ID systems and the public purse: What do they cost, and what do they save?
By Julia Clark, Kamya Chanda and Sarah Wolfe
An estimated one billion people globally lack official identification. This matters for development: often, the poorest and most vulnerable people are those without any means to prove who they are in a secure and trusted way. As a result, they face barriers to accessing critical services, economic opportunities, and exercising their rights.
Increasingly, countries have adopted digital identification (ID) systems in order to fill this gap. However, while identification systems can provide substantial benefits, they can come with a hefty price tag. To date, there has been little systematic analysis to unpack these costs or the expected gains from identification at a national level. As a result, countries have often struggled to make informed decisions when it comes to investing in these systems, given the limited understanding of the cost and savings implications of certain choices, such as the technologies to use or the institutional arrangements.
As part of the Identification for Development (ID4D) initiative, the World Bank recently released a series of tools to support countries in conducting cost-benefit analyses of ID systems. This includes a costing model to help countries and other practitioners estimate how much an ID system could cost based on design choices and country characteristics, and two complimentary reports on how digital ID systems can save money and generate economic benefits in the public and private sectors.
Together, these resources offer important insights for governments on the design features of ID systems that are likely to generate the highest return on investment.
What will an ID system cost?
The costing model and report are based on data collected from 15 countries with varying levels of development and diverse approaches to identification. In these countries, six cost categories contributed to over 90% of the overall expenditure during the start-up phase of the ID project: human resources, the credential (i.e. the card), enrollment infrastructure, central IT infrastructure, physical establishments (e.g., for enrollment), and information and awareness campaigns.
Within each cost category, the level of expenditure was driven by: (1) country characteristics and (2) design choices. These country-characteristic drivers highlight the fact that costs are highly context-specific. For example, the average wages within a country will impact human resources expenditure, one of the largest cost categories.
While country characteristics are largely out of the control of ID system designers, stakeholders have the ability to influence the cost of these projects through five high-impact design choices:
Credentials have the greatest cost variation, ranging from a projected 10% of costs for basic ID cards to nearly 40% for cards with integrated chips (i.e., “smartcards”).” Stakeholders must choose the best option that fits their country characteristics (e.g., internet coverage and use cases).
Linkages between civil registration (CR) and ID can generate savings by using common staff and existing infrastructures and improving the accuracy of identity data over time, which reduces the need for future (costly) updating exercises. Although linkages can improve efficiency and robustness, they also have consequences for data protection and privacy, which must be addressed from both the CR and ID angles.
Adopting biometrics (e.g., fingerprint, facial, and iris recognition) can help uniquely identify the population, but also increases enrollment time and requires capture and scanning devices and complex software, all of which can be expensive. While the use of multimodal biometrics increases these costs, it can strengthen the accuracy and inclusivity of biometrics, particularly in larger populations. Biometrics also present particular data protection and privacy challenges that need to be comprehensively addressed.
The number of biographic fields collected during enrollment affects the length of enrollment procedures and associated staff time for collection and validation. Collecting a minimal amount of data reduces costs and aligns with best practices in terms of privacy and data protection.
Enrollment timelines for the start-up — i.e., mass registration — phase also have a significant impact on costs. A short timeframe to enroll the population requires a widespread distribution of enrolment stations, trained staff, technology and connectivity, leading to higher costs.
How can identification generate savings?
Investments in ID systems may be significant. However, complimentary reports on public and private sector savings demonstrate that they can also have clear fiscal benefits, which — over time — may equal or vastly exceed the initial investment.
For the public sector, ID systems with sufficient coverage and robustness can save money or increase revenue inflows through multiple mechanisms, including: reducing fraud in Government-to-People (G2P) transfers, reducing administrative costs, and increasing tax collection.
For example, by establishing unique identities and facilitating interoperability, ID systems can identify ineligible beneficiaries and eliminate duplicates and ghosts from public programs, while secure authentication mechanisms can prevent impersonation and leakages. In Uganda, verifying the identities of civil servants against the national ID database reportedly saved the government US$6.9 million in less than a year by removing some 4,664 ghost workers from the public payroll.
Many companies — including those that provide banking and financial services, mobile operators, digital commerce platforms, airlines, and more — must also verify and authenticate the identities of their users at various points in the customer lifecycle. For this reason, robust ID systems with high coverage can create substantial benefits for the private sector and broader economy, including by decreasing costs and expenditures, increasing revenues, and building a “business friendly” environment.
For example, trusted IDs can save money for firms by reducing theft and fraud, decreasing administrative and transaction costs for customer onboarding as well as the compliance and liability costs associated with managing personal data. By increasing the number of people with a proof of identity, ID systems with high coverage can increase firms’ customer base and decrease abandonment and rejection while applying for a new service or product. In Pakistan, Telenor leveraged the national ID and government-mandated SIM registration to double the customer base for its Easypaisa payments service in less than a year.
For a more detailed description of these mechanisms, country examples, and a guide to estimating savings from ID systems, read the full papers here and here.
So where should countries spend, and where can they save?
By looking at the main cost drivers behind ID systems and the opportunities they create for public and private savings, we can draw some universal lessons for where to invest, and where not to.
First, the savings mechanisms described above for the public sector are enabled by four key features of ID systems: (1) transitioning to digitized systems; (2) creating unique identifiers for the target population; (3) integration and interoperability between different identification systems; and (4) leveraging digital authentication. Additional features of ID systems that also benefit the private sector include (5) the ability of firms to query government ID systems, as well as (6) carefully-planned and implemented public-private partnerships.
Second, these features are only likely to generate significant benefits when ID systems have high coverage and robustness — if a large portion of the population is excluded from the ID system, or if data is inaccurate or insecure, the fiscal and developmental benefits of identification are limited. Together, this implies a few universally recommended investments that are likely to yield the highest return on investment:
Coverage: Ensuring universal coverage of an ID system is paramount to its success. This will require line-item investments in sufficient enrollment infrastructure, human resources, and outreach and information campaigns, as well as a concerted effort to identify and mitigate legal, social, and economic barriers to enrollment through program design and the enabling environment.
Robustness: Establishing unique identities, collecting high quality data, and ensuring data privacy and security are all well worth the expense. Low quality data and insufficient security measures will incur more costs in the long run by necessitating future data collection and increasing the probability of costly data breaches. For example, when investing in biometric technology, countries should adopt sufficient modalities to minimize errors and ensure that the data is adequately protected from both internal and external threats, even if short-term expenses are high.
Digitization: Digital ID systems decrease the time and costs associated with identity management and identity verification for a large number of transactions, with enormous potential administrative gains. Digitization also reduces the potential for human errors that decrease robustness, and enables other cost-saving system features, such as unique identifiers, interoperability, and digital authentication.
Linking civil registration and ID: Creating synergies between civil registration and ID systems can create administrative efficiencies and increase the long-term accuracy of data — e.g., removing deceased individuals from the population register — in the long term. Furthermore, coordination between civil registration and ID is crucial for ensuring lifetime legal identity for all (in line with SDG 16.9).
Engagement with the private sector: Adopting ID system features that are useful for the private sector — such as platforms that facilitate data queries — can have large positive impacts across the economy.
Third, collecting lot of data is a universal cost inflator, with few fiscal benefits and large privacy risks. Collecting dozens of data fields increases potential infringements on privacy, lengthens the enrollment timeline, and reduces the accuracy of data in the long-run without frequent updating exercises. Minimal data collection decreases costs, increases the robustness of the ID system, and complies with “data minimization” principle embodied in the Principles on Identification for Sustainable Development and privacy frameworks such as the GDPR.
Fourth, short enrollment periods (e.g., ~1 year) are also a universal cost inflator, but very long timelines will delay benefits. Shortened timelines require more resources upfront, and hasty enrollment can lead to data entry and exclusion errors. At the same time, longer enrollment timelines can also delay some of the benefits of ID systems that generate savings (e.g., enabling better identification for cash transfers), and may decrease support for the project. The ideal timeline will vary according to country — stakeholders should attempt to strike the right balance or stagger roll-out so that some benefits are operational at an earlier stage.
ID systems may have a big price tag, but if done right, are likely to have a high return on the investment. Understanding the link between cost drivers and savings can help countries make smart investments in ID systems that maximize benefits across the economy while creating an inclusive and trusted foundation that will support development goals for decades to come.
