Digital identity as a vehicle for financial inclusion

By Lance Fanaroff iiDENTIFii Co-Founder

Around the world, governments and businesses are looking for vehicles for financial inclusion. From banking the unbanked to helping the vulnerable access digital banking, there is an urgent priority to use the technology and tools at our disposal to provide equal access to finance and essential services in an increasingly digitalized global landscape.

There can be no financial inclusion without digital identity inclusion. Yet the World Bank estimates that around 850 million people worldwide do not have an official ID, let alone a digital one. Despite some progress, women living in low-income countries are still 8 percentage points less likely to have an ID than men.

The same report estimates that 3.3 billion people worldwide (nearly a third of the world’s population) lack access to formal identity for online transactions. The majority of those without formal identity live in the Global South – in countries in Africa, Latin America, and developing countries in Asia and the Middle East. Digital identity offers these countries the rare opportunity to bypass traditional forms of identification and authentication, driving inclusion on a large scale and at a rapid pace. This level of inclusion is possible, as several success stories in Africa, Latin America, and East Asia demonstrate.

However, for digital identity to become a successful and sustainable tool for inclusion, it must be based on healthy ethics, trust and support from government and business.

A new era for digital identity in the global South

While citizens in the Global South have historically faced a lack of formal identity, many countries are taking big steps to change this narrative. In a recent conversation with strategic innovator, market visionary, and founder of Acuity Market Intelligence, Maxine Most, she spoke about the strengths she’s seen in the way these countries are adopting digital identity: “The advent of the mobile phone was groundbreaking because it provided accessible, low-cost infrastructure to markets that didn’t have traditional solutions. Biometric identity has added a deeper layer of security to this mobile infrastructure. Simply put, the ability for an individual to confirm who they’re interacting with using their mobile phone encourages them to claim and own their identity.”

Identity is a right, a protection tool, and a gateway to services. The World Bank report found that globally, about 1 in 3 adults without ID reported problems accessing financial services, receiving government financial assistance, applying for a job, or voting in elections. Nearly 40 percent of adults without ID reported problems obtaining a SIM card or mobile phone service, while about 25 percent had problems receiving health care. Digital identity reduces costs and the need to travel. People simply need connectivity on their mobile phones.

Most agreed, saying, “Whether you’re in Africa, Latin America, or East Asia, everyone has a mobile phone. In fact, in many mobile-centric economies, more people have access to phones than to laptops.”

Mobile identification solutions therefore ensure that people have greater access to government and financial services.

Digital Identity Success Stories

In Morocco, for example, 18.5 million social protection recipients have registered in the new National Population Register, improving access to social assistance programmes and making their use easier.

Nigeria has also taken steps to verify identity, reduce government grant fraud and reduce corruption, ensuring that grants reach those who need them most.

The West Africa Unique Identification for Regional Integration and Inclusion (WURI) programme has supported the registration of 1.3 million people in Benin, most of whom are women.

In some countries, citizens are recognizing the contribution of digital identity to facilitating better access to government services. In East Asia, for example, the Philippines Identification System (PhilSys) has achieved one of the world’s fastest rollouts of a new identity system, with over 80 million registrations, representing 90% of the target population.

This goes beyond government services. It also promotes financial inclusion. The success of M-Pesa in Kenya has proven that it is possible for 50 million people to receive and pay money without a formal bank account.

In Morocco, offering choice to beneficiaries of the Tayssir money transfer program resulted in more than half of recipients opting for digital payments shortly after implementation.

Identifying the Right Biometric Modality for the Global South

Of all the biometrics available, facial biometrics is the most widespread in the African continent due to its simplicity and consumer familiarity. Most people are comfortable taking a selfie and can now use that verified selfie to access essential services. These selfies can be verified using 4D Liveness technology to confirm them against an authoritative or government database.

The process of remote facial identification is also applicable in rural areas as the process itself is simple, secure, familiar and has much less friction.

In fact, we have found in many rural areas in South Africa that people do not necessarily carry smartphones as personal phones because the battery life is not as long as older models. For this reason, a family will often share a smartphone.

Remote biometrics can help different family members to digitally authenticate themselves without friction, in a secure and convenient way. This helps to prove that the right person is authenticating at the right time.

The challenge of digital identity

During her conversation with Most, she emphasized that governments, regulators and companies need to be aware of the potential challenges to making digital identity successful in the global south.

“Digital identity implementations fail based on two factors: the failure to create a safe, reliable, secure and private digital identity infrastructure and operational dynamics such as corruption or insufficient regulatory support. On a country-by-country basis, we have seen varying degrees of progress.”

While biometric identity is not a panacea, it is a way to create new opportunities in developing countries, especially those with limited physical infrastructure.

Making the quantum leap

This leapfrog transition is not easy at any level. If countries really want to embrace digital identity, they need to focus on good digital identity and data policies, and on civic education.

Most explains: “In the past, when digital systems were introduced, they exposed users to function creep with data, meaning that corrupt actors used the data for purposes it was not intended for. Compliance with regulations is therefore crucial in building these systems in a way that this does not happen. Systems must be built with privacy first, so that they cannot be abused.”

For example, in Cameroon, a decree was recently issued that allows non-banks to participate in electronic government payments. This will allow a safety net scale-up to integrate mobile money payments.

Nigeria has also passed several data protection laws, including a groundbreaking law in Nigeria that provides additional safeguards not only for ID systems but also for data processing across the economy.

“In terms of education, we need to help citizens and legislators understand why owning their identity is so empowering. Governments and businesses can do this by partnering with organizations that approach the task of biometric identity with integrity and purpose,” Most said.

Conclusion

Necessity is the mother of innovation. While citizens in the Global South may have suffered from a lack of formal and digital identification, this is changing rapidly.

Countries in Africa, Latin America and East Asia have had to embrace mobile technology due to poor fixed-line infrastructure, opening up a world of opportunities for inclusion. If biometric identity providers can work with governments and businesses to build solutions that prioritize consumer inclusion, convenience and security, the future looks bright.

About the author

Lance Fanaroff is the co-founder of iiDENTIFii, a South Africa-based platform for remote digital authentication using biometric technology and automated onboarding.

DISCLAIMER: Biometric Update’s Industry Insights are submitted content. The views expressed in this post are those of the author and do not necessarily reflect the views of Biometric Update.

Article Topics

Acuity | biometrics | digital ID | digital identity | financial inclusion | identity management | iiDENTIFii