“Good” use of digital identification could unlock economic value equivalent to 3-6% of GDP by 2030

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 a new McKinsey Global Institute report, high adoption of digital ID with the right principles can help unlock 3% economic value equivalent of GDP in advanced economies and as much as 6% in emerging economies on average. 

“Digital ID may be the next frontier in global value creation and a new force for inclusive growth, especially in emerging economies. But unlocking that value and getting it right is by no means certain or automatic. Achieving widespread adoption of digital ID and realising its benefits can only occur if governments, businesses, and civil society work together to mitigate risks, ensure privacy, and promote trust,” says Anu Madgavkar, Mumbai-based partner at the McKinsey Global Institute. 

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. 

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: Brazil, China, Ethiopia, India, Nigeria, 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% 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. Based on these considerations, MGI estimates that among emerging economies, the average country could achieve economic value equivalent to 6% of GDP in 2030, while in mature economies, the average country could achieve economic value equivalent to roughly 3%—both assuming high levels of adoption and use in multiple domains with supporting digital infrastructure.

“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 Olivia White, a McKinsey partner. “Individuals benefit most as consumers from wider access to services, and as taxpayers and beneficiaries from time saved interacting with government. 

”For example, digital ID could contribute to providing access to financial services for the 1.7 billion-plus individuals estimated by the World Bank to be “unbanked” and could help save about 110 billion hours through streamlined e-government services, including social protection and direct benefit transfers.

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%, and reducing payroll fraud could save up to $1.6 trillion globally. “Institutions using high-assurance ID for customer registration could reduce the time taken for these interactions from days to weeks to even minutes. Using digital ID to streamline employee verification processes can help businesses more rapidly fill open positions and better map skills to vacancies,” said Deepa Mahajan, 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.

The McKinsey Global Institute (MGI), the business and economics research arm of McKinsey & Company, was established in 1990 to develop a deeper understanding of the evolving global economy. Our goal is to provide leaders in the commercial, public, and social sectors with the facts and insights on which to base management and policy decisions. The partners of McKinsey & Company fund MGI’s research; it is never commissioned by any business, government, or other institution. The Lauder Institute at the University of Pennsylvania ranked MGI the Number 1 private sector think tank in the world in its 2017 Global Go To Think Tank Index.