Digital ID – a vital step towards financial inclusion
One billion people lack an official foundational identification, making them unable to prove their identity (ID) and resulting in exclusion from economic opportunities, according to The World Bank.
As per The World Bank’s 2017 Global Findex Survey, the lack of documentation was a critical barrier to accessing financial services, cited by 26% of unbanked people in low-income countries. This particular barrier is more noticeable in marginalized segments of society such as women, poor rural inhabitants, migrants, refugees and stateless persons.
Under the Global Partnership for Financial Inclusion (GPFI) of the Argentine G20 Presidency in 2018 and the Identification for Development (ID4D) Initiative, the World Bank released a G20 Digital Identity Onboarding report; here are 3 crucial characteristics to enable usage of ID for financial services:
a) IDs should have a legal basis and therefore must be recognized by the government.
b) They should be unique to that individual.
c) IDs should exist in a digital format.
What is the ideal, reliable ID?
During opening an account, a customer needs identity credentials so that the financial service provider (FSP) can match that information against other sources, such as the national population registry, civil registry or a credit bureau.
Once validated, a transaction identifier, such as a Personal Identification Number (PIN), is then issued by the FSP to allow a customer to continue carrying out financial transactions without needing to re-validate for every transaction.
The G20 Digital Identity Onboarding report identifies 7 policy considerations relevant to digital ID for the financial sector. The considerations address factors such as the importance of integrated ID frameworks, appropriate regulatory frameworks, risk-mitigating oversight models considering new players beyond traditionally regulated financial institutions, authentication & personal data protection, procedures for redress when the security of personal data is comprised, empowerment of the private sector to develop services drawing the foundational ID infrastructure and finally the close monitoring of emerging trends in ID, such as new models (e.g. federated and decentralized ID).
However, Digital IDs come with risks which need to be managed and mitigated to establish trust and enjoy the benefits of identification responsibly. Risks include data issues - leakage, storage and misuse, as well as untested technologies and risks from players outside the traditional financial system.
Expanding the coverage of ID systems is a specific target of the UN Sustainable Development Goals (SDGs), calling for UN Member States to “provide legal identity for all, including birth registration” by 2030.
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