It is estimated that around 850 million people globally lack a form of official identification, something that is required to comply with financial regulations at the point of onboarding to formal financial services (ID4D, 2022). Migrants are particularly likely to not have any official identification or face difficulties in verifying their identity in foreign countries, which may hinder their ability to rely on formal financial service providers to send money across borders. However, even when the money flows through formal channels, costs tend to be highest when sent through banks, with an average cost of 11.84 percent in 2022 (World Bank, 2022). Overall, the cost of sending $200 across international borders averaged 6.4 percent of the amount transferred in the first quarter of 2021, according to the World Bank’s Remittance Prices Worldwide Database. This is more than double the United Nations Sustainable Development Goal target of 3 percent, which is set out within goal 10.C (United Nations).
These barriers not only impact migrants and their families but also have direct macroeconomic and social development consequences on low- and middle-income economies. The global remittance inflows were estimated at $831 billion in 2022, with this forecast to increase to $858 billion by 2024 (KNOMAD, 2023). In particular, low- and middle-income countries around the world heavily rely on this source of income to boost their economies. Whilst remittances drive economic growth, challenges remain for many migrants wishing to access formal remittance channels (United Nations). Needless to say while the cost of ID may be high for the migrant workers, the cost of the remittance through formal channels may be linked to other reasons like compliance, trapped liquidity, correspondent banking relationships, etc.
To allow for greater access to formal channels, creating a better solution for the trustworthy identification of individuals is of paramount importance. Often, individuals are required to show physical credentials multiple times to human agents to prove identity – a time-consuming, expensive and potentially impossible process, depending on the presence and state of physical identities (lost, stolen, left behind in a rush to flee or non-existent). Therefore, for people on the move, proving their identity can be a challenge and put them at risk of corruption and extorsions.
The concept of digital identity has grown in the last twenty years as the digital world has expanded. The benefits of digital identity can bring huge economic gains, with studies identifying the potential to unlock 3-13 percent of GDP by 2030 (McKinsey, 2019). Both public and private sector organisations recognise this value, and many different digital identity solutions and schemes now exist worldwide.
According to the World Bank, “When IDs issued by one country are recognised by other countries – whether for face-to-face or online transactions – they become a powerful driver of economic and regional integration” (ID4D). Currently, proving one’s identity in a foreign country when accessing financial services can be a struggle, even for those who have valid forms of identification. However, a solution that enables the digital identification of citizens, which can be used across borders and even sectors, could unlock value for those migrants who face these issues. Eliminating current acceptance barriers offers significant economic and social advantages, but achieving this poses a worldwide challenge. It necessitates global collaboration and coordinated efforts to establish a trusted identity ecosystem for mutual benefit.
Finally, it’s important to acknowledge the necessity of a digital ecosystem for fostering the development of digital IDs. Additionally, it’s crucial to acknowledge and plan the continued need for many citizens to hold physical credentials, even as digital IDs are being introduced.