Solidus Has Fresh Financing, and Big Growth Plans

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The San Francisco biometric payments company Solidus Networks Inc. plans to double the number of retail stores using its fingerprint scanners this year — and increase it nearly fiftyfold next year.

Solidus, which does business under the Pay By Touch Solutions brand, sells point-of-sale systems that lets shoppers swipe a fingerprint to pay for purchases. The systems also link fingerprint files to retail loyalty cards and let merchants scan information from a driver’s license, to provide an additional level of identification.

“This is no longer a testing technology,” said Gus Spanos, the executive vice president of corporate development for Solidus. “It’s proven. A year from now we’ll be, hopefully, a household name.”

Last week Solidus announced that it had received $75 million of senior secured notes from several investors, including the hedge funds Och-Ziff Capital Management Group of New York and Farallon Capital Management LLC of San Francisco. It also received $55 million of convertible preferred notes from other investors, including several trusts of the Getty family and Ron Burkle, who founded the investment firm Yucaipa Cos.

Solidus said the investments are a sign of confidence for the company as it deals with lawsuits over patents behind its payment system.

BioPay LLC of Herndon, Va., filed a suit Jan. 18 in the U.S. District Court for Delaware disputing a patent that Solidus received that day. The patent covers the use of biometrics for check cashing, a service similar to one that BioPay has offered since November. BioPay asked the court to rule that Solidus’ patent either was invalid or did not apply to BioPay’s service.

On Feb. 15, Solidus filed a countersuit charging that BioPay violated Solidus’ patent.

Since then the two suits have stalled, Mr. Spanos said. “There’s really no update. The legal system moves like a snail.” Nevertheless, he said, Solidus’ investors are confident about its stance and the validity of its patents.

Solidus’ scanners are being used in checkout aisles at 100 stores in nine states, including 85 grocery stores operated by Piggly Wiggly Carolina Co. of Charleston, S.C.

“Just from the contracts signed, we expect to more than double our stores by yearend,” Mr. Spanos said. “And we expect to be in several thousand stores, approximately 4,000 or 5,000 stores, by the end of next year.”

Caroline McNally, Solidus’ chief marketing officer, said, “A year from now, you can expect to see … [its scanners] across the United States.” Mr. Spanos said it is looking to extend its reach by using its new funding to buy other companies.

“The bulk of the money is to continue to rapidly expand our footprint in the U.S. and abroad,” he said. It expects to have its scanners in stores in the United Kingdom and Mexico next year.

Through acquisition, Solidus is looking to expand in transaction processing, biometric technology, and consumer loyalty offerings.

Dan Schatt, a senior analyst at the Boston market research firm Celent Communications LLC, said the funding is “an endorsement that this technology could very well be a predominant technology in the marketplace.”

Card companies should be worried, he said; since Solidus lets consumers use a checking account or a card account for purchases, a merchant can try to steer its customers to their checking accounts. Processing a debit transaction is cheaper for the merchant than processing a credit card transaction, and the scanners could eliminate cards’ advantage in checkout speed, he said.

Josh Kessler, an analyst in the emerging technologies practice at TowerGroup, a Needham, Mass., unit of MasterCard International, said he doubts the Pay By Touch brand will be a household name in one year, but “definitely within five years, biometrics will be enormously popular.”

The stumbling block is that for consumers, there is little benefit to using biometrics but a huge aversion to providing their fingerprints, he said — “they associate it with being arrested.”

But Solidus has a good strategy for changing that perception, Mr. Kessler said. “It’s going to be positively driven by word of mouth,” because the scanners will allow consumers to get through long lines faster. And Solidus is focused on grocery stores, “where everybody has to wait in line.”

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