How Digital Identification Can Improve Financial Inclusion

According to the World Bank, there are roughly 1.1 billion people around the world who lack official identification and 1.7 billion people who are considered financially excluded. The pandemic – and the resulting increase in reliance on digital solutions – has exposed an immediate need for better access to digital identification. 

Greater financial inclusion is about more than just making banking more accessible for the underserved; it’s also about providing people with the prerequisites they need to establish new accounts. As we continue as an industry to push for improved financial inclusion, one thing is clear: you can’t have financial inclusion without access to digital identification.

Greater financial inclusion is about more than just making banking more accessible for the underserved; it’s also about providing people with the prerequisites they need to establish accounts.

The barrier to financial inclusion

A 2017 study found that 20 percent of people who don’t have access to financial services cited the absence of identification as the reason. Without proof of identity, people can’t meet the identity verification requirements necessary to open bank accounts. Lack of financial inclusion is an issue that disproportionately impacts immigrants, minorities, low-income, and elderly consumers. They’re left unable to pursue homeownership, business opportunities, and access lines of credit. 

20 percent of people who don’t have access to financial services cited the absence of identification as the reason.

Establishing digital identities globally

Many countries are working extensively to research and develop national IDs to bring visibility to the invisible. Pakistan and Uganda, where women often have little control over financial matters, have made strides towards implementing digital IDs. In Pakistan, they have empowered millions of women by providing them with Computerized National Identity Cards (CNIC), granting them more independence from their brothers and husbands. Uganda has also made national IDs more accessible, enabling women to easily verify their identities when accessing financial services and other opportunities.  

The role alternative data plays in digital identification

For years, financial institutions have relied on traditional data from credit bureaus for identity verification, but this method shuts out the millions of people with thin or no credit files. To work effectively toward improving financial inclusion for everyone, the standards surrounding identity verification must change, making the push for digital identification essential.

Alternative data, consisting of data gathered from utility, cable, and telecom payments, social media, eCommerce data, and public records, can act as a catalyst for creating digital identities and improving financial inclusion. These data sources provide additional insight into a consumer’s background, providing an alternative method of identification and risk assessment.

 

READ MORE >> The Economic Impacts of Alternative Data on Financial Inclusion

 

What digital identification means for consumers and the economy

Establishing digital identities can positively impact the economic opportunities of the unbanked and aid in the fight for financial inclusion. Creating opportunities for these individuals through digital identification can:

1. Make it easier for the unbanked to open bank accounts. The use of digital documents can enable them to meet documentation requirements easily. 
2. Put to use already established digital footprints and alternative data like utility and telecom bills to support proof of identity and address verification.
3. Allow the financially excluded to pursue new opportunities like home and business ownership.  
4. Help financial institutions by identifying more potential clients for them to pursue. With millions of people who are unbanked and lack appropriate means of identity verification, altogether there’s a large revenue opportunity waiting in the wings.

 

How Urjanet can help with digital identity initiatives

Consumer-permissioned data is an important source of alternative data supporting the establishment of digital identification and financial freedom. By incorporating automated utility and telecom bill payment data into identity verification flows, we can bridge the gap between the financially excluded and included. 

Interested in learning how to access consumer-permissioned verification data from thousands of utility and telecom providers? Speak with one of our experts today. 

You might also be interested in:

• The Economic Impacts of Alternative Data on Financial Inclusion
• Data Showdown: How Do Alternative Data Sources Compare?
• The Future of Standardized Identity Verification

 

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