Unlocking Value Digital ID, Mobiles, and Payments Alan Gelb and Anit Mukherjee, ID4Africa
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Unlocking Value
Digital ID, Mobiles, and Payments
Alan Gelb and Anit Mukherjee,
Center for Global Development
Development in a Digitized World to increase effectiveness and accountability. It enables
In Bangladesh, mothers now receive scholarships for their states to include and empower many who have been shut
children through mobile phone accounts instead of having out, whether through lack of recognition or the state’s inabil-
to stand in long lines at the school on a prearranged day ity to ensure that payments or other services are delivered
for a cash handout. Not only does this save time and effort, accurately, to the right person and at the right time.
and provide accurate and documented payment, but it ID as the Entry Point. ID can be considered as an entry
also relieves school officials of a burdensome administra- point to the wider digital ecosystem, to the full use of
tive process and of the risk that—rightly or wrongly—they mobiles and payments, and of sophisticated data manage-
can be accused of corrupt handling of funds. In Tanzania, ment and analytics, to create value for citizens and states.
visitors to national parks must now pay electronically Conversely, mobiles, payments, and associated data can be
instead of in cash; the result has been a large increase in seen as levers, to extend the use and reach of ID systems
funds for conservation with the same number of visitors. In that represent large investments but create relatively little
Kenya, farmers can invest their savings directly in a small value unless they are widely used.
slice of a government bond through mobile phones. They
can become eligible for small loans on the basis of a stable Synergies for Value and Inclusion
record of receipts and payments without posting collateral. As multipurpose platforms, ID, mobile, and finance systems
In Andhra Pradesh, a state in India with 50 million people, offer economies of scope and scale from sharing essential
the authorities can drill down through statewide reporting infrastructure. Progress in one area can reduce the service
data, in real time and across thousands of delivery points, costs of the others and help to extend coverage. This
to monitor the provision of rations and pensions to uniquely argues for a strategic approach, with mechanisms to
identified poor beneficiaries. They can ensure that rations improve coordination across a range of regulators and
are not diverted by dealers, detect transaction failures agencies, as well as across the many government programs
almost immediately, and require rapid follow-up and reme- and services that can use these platforms.
diation.
Synergies involve both supply-side and demand-side
Digital technology, notably in the areas of identification drivers (Figure 1). People will not want to register for an
(ID), mobile communications, and payments, is impacting ID if enrollment is costly or difficult; there will also be little
societies and economies in many ways. Together, they demand for the ID if it is seen as providing little value. Banks
enable three things: the precise identification of all parties will have less incentive to roll out financial accounts to the
to a transaction; low-cost communications; and accurate, poor if the cost of onboarding customers is high due to an
accountable, and convenient payments. Citizens (in the inadequate ID system. Mobile operators will have an addi-
sense of people), states, and private entities can interact tional incentive to build out their cell-tower networks if they
with each other in new ways and transact across a wide can offer financial services in addition to voice and data.
range of services and programs. This offers new opportu- Over time, coverage will be driven forward by changes in
nities through lower transaction costs, and new levers to demand and supply, and these will reflect both policies and
states to implement a wide range of policies and programs evolving technology.Figure 1. Synergies Between ID, Finance, and Mobile Communications
Supply-side driver
State Demand-side driver
ID Both
KYC requirements for SIM
registration increase
demand for IDs
Mobile services State ID KYC requirements
support mobile birth lowers transaction for financial
registration costs for mobile accounts increase
and financial demand for IDs
The ability to use mobile services
information to verify ID
increases system capabilities
Mobile services expand
financial services’ reach and
information about users
Mobile Financial
Services Services
Demand for financial services
encourages mobile services to
expand their infrastructure
ID-Mobile and ID-Finance. Since at least 147 govern- ciated with financial KYC from $15 to $0.50 and greatly
ments around the world require prospective mobile users reduces the time needed.1 An effective ID system also
to show proof of identity before a SIM can be activated, it makes it easier to authenticate clients for transactions.
is not surprising that surveys find SIM registration to be the Weak country-level ID systems have sometimes forced
major demand driver for ID, followed by know-you-custom- banks to develop their own solutions, such as Nigeria’s
er (KYC) requirements for financial accounts. Converse- Bank Verification Number; this raises the cost of doing
ly, mobiles can facilitate enrollment into identification business and discourages the onboarding of small custom-
systems—one example is digital birth registration in ers. In Peru and Pakistan, the financial sector accounts for
Pakistan through a partnership that includes Telenor and a major part of the verification service requests addressed
UNICEF, which has registered some 700,000 children. to the ID agency; fees for verification services can create
Similar programs have been launched in Tanzania, taking income for the agency, but if the charges are set too high,
advantage of the mobile agent network. they can drive banks back towards the (inefficient) solution
of creating their own systems.
Mobile amplifies and propagates authentication ecosys-
tems. Aadhaar relies on mobile for remote authentication, Mobile-Finance. Mobile and finance also have strong
while smartphones can provide an alternative to a card synergies, including in extending low-cost access to poor
and deliver powerful three-factor authentication using a customers. Before M-Pesa was launched, the average
combination of PINs and biometrics. Recent advances in distance to the nearest Kenyan bank was 9.2 kilometers,
the accuracy of face recognition open up a natural role for but eight years later, the average distance to the nearest
inbuilt cameras, but even a simple feature phone linked to M-Pesa agent was a mere 1.4 kilometers. Such an agent
an ID number can offer authentication through a one-time network will be needed for many years before economies
password. As in the India Stack model, mobile communi- and societies become truly cashless. Mobile wallets and
cations can expand the range of ID-based applications, disruptive innovations in digital payments have erased
including digital signatures and digital lockers as well as much of the transactional difference between bank
digital payments. These can be powerful service offerings to accounts and mobile money, other than the agent network.
encourage demand. VOCALINK offers an example with tokenized identifiers,
enabling real-time payments to payment addresses such
At the same time, efficient and accessible ID services
as mobile numbers or emails, as alternatives to national ID
lower the cost of business. Especially in countries with
numbers; this helps to bolster confidence because users
high levels of informality, potential customers often cannot
can transact without divulging sensitive personal informa-
provide KYC documentation such as proof of address;
tion. Rolled out as PromptPay in Thailand, the system now
countries have been slow to take advantage of improve-
has 40 million users.
ments in the rigor and coverage of their ID systems to
reduce such additional documentary requirements. Fully 1 https://economictimes.indiatimes.com/small-biz/startups/features/
digital ID can make onboarding banks’ and mobile network indias-fintech-companies-struggle-for-an-alternative-to-aadhaar/article-
show/67186586.cms and https://www.economist.com/business/2016/12/24/
operators’ clients still cheaper and faster through e-KYC; in
indian-business-prepares-to-tap-into-aadhaar-a-state-owned-fingerprint-identifi-
India, some estimates suggest that this cuts costs asso- cation-systemFigure 2. Citizens, States, and Digital Capacity
Supply-side driver
Demand-side driver Stronger implementation
capacity, savings, policy choice,
Both and real-time governance
G2P
subsidies
Convenience, choice,
and inclusion
Citizens JAM Demand for JAM State
Demand for JAM
P2G
taxes
Frictionless payments and
Risks: tax compliance Risks:
Exclusion, loss of Poor implementation,
privacy, or high excess costs, loss of
transaction costs trust, or bad policies
well implemented
In turn, providing digital financial services creates econo- In a sector dominated by men, women agents can play a
mies of scope for mobile infrastructure and agent networks. special role in encouraging other women to become familiar
In a study in Tanzania, half of the revenue flow from rural with mobile transactions. In these areas, well-designed
cell towers came from voice and data services and half policies and programs can add value to ID systems while
from mobile money services.2 Similarly, the opportunity working towards two widely shared goals of national policy:
to offer a bundle of services offers economies of scope women’s empowerment and financial inclusion.
to agents, who can spread their fixed costs across multi-
ple services. The implication for regulators is to open up Synergies with Government Programs
access to providing mobile money and payments services Digital ID, mobiles, and payments can facilitate govern-
while insisting on the role of the banking system to ensure ment-to-person (G2P) transfers and payments as well
financial soundness, and to do all possible to encourage the as person-to-government (P2G) payments and user fees
sharing of infrastructure and agent networks. Information for service. Conversely, the use of these mechanisms by
from well-identified payments data can also build custom- government can increase demand for these applications
er profiles to increase access to further financial services; and support the roll out of essential infrastructure (Figure 2).
DigiFarm has enrolled one million small Kenyan farmers,
Subsidies, Social Protection, and Other G2P Programs.
and virtually all have mobiles which can be used to cut the
Combining wages, transfers, and other payments to indi-
costs of acquiring information on their activities. With the
viduals, government payments typically represent around
building of receipt and payment records over time, some
12 percent of GDP in a developing country. A typical
have become eligible for small loans.
government may operate as many as 21 distinct transfer
Women and the poor face the greatest challenges in programs, each with its own payment arrangement. About
accessing mobile technology, although there is a growing half of such programs use some form of digital mechanism
body of literature suggesting several interventions which to disburse funds, but relatively few engage general-pur-
can overcome these exclusions. Some of the easiest pose channels such as bank or mobile money accounts or
solutions simply involve recognizing women and the poor offer beneficiaries a choice of payments service provider;
as potential customers—too often firms are concerned Brazil is a notable exception.
only with providing services to the “traditional” customers
Even if many beneficiaries are initially slow to move away
and fail to carry out the basic market research necessary
from cashing out their benefits as soon as they receive
for identifying the needs and preferences of new customer
them, there is clearly room for more strategic use of G2P
segments. The barriers to accessing mobile phones and
payment systems to encourage greater financial inclu-
those which impede mobile payments are intertwined, and
sion—to increase demand and support the further roll out
many of the policy solutions for one have positive spill-
of digital and financial infrastructure. India’s Direct Benefit
overs for the other. Conversely, having financial access
Transfer program offers one example, with all payments
can help to empower women, and mobile finance can also
routed through bank accounts linked to the unique Aadhaar
open up a role for women as financial agents, one that
ID number. This has provided the impetus to open over 340
some interpret as also having an element of social work.
million accounts through the government of India’s universal
2 https://www.gsma.com/mobilefordevelopment/wp-content/up- financial inclusion initiative. In addition to a unified approach
loads/2018/02/GSMA_Tanzania_Report_Jan.pdfTable 1. Policy Directions for Inclusion
No. Purpose Description
• Robust ID for all with strong authentication ecosystem
Access to ID and • Free, easy enrollment with minimum possible data requirements
1
building trust • Coordination with civil registration to facilitate updating
• Clear accountability for data protection, managing grievances, and handling technology failure
• Simplify KYC documentation around ID and move to risk-based KYC and e-KYC to cut onboarding costs
Access to finance and
2 • Level the playing field: uniform requirements for SIM registration and basic mobile money or bank
mobile
accounts
• Encourage universal access to at least 2G
• Cross-subsidize coverage through proceeds and conditions of spectrum auctions
3 Access to mobile
• Consider subsidies or tax breaks on feature phones; avoid excessive taxation
• Provide for number portability
• Allow non-banks (notably mobile network operators but also other businesses) to offer payments services
Access to finance, and
4 as a low-cost way to extend financial access to poor customers
trust
• KYC, along the lines of SIM registration subject to trust account arrangements and prudential oversight
Access to mobile and • Encourage shared infrastructure—cell towers, perhaps through tower companies—and agents
5
finance • Promote non-exclusivity to share fixed costs and facilitate expansion
• Encourage payments interoperability—once companies have begun to develop the market
Value and convenience • Support technology switch (like UPI) and encourage mutually beneficial interchange agreements between
6
of finance providers
• Encourage innovations such as tokenized addresses to increase convenience and trust
• G2P payments through common platform able to pay to any general-purpose financial or mobile account
Accountability and • Minimize cash and special-purpose channels, while recognizing that these may be essential in some areas
7
access to finance • Develop a common approach to paying for “last-mile delivery” through general-purpose instruments, and
for separating out identity verification from payments
• E-Payment Gateway to enable P2G payment for government-provided services to be made easily through
Value, acceptance and any account
8
convenience of finance • Enforce use progressively as financial inclusion increases
• Use Gateway and possibly other measures, to incentivize wider merchant acceptance of digital payments
• Avoid excessively high taxation of digital transactions that may discourage use and merchant acceptance
• Consider fiscal incentives to encourage acceptance, such as temporary VAT reductions on digital
Value, acceptance and
9 transactions
convenience of finance
• Review tax administration and audit requirements to reduce need for paper receipts and records, since
these undermine the benefits of moving to digital systems
• Use digital data to monitor implementation and performance of government programs (towards real-time
digital governance)
Value/access, benefits of
• Monitor beneficiary experience to ensure that poor and vulnerable groups are not excluded by digital
10 digital governance, trust
divide
in digital data
• Take steps to secure the large amounts of transactional and other data that will be generated by the use
of JAM
• Ensure that applications and interfaces are designed to meet the unique needs and preferences of
Access to ID, mobile, and
11 vulnerable and marginalized groups including but not limited to women, linguistic/ethnic/religious
finance
minorities, differently abled people, etc.
Capability for wider • Encourage partnerships, including with service providers, self-help groups and NGOs, to promote digital
12
access and functionality education and capacity across the population, in particular among women
to payments, two problems need to be addressed in order cashless water vending machines in addition to a range
to shift to such general-purpose channels. First, how to of government service programs. All such initiatives boost
pay for the last-mile costs of delivery? Incentives are crit- demand for finance, mobile, and ID, as well as increasing
ical—financial institutions will have no incentive to deliver the accuracy and accountability of in-payments to govern-
last-mile benefits unless they are adequately compensated; ment agencies by avoiding cash transactions at the point of
the case of pensions in Andhra Pradesh offers an example. service.
Second, how to handle beneficiary authentication? Proof-
Here, too, a strategic approach can be helpful. As for
of-life needs to be separated from payments, enabling more
G2P programs, in the early stages, individual services tend
flexible arrangements for the latter.
to develop their own customized approaches towards
Frictionless Service Fees and Other P2G Payments. The payments. As an exceptionally large entity, government
other side of the picture is the value of a strong payments can play a key role in developing the wider acceptance
ecosystem to facilitate services by removing frictions of digital payments by transitioning towards a common
and leakage from P2G payments, and from P2Provider system for accepting them; one example is Tanzania’s
payments more generally. East Africa has made consid- e-Payment Gateway, which enables customers to pay for
erable progress in this area, with services including virtually all public services via cards, internet banking, and
pay-as-you-go residential solar, mobile health wallets, and mobile money from any provider. Governments can also usefiscal measures to encourage wider acceptance, such as a the competition regulator; bodies overseeing financial
temporary reduction in VAT on digital payments and subsi- intelligence, credit, insurance and privacy/data protection;
dies to the initial acquisition of POS terminals, reducing a the environmental agency (rights of way for mobile infra-
setup cost that can be high for small businesses. Converse- structure); the ministry of finance (VAT, taxes on licenses,
ly, reforming outdated requirements to present paper mobile spectrum auctions, duties on imported equipment);
documents for tax purposes can encourage the take-up of and possibly a universal service agency. To this should be
digital systems. By shrinking the role of cash and moving added the range of government departments responsible
towards identified transactions, all such policies increase for services and programs. This formidable list points to
the demand for well-functioning ID systems. the strengthening of regulatory capacity and coordination
that will be needed as societies and economies transition
Leveraging the Internet for Inclusion. Even as there are
towards greater use of digital mechanisms. It is not practical
still financial constraints in extending connectivity to poor,
to cover all policy issues, but Table 1 sets out some broad
sparse rural communities, the market forces generated
policy directions for accelerating coverage—including
by higher-income consumer and commercial demand are
through increasing value and trust—that apply to many
driving countries towards ever-higher capacity networks.
countries.
This creates a huge opportunity—rents from spectrum
auctions and modest taxes on high-speed communica-
Principles for Use: Design and Technology
tions can be used to cross-subsidize basic service and
Turning to the use of ID, mobiles, and payments systems,
underwrite programs to actively encourage mobile and
emerging case evidence points to some critical questions
financial literacy for those needing assistance to navigate
that can be helpful in shaping proposals for moving towards
the system.
digital systems. Do they provide for universal access? Do
Policy Directions for Inclusion they embody clear accountability for performance? Do they
empower beneficiaries by providing them with choice over
These synergies argue for taking a strategic approach;
service provider and effective voice? Does the design of
the aim should be to avoid silos that ignore the impact
reform exploit the potential for favorable externalities, such
of decisions in any one area on the demand and supply
as gender equity and women’s economic empowerment?
conditions that shape access, functionality, and use in
Each of these elements has both a policy design and a
other areas. The multiple regulators, agencies, and author-
technology component that can be considered together to
ities in the space often include the telecommunications
achieve better developmental outcomes (Table 2).
regulator; the central bank (oversight of financial regulation,
interoperability, etc.); the consumer protection agency;
the department of home affairs (civil registration and ID);
Table 2. Digital Governance Principles: Design and Technology
Policy Design Technology
• “No person left behind” principle • “Bottom of digital pyramid” approach
• Address last-mile access issues and vulnerable groups • Ease of use
Inclusion
• Shift from generalized approaches towards personalized • Ability to reach last mile
interventions and instruments • Flexibility to facilitate progressive targeting
• Remedial alternatives if mainline approach fails
• Identify vulnerable people and processes to monitor • Use administrative data to document service
• Integrate clear human failsafe option and processes in transactions in real time and monitor service delivery,
Accountability
case of failure of technology including backup alternatives for example to identify cases of exclusion
• Resolve queries and provide remediation quickly • Link to performance measures, including from
beneficiary assessments
• End-to-end digitization of front-end delivery systems
• Offer multiple agencies/channels to access benefits as well as supply chains
(portability) • Use authentication capability of ID system to render
Choice
• Restructure incentives to encourage service and to service entitlements fully portable
promote competition between providers • Develop option for personalized choice over in-kind
to cash transition
• Personalized feedback systems including text
• Integrate digital feedback loop (both implementing messages, robocalls, interactive voice-response, etc.
agency and beneficiary) as well as user surveys of along with human interface
Voice
perception and experience • Ratings of service quality and providers
• Identify and address inclusion and accountability gaps • Integration in digital dashboards for monitoring,
accountability and redesign
• Assess technology access, capabilities, and gaps in
• Identify desirable externalities and combinations, for
terms of externality objective
example, women’s empowerment and financial inclusion
Externalities • Explore special measures to complement technology
• Design intervention to favor such outcomes in addition to
rollout to increase access and use (for example, financial
efficiency and inclusion
literacy classes for women)No Silver Bullet Technology is only a tool: on its own, it does not necessarily lead to better policies or to stronger implementation—and it can also be used to implement bad policies more effectively. Much depends on the objectives to which it is applied, and how well-implemented and inclusive are the systems that use it. This theme emerges clearly from comparative research, which also flags downside risks. ID systems can be used to exclude as well as include, and even well-intentioned innovations can increase the exclusion of vulnerable groups. The massive amounts of data generated by each of the three digital applications can facilitate profiling and tracking, including transactions records and location, and threaten privacy. And, while technology has the potential to increase state capacity and effectiveness, it imposes new demands on states and civil society, as well as capability requirements on citizens who need to be able to navigate new systems. Some of these risks can be mitigated by privacy-enhancing design; for example, enabling the use of tokenized identity to avoid a situation where one single number is used across all applications. The transition towards digital systems to imple- ment government programs will generate vast quantities of data, including identities, location, and transactions records. This can be helpful in monitoring the quality of service deliv- ery but raises the urgency of putting in place laws for data protection and arrangements to manage and safeguard public data. Many countries have already experienced huge and embarrassing breaches, and the situation will only become more urgent in the future. For more detail see Gelb, Mukherjee, and Navis, Citizens and States: How Can Digital ID and Payments Improve State Capacity and Effectiveness? Center for Global Development 2020, at cgdev.org/citizens-and-states
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