In the United States, people often take identification for granted. There's typically little difficulty in establishing who you are or getting access to crucial benefits so long as you have a driver's license or passport. But for the nearly one billion people around the world who have no form of legal identification, that's not the reality. Without legal identification, they are denied access to government aid, health care, financial services, the labor market, the ability to secure property rights and the ability to register a business.
The good news is that, as more of our economic, social and political activity shifts online, governments and businesses around the world are implementing digital ID — identification that can be verified remotely over digital channels. Though, so far, they've had mixed results and adoption levels, new research from the McKinsey Global Institute finds that when carefully designed, digital ID can add 6% growth to an emerging economy's GDP in 2030 and 3% to an advanced economy's GDP.
We analyzed nearly 100 ways in which digital ID can be used in each of our seven focus economies: Brazil, China, Ethiopia, India, Nigeria, the United Kingdom and the United States. We estimated the economic impact for each use case in 2030, taking into consideration three factors: the share of the economy that would be positively impacted, the incremental share of interactions that may adopt and use the digital ID, and the potential for value creation from each such interaction.
For example, payroll fraud prevention is estimated based on the product of total wages, the percent of workers who may receive payroll tied to digital ID, and the potential payroll fraud prevented per worker. Digital ID could contribute to providing access to financial services for the 1.7 billion-plus individuals estimated by the World Bank to be currently unbanked, and we estimate it could save individuals a total of about 110 billion hours through streamlined e-government services, including social protection programs — like unemployment benefits and disability insurance — and direct benefit transfers.
Unlike a paper-based ID, such as most driver's licenses and passports, a digital ID can be verified online, often at a lower cost. For example, an individual could use digital ID to interact with her existing or potential employer to facilitate digital talent matching, onboarding and authenticate payroll. Or an individual could use digital ID to pay taxes, receive government benefits or access any e-government services. This could save time and money, reduce fraud from ghost benefits recipients and ineligible beneficiaries, and reduce tax evasion.
The right digital ID technology, designed with the right principles and enforced with the right policies, can protect individuals from the risk of abuse and enable the safe inclusion of billions in the digital economy. Good ID needs to promote trust and protect privacy. Thoughtful system design with built-in privacy provisions like data minimization and proportionality, well-controlled processes and robust governance, together with established rule of law, are essential to guard against risks.
So far, digital ID programs implemented by both national governments and private companies have had adoption rates ranging from single-digit levels to over 90% in a few cases, such as Estonia and India. As the landscape evolves, more work will be needed to understand the opportunities and commensurate challenges and to comprehend how stakeholders can respond. While solutions are not always clear, and more research will help clarify upsides and downsides, digital ID may be the next frontier in global value creation and a new force for inclusive growth.
This article appeared first in CNN Business.