Why the world needs “good” digital ID

Why the world needs “good” digital ID

This article is part of the Forum Network series on Digitalisation and will feed into upcoming discussions at OECD Forum 2019.

Jacques Bughin is a senior partner of McKinsey and Company and director of the McKinsey Global Institute; co-author Anu Madgavkar is a partner at the McKinsey Global Institute based in Mumbai.

Every great technology has its drawbacks. Think of the ubiquitous GPS for instance. Thanks to GPS-based navigation apps, now mobile phone users only get lost if they intend to. Yet tracking and surveillance have created serious concerns. 

Photo by Matthew Henry on Unsplash

Digital ID, the electronic equivalent of physical identification, is no exception. Fast emerging as a solution for greater economic, social and political inclusion, digital ID offers significant potential for value creation. It also gives rise to risk of misuse. 

Infographic: McKinsey

While digital ID once seemed a far-off flight of fancy, it is already here. In India over 1 billion people have some form of digital ID through the Aadhaar program. In Estonia, virtually the entire 1.3 million population has a digital ID. And other countries are experimenting and implementing comparable programmes. 

Furthermore, as the price of smartphones and scanners continues to fall, access to internet infrastructure in emerging economies increases, and as more consumer and government services shift online, identification that can be used securely over digital channels, will be more important than ever to facilitate economic transactions, social interactions, and political involvement. That makes digital ID not only inevitable but essential to get right. 

At the McKinsey Global Institute, we studied “good” digital ID and quantified the benefits to individuals, businesses, and governments around the world. And what we found may be surprising: When carefully designed, digital ID can be a game changer. It enables people to participate more fully in the economy and society as consumers, workers, and citizens, benefitting themselves as well as the companies and government agencies they interact with. 

Digital identification: A key to inclusive growth
Image: McKinsey

But what do we mean by “good” digital ID and how does it work? Unlike a paper-based ID, such as most driving licences and passports, a digital ID can be verified remotely over digital channels, often at a lower cost. At the same time the attributes of good ID, including high assurance, consent-based creation and use, and control over personal data, promote trust and protect privacy. 

Good digital ID works by unlocking value for individuals as they interact with firms, governments and peers in six roles: as consumers; workers; micro-enterprises; taxpayers and beneficiaries; civically engaged individuals; and owners. For example, digital ID could contribute to providing access to financial services for the over 1.7 billion people the World Bank estimates are currently financially excluded, and could help save about 110 billion hours through streamlined e-government services, including social protection and direct benefit transfers.

Infographic: McKinsey

To understand just how much all these benefits of digital ID could add up to, we analysed nearly 100 ways in which digital ID could be used, with deep dives into seven diverse economies: Brazil, China, Ethiopia, India, Nigeria, the United Kingdom and the United States. Extrapolating globally, a full digital ID rollout can support on average a user surplus value equivalent of roughly 3% – and more in developing countries. This would require full maturity of adoption and use of digital ID in a variety of the most relevant domains, supported by a compelling digital infrastructure. 

Employees at a textile company in Ethiopia check out after work by fingerprint.
Image: McKinsey

Capturing the value of good digital ID is by no means certain or automatic. Careful system design and well-considered government policies are required to promote uptake, mitigate risks like those associated with large-scale capture of personal data or systematic exclusion, and guard against the challenges of digital ID as a potential dual-use technology. User adoption of digital ID will be accelerated if it provides value, engenders trust, and protects privacy. Institutions will be drawn to digital ID uses that lower costs, improve customer experience, or, in the case of public institutions, improve welfare. 

As digital ID programmes proliferate and expand around the world, policy makers, business leaders and international organisations should work together to better understand the risks and develop standards and governance to mitigate them.   

While that might seem like a lot of effort, it would be well worth it. After all, digital ID may be the next frontier in global value creation and a new force for inclusive growth.

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