning on mobile phones will replace passwords on websites and ATMs. Now he’s counting on investors to also back the idea.

A long-time biometric-security expert, Hoyos has already started and sold 14 companies -- most of them successes, and a few failures. His 15th, Hoyos Labs, lets you use a mobile phone to scan your face, iris or fingerprint to get cash from an ATM, eliminating the need to insert a card and type a PIN. The technology also allows you to log on to a website without submitting a password. The idea: It’s tough to remember a dozen passwords and not always the most secure, but your face or eyeball are always on you and not easily faked.

Less than two years old, Hoyos Labs is already planning an initial public offering for next year, Hoyos said. The company is looking to capitalize after releasing its consumer app called 1U in Apple Inc.’s app store and the Android version this month. Hoyos Labs is also in trials with nine financial institutions worldwide and has one bank moving from testing to implementation. It’s one of several companies hoping to make it big on biometric authentication for phones and tablets by securing ATM withdrawals, website log-ins and mobile payments.

“It’s an extremely convenient way of identifying users on mobile devices,” Alan Goode, managing director of researcher Goode Intelligence, said in an interview. “Voice and face and behavioral biometrics will also be important as we move to wearables and other types of things.”

Biometric Authentication

While biometric readers aren’t new, Apple built consumer awareness by adding the Touch ID fingerprint sensor to iPhones last year. Others, like Samsung Electronics Co. Ltd., have included a fingerprint sensor into the popular Galaxy smartphone line.

By 2019, some 5.5 billion people will use biometric authentication with their mobile devices, up from about 393 million by the end of 2014, according to Goode.

Consumers may be attracted by ease of use, and financial institutions such as banks are embracing biometric authentication to fight fraud and to secure mobile payments.

People will make 195 billion mobile-commerce transactions with their phones and tablets each year by 2019, up from 72 billion this year, according to Juniper Research. The feature’s use will ramp up now that Apple started offering Apple Pay, a service that lets consumers pay in physical stores with a tap of their phone.

Banks have been piloting Hoyos Labs’ technology -- for which the company has filed about 30 patents -- as part of their mobile banking apps.

Using App

Here’s how they typically work: A consumer opens the app, and tells it to acquire her biometrics -- say, the image of her face. Then the next time the customer goes to an ATM, she uses her banking app to scan a QR code displayed on the ATM screen. The bank then sends a message to the device, asking it to authenticate itself. The device scans the user’s face to confirm that it is the same one that’s on file. The ATM then dispenses the cash the customer asked for. (The software can differentiate between a live face and a photo or a video.)

Unlike most rival systems, Hoyos’s technology uses an existing wireless company network to establish a two-way, secure communication between the phone and the bank, instead of Bluetooth or another technology. All data transmitted is encrypted.

“I will guarantee that you will not be skimmed, period,” Hoyos said. “And I’ll back that up with an insurance policy.” Hoyos charges banks between 12 cents and 25 cents a customer per month, he said.

IPO Possibility

Started in early 2013, Hoyos Labs should book more than $100 million in revenue this year, up from zero last year, Hoyos said. He said he’s talking with underwriters and thinks the company will be valued at $5 billion to $10 billion if it goes public next year.

Hoyos Labs is just one of the companies pursuing this market. Startup Nok Nok Labs Inc. is pushing a similar product and its technology is used by Samsung, PayPal and Alibaba Group Holding Ltd.’s Alipay.

Hoyos has now released its own Apple and Android consumer apps, which let people use biometrics to replace all their online passwords. After a 30-day free trial, subscriptions costs $9.99 a month or $49.99 for a year.

“An average consumer has eight passwords,” Hoyos said. “And they lose them all the time. We’ll eliminate your frustration.”