Each day, 360,000 babies enter the world. And they will all eventually need to establish identities to navigate myriad social interactions. Fortunately, digital identity is poised to become the future of identification, eventually replacing paper IDs like drivers licenses, passports, and access ID cards. And digital ID, it turns out, is a valuable economic asset.
What Is Digital ID?
The McKinsey Global Institute (MGI) is the research arm of McKinsey & Company, a prestigious American worldwide management consulting firm. MGI released an April 2019 report called Digital identification: A Key to Inclusive Growth .
The report defines digital identity as something that can be authenticated remotely over digital channels. A digital ID could be issued by the government as well as private or nonprofit organizations. Types of digital identification range from security tokens and PIN numbers to biometric data, such as your fingerprints, face, or irises.
According to MGI, “good digital ID” should have the following characteristics:
- It can be verified and authenticated with a high degree of assurance
- It’s unique to the individual
- It’s established only with a person’s consent
- It protects the user’s privacy and ensures that they will be able to keep control over their personal data.
Why Digital Identity Is the Key to Inclusion
In our society, it’s almost unheard of to navigate without identification. But according to estimates from the World Bank’s ID4D database, of Earth’s 7.6 billion people, nearly one billion don’t have any legally recognized form of identification. Of those who do have some legal form of ID, 3.4 billion have limited ability to use it in the digital world.
According to the MGI report, “Digital ID holds the promise of enabling economic value creation for each of these three groups by fostering increased inclusion, which provides greater access to goods and services; by increasing formalization, which helps reduce fraud, protects rights, and increases transparency; and by promoting digitization, which drives efficiencies and ease of use.”
Technology continues to improve and the cost of implementing digital identification platforms is decreasing steadily. Meanwhile, access to the internet and smartphones grows every day. This means that the infrastructure needed to support good digital ID has become more readily available and lower in cost. The time is right for a digital ID boom, especially for countries with developing economies.
The Value of Digital ID
MGI reported that digital identification creates economic value for countries that implement it successfully by “enabling greater formalization of economic flows, promoting higher inclusion of individuals in a range of services, and allowing incremental digitization of sensitive interactions that require high levels of trust.”
In fact, the think tank estimates that countries using digital ID could create an economic value equivalent to three to 13 percent of the country’s GDP by the year 2030. In emerging economies, even basic digital ID implementation could unlock 50 to 70 percent of that potential economic gain as long as 70 percent of the population adopt the new digital ID practices. In places like the US and UK, where digital technology is widespread, the gains are smaller and require more advanced tech.
Digital identity offers tremendous value, unlocking access to banking, government benefits, education, and more. It promotes inclusion by helping to provide better access to things like healthcare, education, and public and private labor opportunities. The MGI digital paper shines a much-needed light on the critical need for digital identity to promote inclusive growth.