Financial institutions calculate their investments based on risk versus reward. One great indicator of risk in a new market is the process of identity verification. Can institutions be sure that the people they are transferring value to are who they say they are? A lack of verifiable identity results in higher losses from leakage, the misallocation of funds, and a far greater chance of loss from fraud. The more globally recognised forms of identity within a market, the easier it becomes to define the risk level of investments and new customers.
Developing nations have a higher proportion of unverified identities and undocumented citizens. Identity infrastructure is often inconsistent and relies on paper documents. This means that companies are unable to operate in emerging markets, due to risk.
This reticence leaves over a billion people unable to access credit, investment and other financial services that form the bedrock of economic development in wealthier countries. It hampers their personal financial growth and leaves a gaping opportunity for institutional-level investment in emerging markets.
Reducing the risk of unverified identity to zero unlocks the opportunity for investment in the developing world and the personal empowerment of its people.
Holding back development
In economically developed societies, identity verification seems like nothing but a dutiful step of admin: forms and photos and a card in a wallet. It’s there to affirm and corroborate whenever you require. In emerging markets, the infrastructure that identity is built upon is not as reliable. Central authorities do not have the means to issue identity verification to every citizen and when they do, the identity documents are often not internationally recognized.
The lack of verifiable identity in emerging markets is a crucial factor in the disproportionate levels of economic development in the world. It is a huge barrier to economic efficiency, affecting individuals at a micro-economic level, and nations at the macro-economic level. Proof of identity becomes a bottleneck at every financial transaction as it is inseparably intertwined with ownership and rights.
People whose births were unregistered are less likely to receive an education, less able to access healthcare and financial services, and, as a result, are unable to participate in the formal economy. There are currently over 1.7 billion people without access to a bank account. Identity validation is one of the root causes of all of these issues.
The World Bank writes:
Providing people with a valid ID is essential to access financial services. Without a proper ID, it’s not possible to shift large payment flows like social benefit transfers and wages into transaction accounts. In countries where several ID documents are needed to open an account, financial inclusion efforts haven’t made as many inroads as in those countries where this process has been simplified. ^1
Digital identity and value transfer are also a gateway to other financial services. Economic development requires investment at the institutional level but banks, organisations, and institutions are risk averse. Unverified or poorly documented people represent risk and expense. This prevents major institutional level growth in emerging markets.
Unlocking the opportunity in emerging markets
Global, device-free biometric identity will reduce the risk and the cost of verifying users. Financial records and risk factors can be measured and shared, allowing access to credit, insurance and financial services for billions. Companies are currently unable to accept customers in emerging markets because the process of identity verification is simply cost prohibitive.
“Most businesses, including banking and insurance, are required by law to meet KYC requirements. The average cost of such a service is around $100 per customer. This is repeated in each bank or insurance company that people do business with.^2”
Everest is providing a digital identity, EverID, and blockchain based value transfer infrastructure, EverChain, that will give half the world an entry point to the global economy and digital marketplaces. It makes user validation fast and cost-effective. It costs just a few USD cents per verification and can handle a volume of 1-10 billion transactions per month – with the ability to scale to trillions.
Economic development, beyond informal economies, relies on access to global systems and institutions that facilitate growth through credit and investment. As well as giving smaller communities the opportunity to create and distribute wealth, it creates a huge institutional opportunity for growth through an unrealized market of billions of people and trillions of dollars.
Smoothing the process of identity verification and value transfer will have remarkable consequences for emerging markets, at the institutional and personal level. For example, farmers in Ghana and India – among other countries – who have rainfall insurance, have increased their investments in fertilizer, seeds, and other inputs.^3
Identity has opened up new, valuable avenues of investment and forms the starting point for faster, sustainable economic development in emerging markets. The power of identity is key to unlocking the global digital economy. Removing the risk of unverifiable identity will allow the institutional development that promotes global economic growth.
Everest is already making that happen by making the process of identity verification universal and efficient. We’re currently onboarding over millions of people onto the platform. Discover how Everest will unlock a global opportunity in our whitepaper.