May 27, 2019
Here’s a fact: a new identity is generated with every birth. Now consider this: by the time you finish your day today, a staggering 360,000 children will be eligible for an identity document. It begins with the benign birth certificate followed by school certificates, national identity cards, social security, driving licenses, passport, and more. Identity largely exists in a physical form and is mostly required to be carried with one for life.
But what exactly do we mean when we say ‘identity’ or ‘identification?’ At a fundamental level, it essentially refers to who you are and serves as a response to Can you prove it? Getting more technical, from a service provider’s perspective, it answers a couple of questions, What do we know about you? How do we verify that it is indeed you?
Typically, verifying the details of the ID and the photograph proves one’s identity – this is easier face-to-face whereby one’s identity is verified against the physical self. However, it gets harder when the physical self needs to be verified against the digital identity. Nonetheless, as several nations such as India, Estonia, Belgium, Finland, and Singapore have shown, it is not just wholly plausible, but in fact, desirable too.
This brings us to ‘Know Your Customer’ or ‘KYC,’ which is the popular term for identity verification. KYC follows a citizen like a shadow, throughout life, for a range of rights and services. It is intricately linked to one’s progress from education to employment to healthcare and finance. Imagine not having access to education for lack of identity or lack of employment for a similar reason – progress would then be just a mirage. Despite identity verification being the first step in the service chain, in many nations, existing KYC processes involve tedious paperwork, intrusion, and delays at best, and outright exclusion at worst. In fact, as per 2016’s World Bank Report, lack of identity is an impediment for people to exercise their fundamental democratic and human rights.
In India, however, the rise of the Aadhaar ecosystem revolutionized identity and KYC, helping millions in the country get onto the information superhighway seamlessly. It’s possible that, if done any other way, it would have taken much longer for the same number of people to become included within the formal financial and welfare system.
Playing devil’s advocate for a moment, we must understand that Aadhaar is unique to India, and will always need the backing of a stable government to enable a trusted infrastructure; this may not be the global solution that is imperative for inclusive growth. Also, while the team behind Aadhaar has undoubtedly been working to address this, issues about privacy still remain a concern for many.
On a similar track, many high-growth countries have leveraged their physical ID to create a digital ID ecosystem to verify and authenticate users remotely in a safe manner. DigiLocker is an excellent example of holding physical identities as digital copies on mobile devices. There are, however, some hurdles related to central document storage and a reliable way to share data with service providers.
This is where next-generation digital technologies could play a crucial role in transforming KYC. Emerging technologies, including but not limited to mAadhaar, DigiLocker, and Kyzo, have the potential to truly transform the way we presently engage with KYC. These technologies provide the much-needed bridge toward digital identity (extending the physical identities) that can reliably be used to verify and authenticate citizens – even remotely – for a range of products and services.
Consider Kyzo, for instance. Released free as a public good, it provides users with the option of uploading any identity document. The app acts like a decentralized and secure identity vault for users to automatically scan and store their KYC documents. But what about security? It seems that the data remains in the user’s device encrypted without any central storage or backups, allaying users’ concerns of hacks, leaks, and privacy. Furthermore, when the user wishes to transfer the KYC data with a service provider, all it takes is a simple QR scan and a PIN for the documents to be securely transmitted.
Why are products like Kyzo, in the digital identity space, so important? According to a report by McKinsey, nations implementing digital identities can increase their GDP between 3–13% and have inclusive growth. Inclusive growth purports to give everybody a fair shot at economic prosperity – this, in turn, cannot be achieved without the population at large being able to participate in and avail of public and private services.
As we’ve discussed, identity is at the very center of any interlinked and sophisticated system of services which are primarily delivered through digital channels. Therefore, without an identity, and in particular a digital identity, people are likely to be excluded from the very opportunities that inclusive growth could otherwise provide.
While it is true that digital identities are subject to misuse and fraud, careful design, stronger background verifications, and multi-factor authentication can drastically reduce such risks, and may even reduce fraud in the long run. With investors’ as well as consumers’ faith growing in favor of emerging technologies to verify and authenticate users remotely, digital identity seems like the natural progression toward greater inclusion and economic progress.