Weak, reused and often forgotten passwords are the root cause of expensive data breaches, soaring cybersecurity bills and lost opportunity. Good news, a solution is coming.
Google announced earlier this month that logging into websites and applications is about to become as easy as tapping the fingerprint sensor on a late model Android phone. Eventually passwords will go away.
It's a big deal, and investors should prepare.
It seems big data breaches have become part of modern connected culture. About 80% of the time, the weak link is the silly passwords we use to secure our online identities, according to data from the Fast Identity Online alliance, an open industry association to promote authentication standards.
The group, founded in 2013 by PayPal (PYPL - Get Report) , Lenovo and Nok Nok Labs, targeted passwords because too many people use them incorrectly. They are rarely changed and often forgotten. The alliance found that one in three e-commerce transactions are abandoned because users can't log in.
By 2016, the group was 260 members strong, including Amazon.com (AMZN - Get Report) , Alibaba (BABA - Get Report) , Mastercard (MA - Get Report) , Visa (V - Get Report) , Samsung (SSNLF) , Bank of America (BAC - Get Report) and Aetna (AET) , among others.
The goal is to use the sophisticated sensors inside smartphones to do away with passwords once and for all. Facial recognition, fingerprint scans, voice prints and even physical security keys can do the job faster and better.
The engineers at Google are bringing second generation FIDO protocols to every Android smartphone running software version 7.0 or above. The software has begun rolling out to devices in an over-the-air update.
The attraction is users will simply register their login credentials with websites and applications once, then the biometric information will supersede usernames and passwords. Fingerprint information is never stored on Google servers. It is maintained cryptographically on the device.
This is a big deal because it's Google, and there are 2.8 billion Android users worldwide. Forbes calculates that 1.7 billion users will get the FIDO2 update. This follows a decision by Microsoft (MSFT - Get Report) in 2018 to bring the same capability to 800 million Windows users through its Hello login.
And FIDO2 is already supported across all of the leading internet browsers, including Google Chrome, Microsoft Edge, Firefox and Apple Safari.
More secure, faster logins make life easier for users. However, the real benefit accrues to enterprises, financial institutions, telecom and insurance, and government. Better authentication speeds e-commerce and banking transactions. It protects networks from malicious hackers, and reduces the likelihood of fraud.
It's no wonder momentum has been so strong.
Investors should prepare for a wave of new products.
Diebold Nixdorf (DBD - Get Report) may not be top of mind when investors think about cutting edge authentication devices. Today, the 160-year-old company is best known for its 35% global market share of automated teller machines.
Machines that spit out cash may seem passé in a world of cryptocurrencies, Apple Pay, and facial recognition; however 85% of all global transactions are still conducted using cash. And 75 million people interact with systems from the Canton, Ohio, company every day, thanks to its partnerships with 90 of the top 100 global financial institutions.
More important, Diebold is leveraging those networks, and progress being made by smartphone makers, to take innovative biometric authentication mainstream.
The company showed off in 2017 an ATM machine using FIDO standards developed with Samsung. The prototype device was intended for use in self-service convenience stores.
And as the retail sector moves aggressively toward self-checkout, Diebold is ready. New machines with touchscreens accept and dispense cash. They allow payments for coffee, soda and other snacks sold in convenience stores and fast food restaurants. All of the verification is biometric.
Diebold managers like to make the argument they are filling in the dots between the physical and digital worlds. That's a good way to look at it.
The company has 1,900 software engineers and 3,000 patents. It's also ramping up research and development spending. Diebold spent $156 million in 2018 making better software and pushing ahead with connected commerce, a system that allows bankers and retailers to glean insights about customer behavior from Diebold devices in the field.
The initiatives are working. Gerard Schmid, chief executive officer, said July 25 that second quarter sales shot up 4%, to $1.2 billion.
Diebold shares trade at 13.3x forward earnings and 0.22x sales. They have been a big winner, rising roughly 450% in 2019.
Given that the business is entering a new product cycle, these metrics are cheap. Growth investors should consider buying the next meaningful pullback.
To learn more about Jon Markman's recommendations at the crossroads of culture and technology, check out his daily investment newsletter Strategic Advantage. To learn about Markman's practical research in the short-term timing of market indexes and commodities, check out his daily newsletter Invariant Futures.