Mckinsey and company has said that Nigeria and other emerging economies implementing good digital identification could unleash between 3 to 6 per cent of Gross Domestic Product by 2030. Mckinsey in a new report said “Around the world, governments and businesses are implementing digital identification programs with mixed results and adoption levels. Yet when carefully designed, “good” use of digital ID programs can help people participate more fully in their economy and society. That can create enormous economic value and inclusive growth”. According to the new McKinsey Global Institute report, high adoption of digital ID with the right principles can help unlock 3 per cent economic value equivalent of GDP in advanced economies and as much as 6 per cent in emerging economies on average.
Rogerio Mascarenhas, Managing Partner of McKinsey’s Nigeria office said “We find that three-quarters of the potential economic value of digital ID could accrue to individuals in Nigeria, making it a powerful key to inclusive growth, while the rest flows to private-sector and government institutions. The largely informal and self-employed workforce skews the overall benefits of digital ID toward individuals, who could receive 74 per cent of the total overall value.”
Close to one billion people in the world today, mainly in emerging economies, have no form of legal identification and may be denied access to critical government benefits, health care, financial services, the labour market, or the ability to secure property rights or register their business. The rest of the world’s 6.6 billion people either have some form of identification but limited access to services that increasingly are being provided online, or they are active online but struggle to keep track of their digital footprint securely and efficiently. Digital ID can help.
Amuche Okeke-Agba, a McKinsey partner “Nigeria’s unmet financial needs are significant. 60 per cent of the adult population, or about 64.5 million individuals, do not have a bank account and therefore may be cut off from access to credit or the ability to deposit income. The World Bank found that 18 per cent of the unbanked population in Nigeria cited a lack of identification documentation as the primary reason for not opening an account. We estimate that increased lending to individuals and businesses resulting from an expanded deposit base could generate up to $21 billion in additional investment by 2030,” Unlike a paper-based ID such as most driver’s licenses and birth certificates, a digital ID can be verified remotely over digital channels, often at a lower cost. The report defines “good” ID” in four ways: an identification that is verified and authenticated to a high degree of assurance over digital channels, unique to an individual, established with individual consent, and protects user privacy and ensures control over personal data.
The report offers a framework to understand the potential economic impact of “good” use of digital ID by analysing nearly 100 ways in which digital ID can be used, with deep dives into seven diverse economies: Nigeria, Ethiopia, Brazil, China, India, the United Kingdom, and the United States. In the seven focus countries, MGI finds that digital ID has the potential to unlock economic value equivalent to 3 to 13 percent of GDP in 2030, if the digital ID program enables multiple high-value uses in areas such as financial inclusion, healthcare delivery, and government services and attains high levels of adoption. The potential value in a given country depends on the portion of economic activity where digital ID–based use could be deployed to address inefficiencies, as well as the scope for improvement in formalisation, inclusion, and digitisation. “The Digital ID potential for Nigeria is significant. Based on MGI estimates, we could capture economic value equivalent to 5 to 7 percent of GDP in 2030 from greater formalisation, fraud reduction, increased tax revenue, and financial inclusion. Scaling Digital ID in Nigeria has to be a top priority for enabling inclusive growth,” says Eyitope Kola-Oyeneyin, Nigerian-based Partner at McKinsey.
For institutions, gains could come from higher productivity, cost savings, and fraud reduction; for example, improving customer registration could reduce onboarding costs by up to 90 percent, and reducing payroll fraud could save up to $1.6 trillion globally. “We estimate that Nigeria could use digital ID to expand the tax base to include informal income and reduce fraud and errors in tax filing to generate more than $13 billion in additional tax revenue. Nigerians could save 1.8 billion hours annually from efficient services that reduce the need for travel to and from government offices and filing of physical paperwork,” said Fiyinfolu Oladiran, a McKinsey partner.
While digital ID can form the foundation of a host of applications in many aspects of an individual’s life, work, and social interactions, the report notes that the potentially pervasive nature of digital ID makes it akin to dual use technologies—like nuclear energy and GPS—that are designed to generate benefits but are also capable of being used for harmful or undesirable purposes. This means the design, implementation, and governance of digital ID must guard against its misuse. Careful system design and well-considered government policies are required to promote uptake. User adoption of digital ID will be accelerated if it provides value, creates 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. Governments can consider exploring public-private and consortium-led models of digital ID provision, developing policies and legal frameworks to enable trust and acceptance of digital identities, and partnering with private-sector institutions to capture country-specific sources of economic value.
Businesses can innovate digital ID-enabled processes that could boost efficiency and improve customer experience, facilitate development of global standards, and collaborate with governments to conduct bespoke cost-benefit analyses of digital identity applications. Civil society institutions can shape the priorities of businesses and government in program design. They can also help ensure that individuals are better informed and educated about how to safely use digital ID – and digital technologies more broadly– and that the policies are in place to make digital ID programs accessible and socially beneficial.