Digital Identity: a prerequisite for Financial Inclusion?

The World Bank has estimated that between 2011 and 2014, innovations in technology and the rapid uptake of mobile money services helped 700 million adults access formal financial services for the first time. Despite these impressive gains more than two billion people remain financially excluded, and in most emerging markets low rates of inclusion persist among the most vulnerable segments of society.

According to a 2014 World Bank survey, around 18 per cent of financially excluded adults are unable to access financial services (whether through a bank or a mobile money provider) because they lack the documents required to prove their identity. Worldwide, at least 1.5 billion people do not have an official identity document – the majority of these people live in Africa and Asia, and a disproportionate amount are women and children.

Although the Sustainable Development Goals (SDGs) specifically address the issue of identity through target 16.9 (‘By 2030, provide legal identity for all, including birth registration’), it is clear that proof of identity is a key enabler for a multitude of SDG targets, particularly those related to financial inclusion. In fact, the World Bank’s ID4D Programme has suggested that accessible, secure, and verifiable identification systems could help expand the use of financial services by approximately 375 million unbanked adults in developing countries.

The relationship between digital identity and financial inclusion has been widely discussed in recent weeks. Tech Crunch has suggested that digital identity is a necessary starting point for financial inclusion, highlighting a number of initiatives that aim to provide global digital identities. This includes Deloitte’s Smart Identity prototype, and a collaboration between ConsenSys, Microsoft, and Blockstack Labs that will create an open-source, self-sovereign, blockchain-based identity system. Gates Foundation has written about technological breakthroughs that can ‘shatter the bonds of poverty’ by providing greater access to finance, pointing to research showing that digital financial services (DFS) are the most effective way to provide banking, insurance, and lending in emerging markets – but also stressing that digital identity and authentication will play a vital role in bringing ‘billions of people into the financial system swiftly and securely’.

Currently, there is a lot of attention placed on the potential of non-government-owned platforms that enable individuals to create secure, officially-recognised virtual identities; see, for instance, the identification platform being developed by Yoti. However, as outlined in a recent report from Caribou Digital, the most compelling use cases for digital services are still built on identity credentials that are connected to an official, trusted, state-issued identity (Yoti is no exception). As governments increasingly build out their official digital identity systems, private-sector actors will need to find ways of connecting to, or verifying against, these systems in order for their services to gain widespread adoption.

For this reason, the GSMA’s M4D Digital Identity programme is working with the mobile industry, governments and the development community to explore the role and potential of the mobile industry in both state-led and private-sector led digital ID offerings. We have seen that by supporting the development of scalable digital identity solutions in emerging markets, the mobile industry can accelerate greater social, political and financial inclusion. In one of our recent reports we highlight how Telenor Pakistan leveraged state-issued national IDs and biometric verification to dramatically increase access to mobile financial services.

Linking Digital Identity and Mobile Money in Pakistan

Only 13 per cent of adults in Pakistan had access to formal financial services in 2014, including less than 5 per cent of women. Meanwhile, GSMA estimates that today there are 59 million unique mobile subscribers in Pakistan, representing 31 per cent of the population.

Telenor Pakistan, the country’s second-largest mobile operator, has committed to enabling 50 per cent of its customers to use their mobile phones for financial services by 2020, and joined the UFA2020 initiative to learn from other organisations and scale solutions that have demonstrated success in other markets. In 2009 Telenor launched Pakistan’s first and (to date) largest mobile financial services brand, Easypaisa, which registered approximately three million users by the end of 2014.

In mid-2014 the government in Pakistan introduced a new mandate requiring mobile operators to validate the identity of all SIM card owners by re-registering their SIMs with the biometric information (fingerprints) associated with their National Identity Card (NIC) number. Although the majority of Pakistanis already owned a CNIC, the GSMA understands that the SIM registration process likely helped the government provide a national ID to the final 10% of the population that had not been previously reached.

Recognising that the SIM registration process provided each of their customers with a robust digital identity – one that validated the individual based on their biometric data and their government-issued ID – Easypaisa used the mandate as an opportunity to extend mobile financial services to their customers. To accomplish this, Telenor successfully petitioned the State Bank of Pakistan to allow the information collected during SIM registration to satisfy the Know-Your-Customer requirements for opening a mobile money account. The application process was also simplified: rather than requiring customers to fill out paper forms, account activation could be completed in less than one minute by dialling a USSD string.

By the end of 2015 more than five million people gained access to mobile money services through Easypaisa, nearly doubling the existing customer base. Today Easypaisa is used by over 20 million Pakistanis across 800 cities, and in 2015 the service moved 3 per cent of Pakistan’s GDP (World Bank). More than 650,000 transactions take place every day, allowing customers to save or send money, pay for school fees, make disbursement of milk collection payments, buy cinema tickets and access micro insurance.

In July Easypaisa introduced the country’s first ever biometric money transfer facility. More than 20,000 Easypaisa retailers are now equipped to provide biometric verification services to customers, using scans of customer fingerprints to ensure that their NIC is not expired or blocked by the government. This extra level of assurance has allowed Easypaisa to increase the limit on monthly transfers from PKR 15,000 ($150) to PKR 50,000 ($500). Muhammad Khan, Head of Easypaisa, has said that the new limits will meet the demand of a growing segment of the market who want to send higher amounts, increasing customer reach and trust, and helping tap into the true potential of branchless banking industry in Pakistan.

Looking Ahead

In the coming months the Digital Identity team will be investigating other opportunities to leverage mobile as a trusted solution for providing a unique and secure identity – enabling greater access to value added services such as mobile money.

Ahead of the GSMA’s Mobile 360 Conference in Delhi, we will be watching new regulations around eKYC (Electronic Know Your Customer) in India that allow mobile operators to instantly activate SIM cards via online verification of the customer’s National ID (Aadhaar number). By mid-September it is expected that the three largest mobile providers will have rolled out eKYC authentication, a development that could have a significant impact on the use of operator-led payments banks and possibly catalyse greater use of mobile money. Last year, the GSMA questioned whether the acceptance of Aadhaar as a valid form of ID by state agencies could form the foundation for the government’s plans to enable mobile banking and other digital services. As of 2015, only 2.4% of adults in India had a mobile money account.