Startup Review: Keyo
Startup Overview – Week of 12-04-17
Keyo is a biometric identity platform that has the potential to replace keys, credit cards, RFID fobs, tickets, and wallets with the scan of a palm. The Company’s proprietary technology maps the pattern of blood vessels in a person’s hand to create a unique identifier, much like a thumbprint. This identifier can be linked to digital information, such as a credit card. Similar technology is deployed in places such as government issued standardized testing rooms, but nothing quite like this is deployed on a large scale.
A user registers for Keyo and loads in their credit card information into their user database. That user can then go to a participating store and scan their palm at checkout in order to make a payment. This scan process involves the Keyo scanner taking two infrared pictures of the palm’s veins. Keyo scanners also allow for tips and purchase amount confirmations.
Keyo also charges a flat one percent fee for every transaction. This is done to keep the processing fees for every transaction relatively low for the merchants who have signed-up for the program. This helps out small-businesses who have less leverage when negotiating those transaction fees. It also provides merchants who are using Keyo’s program incentives to get more of their customers to register and pay-with-palm; the more customers of the merchant who use Keyo, the more money that merchant saves.
The main problem the Company is trying to solve is that sinking feeling you get when you forgot your wallet at home when you ran to the store to pick up a carton of milk. The same can be said about other potential applications, such as ticketing systems, hotel room keys, work badge access, and public transit turnstiles. In other words, anything that scans or swipes is in trouble of being eliminated. In their marketing materials, the Company expressly wants to get rid of the wallet. This helps save time, effort, and could potentially help prevent current causes of identity theft.
One argument in favor of biometric payments (and non-credit card payments in general) is the advent of EMV embedded chips. Mobile payment processor Square found in a 2016 survey that 37% of respondents say that waiting in line was their top pain point at stores, more than 87% of credit card users reported being frustrated that chip cards were slower to process than those with magnetic stripes. 91% percent of debit card users expressed the same sentiment. Clearly there is data supporting an increase in speedy payments.
A potentially overlooked, but still important, problem this is solving is preventing thieves from literally chopping of a thumb or other biometrically scanned body part. Although this may seem like a severe consequence of biometric scanning, there is a legitimate fear of this occurring once something like biometric payments takes place. Keyo’s scan requires that the palm be actually attached and function, thus eliminating that issue. Of course, the chances of a thief chopping off a mark’s hand to get some data is astronomically low, it does help qualm irrational fears. This helps provide a sense of security for a user, even on an extreme level.
Another cause for concern that this Company helps to hurdle is less theoretical and more bureaucratic: Illinois Biometric Data Information Privacy Act (BIPA). In the state of Illinois, biometric data can only be gathered from an individual if the private entity doing the collecting has a written policy available to the public, receive permission from the individual, and let that individual know when the information will be destroyed. A biometric identifier includes “retina or iris scan, fingerprint, voiceprint, or scan of hand or face geometry.” There are current lawsuits by people who feel as though large tech companies have violated these laws (i.e. Google or Apple’s facial recognition software on your phones). The Company is headquartered in Chicago, and thus has this issue mostly covered at this point. Although biometric data collection can be a cause for concern in the future, Keyo takes the necessary steps to protect its customers.
The pie-in-the-sky estimate for what this market looks like is the total market size of credit card transactions in the US and in the world. However, it is hard to believe that this system will be adopted entirely so quickly, so let’s first look at a comparable (slightly) entity and see what could be in Keyo’s near term future. In 2016, Apple Pay had nearly 12 million people using it every month. Android Pay and Samsung Pay had about 10 million people using their services, split evenly between them. During that same year, biometric payments accounted for $600 million in purchases (this includes Apple Pay and others). It is estimated that biometric payments will reach $2 billion in 2017. Assuming that the Company is able to manage a 1% fee on each payment, it means that the Company could have achieved $20 million in revenue in 2017 if it dominated the market.
Although that $20 million might not seem like much for a monopoly on the market, it is important to note that biometric payment technology is still in its infancy. The Institute of Electrical and Electronics Engineers estimates that “mobile payments” will be the reason people no long use cash by the year 2030. Another study, performed by Acuity Market Intelligence, estimates that biometrics will secure 65% of all mobile commerce transactions by 2020, or $36 billion in annual revenue. In 2015, in-person credit card and debit card purchases accounted for nearly $80 billion of transactional value.
However, all of these future market predictions are relying on a large assumption: retailers will adapt this technology. JP Morgan Chase found that only 36% of merchants reported that they accept digital wallet payment options in-store. While 56% of large businesses said they accept mobile wallets, only 25% of small businesses said they accept them. In the same study, only 16% of consumers said they had used a mobile wallet.
There have been other palm payment startups that have picked up steam only to fall off after not gaining enough momentum. These startups, like Quixter and Biyo, did not reach a point of critical mass at the center of customer acquisition and merchant buy-in. As a result, Keyo recognizes that it needs to make sure to hit the ground running with both customers and merchants.
Keyo was part of the Gener8tor Accelerator, based in Milwaukee in 2017. Gener8tor is a strong accelerator with solid national chops to contend with the best. This accelerator has had nearly 59 alumni, which have raise approximately $120 million in follow-on financing. Of those alumni, more than half have raise $1 million or more after the program ended.
Although the deal terms were not disclosed, it is likely that the Company raised~$90,000 through the accelerator in exchange for about 6-7% of equity.
Jaxon Klein is the Co-Founder and CEO of Keyo. He is from the Chicago area and has a background as an entrepreneur, having founded a communications startup, Invento Media, in 2008. Another co-founder is his wife, Cayetana Polanco, who acts as the CMO of the Company. She also helped Jaxon found Invento Media. The third co-founder of the Company is Delna Straus, who has a background in non-profit work and acts as the COO. Overall, the management team seems solid with a decent background. Although they do not have any fintech experience or credit card experience, they did have a startup which existed for quite a while and should know their way around operating a company. They are not a slam-dunk by any means, but they didn’t get this far by accident either.
Overall, this Company has an incredible opportunity to take advantage of a strong market. One general concern that I have is how often will someone be traveling without either their phone or their wallet. This technology seems to require someone be totally free of both of those restrictions in order to make sense – otherwise, why would someone use this service instead of Apple Pay or a similar phone-base technology. As an investor, I am not sure that I would pursue this opportunity, but I would definitely keep my eye of the space as a whole. If I met the management team and felt they had some sort of secret sauce, I could be persuaded otherwise.