The Economic Impact of Digital Identity

December 6, 2018

MONTHLY ANALYSIS

More than 1.1 billion people in the world are unable to prove their identity and therefore lack access to vital services including healthcare, social protection, education, and a wide array of financial services. Among these invisible people — primarily living in Africa and Asia — more than one-third are children susceptible to violence, whose births have not been registered.

The inability to prove identity has far more severe implications than just not having access to the formal financial system. Exclusion from property ownership, free movement, and social protection caused by the inability to prove own identity fades in the face of physical dangers invisible people around the world find themselves in.

Moreover, given that around 870 million people around the world live in extreme poverty and still do not have access to any social assistance program, digital IDs have a chance to help those people to lift their families from extreme poverty by accessing governmental social security net programs. Those individuals are more exposed to corruption and crime, including people trafficking and slavery.

One’s identity — being foundational to political, economic, and social opportunity — today is a complex construct, touching every aspect of life both online and offline.

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Source: The Illinois Blockchain Initiative

A study by GSMA, The World Bank, and The Secure Identity Alliance (SIA) distinguishes four types of digital identity ecosystems:

  1. A government-driven centralized system where individuals’ identity attributes are stored in one or more government-owned database(s) and state-issued eID serves as the basis for all or most digital transactions for both the public and private sectors (Belgium, Germany, UAE, Italy, Pakistan, Malaysia). The official eID can be used as the basis for verifying other digital identities, such as banking and mobile phone credentials.

  2. A semi-centralized, federated system of multiple, government-endorsed digital identity providers (Sweden, Finland, UK, Australia). In a semi-centralized system, citizens are free to choose between multiple trusted identity providers and use these credentials to access a broad range of public and private digital services via an identity hub or gateway that facilitates authentication across multiple platforms. In this type of ecosystem, private firms often play a key role as digital identity providers after governments offer an official basis of identification using breeder documents (such as birth certificates). However, public agencies may also be trusted identity providers, and the government plays a central role in defining and regulating the identity framework and endorsing providers.

  3. A decentralized, open identity market without any national scheme (USA). In a decentralized, open identity system, public and private sector organizations create, utilize, and manage their own digital identities based on a self-regulated framework. In the USA, for example, the Trusted Identities Group (NIST) has taken steps to create a user-centric Identity Ecosystem of public and private sector organizations that utilize secure, efficient, and interoperable identity solutions to access online services in a manner that promotes confidence, privacy, choice, and innovation. The strategy is focused on providing high-level guidance to the private sector.

  4. A self-asserted digital identity ecosystem driven by the largest internet players. In a self-asserted ecosystem, users choose their digital identity attributes, and no verification against official identity documents is required, resulting in a lower level of security. In 2016, when the research was conducted, there were no examples of countries that have considered this approach to provide access to their digital services.

Digital identity systems touch an array of stakeholders, resulting in a significant economic impact on the whole society. National digital ID systems benefit governments by increasing efficiency, reach, and transparency.

The lack of proper governing structure and transparent system increases the risks of leakages, fraud, and corruption. The World Economic Forum (WEF) emphasizes that the lack of identification hinders the organizations trying to serve some of the most vulnerable groups today — refugees. For example, it is not uncommon to see reported immunization coverage rates beyond 100% in underperforming districts, indicating that existing government data is inaccurate.

For policymakers, it is difficult to accurately plan and budget for government services.

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Source: Digital Identity: On the Threshold of a Digital Identity Revolution

For example, Nigeria’s digital ID system for civil servants enabled it to remove about 62,000 ghost workers, saving $1 billion annually. While implementing an electronic wage payment system tied to a digital ID did require an initial public investment, in Nigeria, the investment produced ROI of nearly 20,000% in one year. The impact of ghost workers is worse in many other countries, ranging from 10% to as high as an estimated 40% in Zimbabwe.

Argentina’s government was able to reduce leakages and tax evasion and save $104 million by linking 13 public databases and distinct ID registries.

WEF advocates that the benefits of identity inclusion have been recognized by almost every governmental agency: a 1% increase in inclusion is estimated to result in a 3.6% increase in GDP.

According to DIACC, a non-profit coalition committed to developing a Canadian digital identification and authentication framework, at both the federal and provincial levels, making information accessible to citizens is a priority for the modern digital government. Processes that require identity authentication and validation remain manual, lead to increased costs and slow access to services that directly impact taxpayers.

The coalition shares that proving identity is very difficult and often requires an in-person visit of at least 30 minutes, demanding the time of the counter staff and citizen. Assuming the average citizen set up just two accounts each year, at an average wage of CAD 25.88 per hour, an estimated CAD 482 million is lost each year.

DIACC puts an estimate of the potential value of trusted digital identity to the Canadian economy being at least 1% of GDP, or CAD 15 billion.

The World Bank refers to India’s fuel subsidy program as one of many examples of how a nationwide digital ID system benefits the actual end user, ensuring that those who are entitled to receive subsidies or benefits are actually getting them. According to the World Bank, by implementing cash transfers to Aadhaar-linked bank accounts for the purchase of liquefied petroleum gas cylinders, realizable savings are about 11–14%, or USD$1 billion per year when applied throughout the country.

At a time of never-ending political moods fluctuations globally and ever-massive immigration flow, matters of citizenship and voting rights are particularly critical. In Nigeria, the digital ID system enrolled about 68 million voters in 2015 using biometrics and used card readers to authenticate voters, thus preventing 4 million duplicate votes, the World Bank shares.

Other examples of where digital ID have been shown effective in reducing leakages in benefits for social protection or security programs, health insurance, and pension schemes due to duplicates, ghosts, quasi-ghosts, and corruption can be found in Chile, Egypt, Ghana, Indonesia, Pakistan, South Africa, and Turkey, the organization shares.

A number of European nations have been developing national digital identity ecosystems (with Estonia being a prime and shining example), and pan-European interoperability is a natural step towards a truly borderless world. The European Commission believes that from an administration/business standpoint, the main drivers/benefits for a pan-European interoperable eID, for example, can be:

  • Supporting e-services

  • Improving security in terms of accountability

  • Improving national security

  • Building a more inclusive European society

  • Generating economies of scale

  • Increasing administrative efficiency and reducing cost

  • Reducing the burden when engaging with the administration

  • Limiting possibilities for fraud, identity theft, and phishing

  • Supporting mutual recognition of documents and certificates in cross-border situations

  • Facilitating mobility

As pointed out earlier, the Estonian state offers 600 e-services to its citizens and 2,400 to businesses. Estonia’s online systems add 2% per year to its GDP and the use of electronic signatures in the country helps save 2% of Estonian GDP per year, which is the size of the entire Estonian defense budget.

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The benefits of a trusted digital identity to individuals and businesses. Source: DIACC

Potential benefits of a national digital ID system will bring on the domino effect by introducing efficiencies where identity assurance today is difficult and costly, reducing identity-related fraud, and opening new avenues of value for both individuals and businesses, DIACC emphasizes.

The organization estimates that the average citizen/consumer spends approximately eight hours per year combined either creating new, or using existing, identity sources to prove who they are, confirm certain elements of their identity, and that they have the right to access a service. In Canada, by improving the way in which consumers can carry out all these tasks, this can result in an aggregate of CAD 213 saved per person, and CAD 6.1 billion saved for all individuals over the age of 19.

Considering SMEs account for approximately 30% of Canada’s overall GDP (CAD 450 billion), if we assume that the average SME could be just 1% more efficient with access to trusted digital identity, this results in a potential CAD 4.5 billion of added value to SMEs, DIACC estimates.

Australia is also among the countries that were able to quantify the potential economic benefits of digital identity systems. A study by Australia Post and BCG puts the potential value of a digital identity solution for Australia at up to AUD 11 billion that could be saved through reduced cost to serve, cost of fraud, and improved client experience. This AUD 11 billion represents approximately 1% of the Australian GDP.

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Source: A frictionless future for identity management: A practical solution for Australia’s digital identity challenge, Australia Post

It’s just a matter of time when digital ID systems become ubiquitous and significant investments and formal commitments from governing bodies will contribute to resolving a number of challenges associated with building and implementing those systems. It is clear, however, that the existing experiences across nations warrant further investments and yields significant economic, political, and social benefits of digital ID systems for all parties involved.

We estimate it will take $12 billion to achieve identification for all. The World Bank will secure over $750 million investments in ID-related projects in the next three years and we will strive to mobilize more financing from other sources, said Kristalina Georgieva, Chief Executive Officer, World Bank & Co-chairwoman of the Identification for Development (ID4D) High-Level Advisory Council with Amina J. Mohammed, United Nations Deputy Secretary-General. If we are to reach more than a billion people without proof of identity, we need everyone to work together, including countries, development partners, UN agencies, the private sector, and civil society.

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