Digital ID unlocks ‘real economic gains’

Published on the 07/03/2019 | Written by Heather Wright

But the risk remains for schemes to be abused…

Emerging solutions to solve the challenge of proving your identity digitally hold the potential to unlock significant financial benefits for companies and individuals, as well as governments, according to a recent report from the research arm of management consulting firm McKinsey & Co.

Digital Identification: A Key to Inclusive Growth highlights the ‘real and inclusive economic gains’ to be make through digital ID programmes.

Higher productivity, cost savings, fraud reduction increased sales of goods and services and improved labour productivity are among the benefits of digital ID for organisations, McKinsey says.

“Improving customer registration could reduce onboarding costs by up to 90 percent.”

“For example, improving customer registration could reduce onboarding costs by up to 90 percent, and reducing payroll fraud could save up to US$1.6 trillion globally,” the report notes.

“By enabling streamlined authentication to improve the customer experience in digital channels, institutions can also influence customers to choose digital offerings that are cheaper to provide. For example, for financial services providers, the cost of offering customers digital accounts can be 80-90 percent lower than using physical branches.”

Use of digital ID in digital onboarding can also help increase uptake of new products and services, with Indian telco Jio reporting it onboarded 160 million new customers in less than 18 months using India’s national digital ID scheme, Aadhaar.

Reduced opportunity costs could also be a benefit, with the World Bank Group saying nearly 25 percent of financial applications in the UK are abandoned due to difficulties in the registration process.

While the big winners will be those businesses requiring some form of ‘high assurance identity’, such as banks and digital gig economy platforms such as Uber, McKinsey says others, such as online merchants and informal employers, will also profit, albeit to a lesser degree.

McKinsey says digital ID can be used by individuals as consumers, workers, microenterprises, taxpayers and beneficiaries, civically engaged individuals and asset owners for things as varied as streamlining registrations and authentication with commercial providers, to facilitating talent matching and high assurance contracting and transacting.

The report estimates mature economies could achieve economic value equivalent to around three percent of GDP by 2030, with the figure increasing to six percent for emerging economies.

“Extending full digital ID coverage could unlock economic value equivalent to three to 13 percent of GDP in the same timeframe, if the digital ID programme enables multiple high-value use cases and attains high levels of usage.”

However high adoption rates are far from a given. While India’s Aadhaar has been a standout performer, achieving more than 90 percent coverage, it’s an exception to the rule. Programmes employing the technologies have had mixed success to date, with McKinsey noting many have failed to attain even modest levels of usage and few have achieved large scale implementation.

And even in India, McKinsey says, digital ID addresses are only a relatively small portion of the potential use cases.

The company also sounds a note of caution, saying “The potentially pervasive nature of digital ID makes it akin to dual use technologies – like nuclear energy and GPS – that are designed to generate benefit but are also capable of being used for harmful or undesirable purposes,” McKinsey says.

It notes governments could misuse digital ID programmes for political or social control, while private sector companies could misuse the technology ‘for commercial gain by influencing consumers in ways they do not understand or desire’.

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