The first billion-dollar startup in facial recognition has emerged, and it's in China

Touring the headquarters of Megvii in Beijing is like visiting Big Brother's engine room.

A video camera in the firm's lobby recognizes visitors in the blink of an eye. Other such devices are deployed around the office. Some of the images they capture are shown on a wall of video called "Skynet," after the artificial-intelligence (AI) system in the "Terminator" films.

One feed shows a group of employees waiting in front of an elevator with a white frame around every face and the name of each person next to it.

Quizzed on the Orwellian overtones of the setup, Yin Qi, the startup's chief executive, simply remarks that "this helps catch bad guys."

Even if Yin wanted to ponder the implications of the technology, he would not have the time. Megvii is busy building what he describes as a "brain" for visual computing. The firm has come a long way since its founding in 2011 (its name stands for "mega vision").

Wider business landscape

More than 300,000 companies and individuals around the world use its face-recognition technology, which is called Face++, making it one of the biggest such services. In December, Megvii raised $100 million, giving it a valuation of nearly $2 billion and turning it into the world's first billion-dollar startup from might be called the "facial-industrial complex."

Providers in this field sell hardware and software tools to recognize faces and then connect those faces to other useful data.

Although the market is fairly small — the most optimistic estimates put it at a few billion dollars — the technology has started to permeate the wider business landscape.

The main reason is that the accuracy of facial recognition is rapidly improving, putting it on the same trajectory as speech recognition, which really took off when accuracy improved by a final few percentage points, to almost 100 percent. "Most people underestimate the difference between 95 percent and 99 percent accuracy — 99 percent is a game-changer," Andrew Ng, a noted AI researcher, has said about speech recognition.

What's more, the smartphone will do for face recognition what smart speakers, such as the Amazon Echo, have done for speech recognition: make it acceptable to consumers.

Millions of Chinese already "swipe" their faces on smartphones to authorize payments. On Tuesday, Apple unveiled a new version of its iPhone, with technology that can reliably identify the owner's face and then unlock the device, even in the dark. That will come only a few weeks after Samsung presented a new Galaxy Note with a similar but less sophisticated feature.

It makes sense to separate facial-recognition technology into two categories: the underlying capability and the applications that make use of it.

Megvii's Face++ belongs in the first category, as do similar offerings from SenseTime, another Chinese startup, NTechLab, a Russian firm, as well as Amazon, IBM and Microsoft. All provide face recognition as a cloud-computing service. Megvii's customers can upload a batch of photos and names, and use them to train algorithms, which then can recognize those particular people. Firms can also integrate the recognition service into their own offerings, for instance to control access to online accounts.

Applications spreading quickly

Megvii's and SenseTime's services are largely founded on good data. They have access to the Chinese government's image database of 700 million citizens, who are each given a photo ID by the age of 16. Chinese government agencies are also valuable customers — more and more of the country's hundreds of millions of surveillance cameras will soon recognize faces.

In Shenzhen, facial recognition is used to identify jaywalkers; names and pictures go up on a screen. In Beijing the municipality has started using the technology to catch thieves of toilet paper in public restrooms (its system also prevents people from taking more than 60 centimeters of paper within a nine-minute period).

Commercial applications, often powered by one of the cloud-computing services, are spreading even faster. On Sept. 1, Ant Financial, a subsidiary of Alibaba, deployed its "Smile to Pay" system for the first time in a physical store: customers at a healthier version of a KFC restaurant, called KPRO, in Hangzhou, can settle their bill by looking at a screen.

Xiaomai, a chain of convenience stores, has said it will use facial scans when people enter its stores in order to study their behavior. Several Chinese banks now let users identify themselves at ATMs with their faces.

The West is further behind. Some industries have long used a basic kind of face recognition, including casinos wishing to turn away notorious gamblers. But it is mainly big online companies that make (cautious) use of the technology. Facebook has gone furthest by having its members tag friends on photos so the firm's algorithms can recognize them on other pictures. Google employs the technology in order to group pictures that users have uploaded to its photo service. Amazon's new home speaker, Echo Look, also has a camera, which could presumably be made to recognize faces.

Other firms are testing the waters. JetBlue and other U.S. airlines have taken initial steps to match passengers' faces to passport photos, aiming to eliminate boarding passes. Lloyds Bank is not the only Western bank planning to copy Chinese ones and allow customers to use their faces to log into accounts. Uber, a ride-hailing firm, has a system requiring drivers in India to take a selfie before starting a shift. This should cut down on unregistered drivers impersonating registered ones. Nvidia, a chipmaker, has plans for facial recognition in its new California headquarters.