Every great technology has its drawbacks. Think of the ubiquitous GPS. Thanks to GPS-based navigation apps, mobile phone users now get lost only if they intend to. Yet tracking and surveillance have created serious privacy concerns.
Digital ID, the digitized version of a legal identity, is no exception. Fast emerging as a solution for greater economic, social, and political inclusion, digital ID offers significant potential for inclusive economic growth. It also has the potential for misuse. For example, a government might use it for political and social control, while a private sector firm might influence consumers in ways they neither understand nor desire.
While digital ID once seemed a flight of fancy, it is already here. In India the Aadhaar programme has given more than one billion people some form of it. Estonians have a national ID card that enables them to get public and private services online. And other countries are experimenting with comparable programmes.
As the price of smartphones and scanners continues to fall, internet infrastructure increases in emerging economies, and more consumer and government services shift online, secure digital identification will be more important than ever. It will facilitate economic transactions, social interactions, and political involvement. It’s essential to get it right.
At McKinsey Global Institute, supported and advised by UNDP we studied ‘good’ digital ID and quantified the benefits to people, businesses, and governments. And what we found may be surprising. When carefully designed, digital ID can enable people to participate more fully in the economy and society as consumers, workers, and citizens, benefiting themselves as well as the companies and government agencies with which they interact.
But what do we mean by good digital ID, and how does it work? Unlike a paper ID, such as most driver’s licenses and passports, a digital ID can be verified remotely, often at a lower cost. At the same time, the attributes of good ID, created and used with individual consent, will promote trust and protect privacy.
Good digital ID works by unlocking value for people as they interact with firms and governments, as consumers, workers, micro-enterprises, taxpayers. and beneficiaries. It could help provide financial services for the 1.7 billion-plus people estimated by the World Bank to be excluded from banking. It could also help save about 110 billion hours through streamlined e-government services, including social protection and direct benefit transfers.
To understand just how much all these benefits could add up to, we analyzed nearly 100 ways in which digital ID could be used in seven diverse economies; Brazil, China, Ethiopia, India, Nigeria, the United Kingdom, and the United States. Extrapolating globally, we found that among emerging economies, the average country could achieve economic value equivalent to six percent of GDP in 2030, while in mature economies, the average country could achieve economic value equivalent to roughly three percent — both assuming high levels of adoption with supporting digital infrastructure.
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 its use, mitigate risks like those associated with large-scale capture of personal data or systematic exclusion, and guard against the challenges of a potential dual-use technology. Like nuclear energy and GPS, a dual-use technology is designed for good, but can also be used for harm.
People will use digital ID if it provides value, engenders trust, and protects privacy. Institutions will be drawn to uses that lower costs, improve customer experience, or, in the case of public institutions, improve welfare.
As digital ID programmes expand, policymakers, business leaders, and international organizations 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 inclusive growth.
Olivia White is a partner at McKinsey & Company in San Francisco. Anu Madgavkar is a partner at McKinsey Global Inst in Mumbai.