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Widespread adoption of digital ID could boost economic growth

New study argues that the standard could bring benefits to businesses in sectors such as financial services as well as government – but it all depends on high adoption rates

Appropriate introduction of digital identification could help countries generate significant economic growth if they achieve high adoption rates, according to a new report by the McKinsey Global Institute (MGI).

Introduction of digital ID under “correct principles” could help unlock 3% economic value equivalent of GDP in advanced economies and as much as 6% in emerging economies, says the report, which analyses the potential of widespread adoption of the standard in the UK, US, China, India and other economies such as Ethiopia, Nigeria and Brazil.

Reduced fraud and increased tax collection are among the key benefits that could be gained from digital ID in the UK, says the report, with potential decreases in payroll fraud and greater revenue facilitated by the standard, which could expand the country’s tax base.

“We find that just over half of the potential economic value of digital ID could accrue to individuals, making it a powerful key to inclusive growth, while the rest flows to private-sector and government institutions,” said McKinsey partner Olivia White.

Digitising taxpayer and beneficiary transactions interactions that previously required in-person authentication could bring significant time savings and reduce fraud associated with tax filing, the report notes, adding that individuals could receive 43% of the benefit from digital ID in the UK.

“Individuals benefit most as consumers from wider access to services, and as taxpayers and beneficiaries from time saved interacting with government,” said White.

Further value could be unlocked if initiatives enable multiple high-value uses in areas such as healthcare delivery and government services. The research estimates that up to 110 billion hours could be saved through streamlined digital citizen services incorporating digital ID.  

A 90% reduction in the cost of verification and customer online registration is another key benefit cited in the report that digital ID could bring in addressing inefficiencies in developed markets. Digital ID could reduce opportunity costs, it says, giving the UK as an example, where nearly 25% of all financial applications are abandoned because of difficulties in the registration process.

“Institutions using high-assurance ID for customer registration could reduce the time taken for these interactions from days and weeks to just minutes,” said McKinsey partner Deepa Mahajan.

However, all these benefits assume high adoption rates. This is not the case when it comes to Verify, the UK’s flagship digital ID service, which is cited in the report and currently covers less than 6% of the country’s population.

Read more about digital identification

Appropriate use of digital ID is outlined in the report as 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.

Almost one billion people globally have no means of legal identification and introduction in emerging markets. In those countries, digital ID offers multiple opportunities, such as enabling access to financial services to some 1.7 billion people.

The report also comments on the challenges involved in introducing digital ID. It mentions the need for “careful system design and well-considered government policies” as fundamental to promoting uptake, mitigate risks, and prevent potential misuse of data.

Several basic elements are needed to set up a digital ID infrastructure platform, says the report, including the ID credential, the IT infrastructure used for enrolment, back-end data processing and authentication, as well as the physical features required for user interaction and registration.

Another area of complexity cited relates to risk mitigation of cyber threats impacting individuals through unauthorised access to their data. The study also points out that Europe’s General Data Protection Regulation (GDPR) defining data rights brings challenges such as compliance and development of standards and technologies that provide increased security while enabling satisfactory user experience.

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