Distributed source coding (DSC) applications range from sensor networks to video coding. In this paper, DSC principles are integrated in a biometric system to provide secure template storage. The proposed biometric recognition system uses the palmprint as a biometric trait together with a state-of-the-art feature extraction technique that produces binary templates. The hand images are captured in an unconstrained way, i.e., the user can place his hand freely within the camera's field of view and the background is not required to be constant. The proposed system was tested in indoor environments and promising recognition accuracy results were achieved, when performing identification on a small database, acquired using the proposed system.