Invisible without Identity: Biometrics and Financial Inclusion in Africa
Leveraging existing biometric initiatives across the continent will propel financial inclusion forward.
As many as 1.1bn people live without basic proof of identity, according to a recent study by the World Bank. Proving one’s identity is a critical enabler in any society and allows access to services such as healthcare, government grants, and education. It is doubly important for the financial sector, where the absence of proof of identity makes it nearly impossible to open a bank account or collect remittances.
In Africa, proof of identity is a barrier to engaging in the formal financial sector. The graph below (based on Findex 2017 data) shows the percentage of adults without an account at a financial institution who stated that the reason for not having an account was due to a lack of documentation. In some cases, a lack of identification led to 40% of the adult population being denied access to financial services.
No identity, no service
Why is the absence of proof of identity such a barrier to financial inclusion? Potential account holders have to provide a multitude of documents to comply with the requirements of financial service providers such as consumer due diligence and know your customer. Many poor people lack these requirements but there are solutions that cater to everyone, such as biometrics.
In its simplest form, biometric identification is a way to identify individuals based on physical or behavioural traits. These can include fingerprint, facial scan, iris, hand geometry, or behavioural data such as movement patterns, place of work, and even social media activity.
For consumers, biometrics are more convenient. They don’t require individuals to have a multitude of documents that are easily lost, damaged, or never delivered in the first place.
For providers, biometrics form a significantly more robust form of identification than paper documents and proof of address. Highly resistant to fraud and falsification, they provide a more reliable way of confirming a consumer’s identity, leading to improved risk mitigation measures and, therefore, lower compliance, operational, and credit risks. There is a cost dynamic as well. It’s cheaper to do a once-off scan of an individual’s fingerprint rather than continuously storing, updating, and searching for documents and other sensitive information.
For the financial inclusion sector, biometrics can be used to authorize access to personal data, pre-populate forms and agreements, and verify signatures. Something this simple can transform the relationship between the financial sector and consumers while opening the door to a wider range of financial products. In essence, biometrics make the consumer interoperable with the broader financial system.
Challenges for biometrics in Africa
The implementation of biometrics has been slow and fragmented in Africa. The cost of setting up and managing a biometric system is prohibitive for many countries. In India, the national biometric identity system, known as Aadhaar, has overcome this hurdle thanks to the private sector recognizing the value of biometrics, as well as public funds. Aadhaar can be used for many different services across the economy, such as opening bank accounts, withdrawing money from ATMs, applying for a driver’s license, and receiving government subsidies.
In Africa, most biometric identity systems are set up in siloes to serve specific industries, limiting use cases and undermining the scalability of the system. For example, in Ghana and Nigeria there are separate identity systems for voter registration, financial services, health insurance, driver’s licenses, and national security. Users are required to have multiple biometric identities, each one relevant to a specific use case. This undermines the scalability of the system and thus its viability.
Leveraging existing biometric initiatives opens the door to the possibility of harmonizing disparate identity systems within and across different jurisdictions. This has the potential to greatly increase the use cases and value propositions of biometric identity systems. The aim is to leverage these disparate systems to create widespread and robust identities for consumers that will have an impact on their ability — especially those who are vulnerable — to access key services, including financial services.
The article was written by Barry Cooper and Matthew Ferreira. A version of it was originally published by Cenfri on April 20, 2018.
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