Digital ID: Improving financial access across Latin America

Globally, over a billion people are unable to prove their identity, barring their access to crucial services like healthcare and education, as well as to job opportunities in the formal economy.

The gap relates not just to identification – but also authentication.

While most people possess some form of ID, some 3.4 billion people are still unable to make use of it online, due to an inability to verify or authenticate their credentials, the World Bank Group estimates.

These key financial exclusion factors have attracted the attention of financial and digital experts in Latin America – a large region where emerging economies tread a fine line between rapidly advancing infrastructure and endemic poverty.
Regulatory calibration
In Mexico, the central bank is working with government agencies to make sure all citizens have some form of ID, whether digital or physical. While these initiatives are progressing fast, “we cannot guarantee a physical ID to all Mexicans,” says Antonio Casada, Vice President of Regulatory Policy at the National Securities and Banking Commission.

This realization, however, paved the way for digital ID solutions. In 2017, the Mexican government issued a regulation enabling banks to perform biometric authentication. Other banks now want to extend to facial recognition and other, more sophisticated proofs of life.

Another challenge for Mexico is dealing with the identification challenges of north-bound migrants from across Latin America.

“Different banks took different approaches, making it difficult for migrants to receive funds from international aid organizations during their time in Mexico,” explains Casada. “We had to amend our regulations to allow banks to use national passports issued by different countries.”

Regulatory calibration is the way forward, he added, pointing out how modifications to accept foreign passports in the country has allowed Mexican citizens to do digital onboarding to use financial services abroad, too.
Seeking synergies
In Brazil, central bank official Adriano Sekita estimates nearly 85 per cent of the population has an identity document. While this might sound like a positive statistic, it means no less than 2 million Brazilians still lack ID of any kind, leaving them without access to any financial service or social assistance, he said.

Still, Sekita notes an uptick in Brazil’s offering of digital financial services lately.

“The number of digital banks and fintechs (financial technology companies) authorized by the central bank has increased overall,” he observes. This makes e-KYC (“know your customer”) and other digital onboarding services increasingly essential at local banks and financial service establishments.

The latest regulations enable new types of institutions to engage fully the in financial sector. Stiffer competition and more diverse financial products translate into greater financial inclusion, Sekita says.

Stronger links are needed between regulators and the public and private sectors, while the central bank must further improve its governance framework, he adds. “We have not yet fully engaged in partnerships to build new solutions in a collaborative way, and have not benefitted yet from potential synergies.”
Private-sector insights
Jorge Arbesu-Cardona, Senior VP of Cyber and Intelligence Solutions at Mastercard Latin America, takes a broader view, raising the question of how to standardize a global, reusable digital ID. Standardized data inputs are just like the information fields found in a physical passport, Arbesu-Cardona suggests.

Smartphone data could form another part of the answer – assuming users will agree to share and validate their information through biometric rather than physical authentication.

But how can financial providers keep personal data safe? Companies experienced in encryption are pivotal in making the exchange of data secure. But being entrusted with customers’ data is not entirely new. Major credit-card brands perform billions of such transactions daily, Arbesu-Cardona notes.

The government of Panama, for instance, has partnered with Mastercard to align technology acquisition with key digital priorities, from disbursement of social programmes to anti-money-laundering (AML) and financial crime intelligence. Digital ID relates to all these components for the country of nearly 4.5 million people.

Despite this relatively small population, Panama forms a major hub for international trade, travel and migration. Just like in Mexico, digital ID will be pivotal to ensure financial inclusion for incoming migrants, Arbesu-Cardona says.
Balancing integrity and inclusion
Ease of access must always be weighed carefully against complex procedural requirements to protect the banking and financial system as a whole.

“Balancing the needs of integrity and inclusion is a key question,” says Fredes Montes, Senior Financial Specialist at the World Bank Group. While these two considerations are not mutually exclusive, one can come at the cost of the other.

The digital ID toolkit found in the G20 Digital Identity Onboarding report, coordinated by the World Bank, should help not only to design inclusive national policies, but also to implement them in practical ways, with sufficient consumer protection and financial risk mitigation, says Montes.

In Casada’s view, the toolkit will help authorities across Latin America identify key policy aspects necessary to scale up digital ID use, becoming a “valuable guideline to strike the right balance.”

Whichever way countries decide to use the toolkit, adds Arbesu-Cardona adds, “the bridge between digital [uptake] and financial inclusion will be some sort of digital identification.”

Based on a panel discussion during the 2021 Financial Inclusion Global Initiative (FIGI) Symposium.

The FIGI programme is a partnership of the International Telecommunication Union (ITU), the World Bank Group, and the Committee on Payments and Market Infrastructures (CPMI), with support from the Bill & Melinda Gates Foundation.

The World Bank leads FIGI’s working groups on Digital ID and Electronic Payment Acceptance. ITU leads FIGI’s working group on Security, Infrastructure and Trust.

FIGI findings and reports are available on the FIGI resources webpage.