When you log into your bank account or a website, use an employer’s network or resources, or purchase online, you are using a digital ID. These IDs range from direct identifiers like names and birthdates to indirect data points like browsing or shopping histories.
Digital IDs hold the potential to unlock economic value for individuals and societies. But realizing that value requires considered decisions on scope, front and back-end infrastructure, and program governance.
Identity Proofing
Digital ID is a built-in layer of security that helps combat identity fraud. As more businesses go digital, there’s a higher risk that criminals will try to steal identities and gain access to personal information or financial accounts. Identity theft is a serious issue that can affect people across all industries. In fact, it costs individuals and companies a lot of money every year. Identity fraud is a problem for lending institutions, credit reporting agencies and even state unemployment insurance offices. Last year alone, the U.S Department of Labor received reports of more than $87 billion in fraudulent claims related to unemployment benefits.
These days, it’s easy for anyone or anything to impersonate someone else. This is why companies need a surefire way to confirm that the person behind an account or application is who they say they are. Taking an identity proofing approach is one of the best ways to do this. This process involves verifying claimed information, like a name, address, date of birth and other details with multiple methods to provide the highest level of assurance that it’s a real person behind the screen.
Identity verification solutions use a combination of methods, such as checking a person’s claimed identification documents against government databases and then verifying that those records have not been changed or tampered with. In addition, a person’s facial biometrics may also be used to confirm they are who they claim to be.
Identity proofing solutions can be integrated into mobile applications to help onboard customers quickly and confidently, and they can also be triggered for high-risk scenarios by using data signals such as changes in location or IP addresses. This enables companies to ensure their digital onboarding is secure and meets compliance requirements for KYC, AML and PSD2/Open Banking.
Access to Services
Digital ID can help people access and use a wide range of services, including online banking, government services, and social media. It can also improve the security of these services, as it provides a more secure way to verify a person’s identity. Additionally, it can reduce the time and costs of delivering these services, as well as increase efficiency.
While the benefits of digital ID are significant, it is important to note that not all systems will provide the same value for individuals. This is because the scope of digital ID varies depending on the system’s functionality, coverage, and user experience. Some systems, such as eIDs, provide broad coverage and enable a range of uses for all citizens, while other systems, such as functional IDs, are restricted to specific groups of the population (e.g., voters, beneficiaries of cash transfers, or those who have passed a driving test).
The potential economic value of digital IDs is substantial: McKinsey estimates that in our focus countries, full digital ID coverage could unlock economic value equal to three to 13 percent of GDP in 2030, with more than half of this value potentially accruing to individual consumers. However, realizing this value requires considered decisions on scope of use cases provided, system ownership, front- and back-end infrastructure and processes, and program governance. It also relies on broad adoption and usage of digital ID programs, which can only happen if these systems are simple to use and offer more value than the status quo.
Civil society institutions can support this process by advocating for digital IDs that are safe, accessible, and affordable for all. They can also work to ensure that users capture the value of their data, and are informed about, and in control of, how it is used.
Digital ID can also play a critical role in promoting transformation and enabling economic growth by providing improved access to public goods and services. For example, digital ID can be used to authenticate the identity of a person when they claim food from a ration store, ensuring that they are not selling their allocation or transferring it to another individual. In addition, digital ID can be used to verify the identity of employees and contractors at a company, which can facilitate efficient hiring and accelerated productivity.
Trust
Whether centralized or decentralized, any digital ID system requires a level of trust. But the nature of that trust can be a key to its success, or failure.
For example, a digital identity platform might rely on a centralized database of verified identities that serves as the trusted source of information to authenticate users. This model has the advantage of facilitating easier access to services and reduced fraud risk. However, a central system can also be susceptible to data breaches and other security threats that could lead to loss of trust.
In addition, a centralized digital ID system limits a user’s control over their personal data and can make it harder for them to correct inaccuracies. It can also limit anonymity, a key component for activities like whistleblowing or expression of dissenting opinions.
Moreover, a centralized digital ID system can track digital traces such as cell tower pings, transaction behaviors, or online activities without an individual’s consent. This can be used to segment and provide personalized experiences or can be misused for discrimination, tracking, and targeting. Therefore, responsibility and ethics remain critical pieces of any digital ID strategy.
Another issue is that a centralized digital ID system can be subject to political pressures and may be used for purposes that are undesirable by some government or institutions. History provides many ugly examples of this type of abuse. It’s important to balance this potential benefit with the broader benefits of digital ID, which may be more difficult to assess in advance.
The good news is that there are solutions to these issues. For example, the Mobey Forum’s recent report on digital ID outlines best practices and lessons learned from seven digital ID programs.
Banks can play a crucial role in these efforts by working with FinTechs to create a collaborative environment. This will help banks expand their product offerings and leverage the growing demand for digital ID services. It will also enable them to take on a larger role as program operators and guardians of personal data. Until recently, financial institutions have been reluctant to partner with FinTechs on core initiatives. But this reluctance is slowly easing as the industry shifts towards Banking-as-a-Platform and greater collaboration.
Security
When people go online to conduct business, shop or interact with government services, they need a way to verify that they are who they say they are. This is where digital ID comes in. It’s a tool that allows individuals to prove their identity digitally, thus making transactions, interactions and services much safer and easier.
It’s a critical piece of the security puzzle as the world transitions to a digital economy. With the global pandemic forcing many operations into cyberspace, a reliable source of digital identification can help reduce the risk of fraud, data breaches and other types of cybersecurity threats. Increasingly, governments and businesses are moving to digital identity. They can use it to authenticate customers, ensure privacy and secure sensitive information.
A strong digital identity offers benefits that go beyond improving the security of online interactions. It can also create economic value for individuals by enabling them to access and participate in the digital economy more effectively. According to a McKinsey study, this can unlock economic value of up to 13 percent of GDP globally by 2030.
In addition, a strong digital ID can provide social and civic benefits. For example, India’s national digital ID system, known as Aadhaar, has reduced costs and bureaucracy while improving the quality of service for citizens. It has also helped the government enforce rights nominally enshrined in law, such as an accurate death registry and a reliable voter register.
However, the potential for misuse of digital ID remains high. Without the right controls, digital ID systems could be used by malicious actors—governments or private companies—to track and discriminate against specific groups of people. History provides many ugly examples of how identity technologies have been misused in this way.
The design and governance of digital ID is a rapidly evolving area that merits more research. The key challenges include incorporating features to protect privacy and ensure fully informed consent both at signup and throughout ongoing usage; determining the relative benefits of different models for digital ID governance and ownership—public or private, centralized or decentralized; and establishing an evidence base that links design decisions to benefits by use cases.