It may surprise you that only half of the world’s population currently have access to the internet. That’s 3.5 billion people who are completely disconnected from the web and all of the opportunities it affords.
But even more worrisome: there are one billion people who are completely undocumented — one billion people who effectively don’t exist according to public records. For these people, there’s no credit score, no tax records, no education, income, or employment history. Nothing.
One billion people in today’s world are, by all measures, unseen, unrecognized and virtually non-existent for any government or large institution, even as basic as a bank. There are one billion ghosts in 2019.
Underlying this is a fundamental problem: governments, banks and other large institutions have not treated the concept of identity with requisite gravity as an essential part of citizenship. The establishment’s current understanding of identity is no longer compatible with the reality of living in the 21st century.
If you ask most people what they understand by “identifying yourself,” they would likely pull out a driver’s license or possibly a credit card. This simple activity means little to us living in the developed parts of the world, where identity infrastructure, invisible as it may be, makes our lives livable. It’s difficult to convey to those who take identity infrastructure for granted how difficult it is to go through day to day life without this system— how difficult it is to make money, find work, pay bills, send money to family who need it even more, or support children on your own. Identity, like gas, requires infrastructure provided by trusted 3rd parties — mostly Federal Government institutions, whose physical tokens (IDs) function as proxies that bestow their trust upon the individual. Without this infrastructure, you are locked out of many of the basic functional features of living in a civilized society.
Trust is central to the concept of identity. We all need to trust that the institution that issues documents is the right entity to do so (Costco cards are not used at airports for this reason). We also have to trust that the document itself is not easily tampered with or falsified.
Once trust regarding the identity of a person is established, a number of goods and services unavailable to an unidentified person open up. For instance, goods such as alcohol are available only to consumers who can prove their age. The same goes for buying a car and driving it. Access to goods is great, but to turn the 1 billion ghosts into bona fide citizens — citizens of not just their respective countries, but of the globalized world in which we live — the access to services is of the highest importance.
The concept of “Banking the Unbanked” has become a popular moniker for the process of reaching the people off the banking grid; however, this movement mostly focuses on — as the name suggests — turning ghosts into financial services customers. While access to cheap and fair financing is most definitely a way to improve the living conditions of millions, it cannot happen until the creditor has identified the credited party. Ghosts are currently not offered credit cards — or any other type of credit for that matter — so flaunting financing as the solution to the development of the poorest areas is like trying to sell cars in a place with no roads or gas. Of course, there are companies that do in fact try very hard to distribute financing on the little data they can scrape, but those channels are small and largely unreliable, which is why the world’s largest credit companies and banks are not racing to service those demographics. This phrase, Banking the Unbanked, also implies that banking access is the main problem to solve. However, lack of formal identity information implies something far more uncomfortable. What goes along with a formal identity is a citizenship, and without it, ghosts are anything but.
Limits to the Current Infrastructure
So, before we devise a way to create cheap and fair financing in underdeveloped countries, it is imperative that we first create and implement a way to locate and identify every single living ghost. Only then will we understand their needs, and more importantly, be able to provide them with a cost-effective solutions to gradually improve their quality of life.
As with all things, proper incentives need to be in place in order to maximize the chance of success. The sad truth of this particular issue is that primarily our governments have been charged with the burden of identifying their citizens. This produces costs for those public institutions, and few politicians wish to run on platforms of mass identification programs over other issues like health care or taxes. Although great benefits in data collection come with these types of projects, the benefits rarely outweigh the costs. The fact of the matter is the government can’t do it alone. Identity data and its accompanying infrastructure, like any other infrastructure or utility, requires partnerships with a host of industrial companies, from constructing it, distributing it, to management.
For instance, building a 100km road to reach a secluded town and its population is expensive, prone to corruption in many regions, and fraught with complex bureaucratic processes. Once the project is concluded and the road reaches the town, other major services need to be established. In the case of financial services, a bank would need to consider the possibility of opening a branch in this newly connected town and start offering services. This process involves several “interest groups”, from government to private enterprises. In many cases, having multiple interests with different incentive structures can compromise the ultimate success of a project since interests are harder to align and proper oversight is harder to execute. However, this does not mean that public-private enterprises are doomed to fail. On the contrary, the use of existing government infrastructure added with the speed, agility and ingenuity of the private sector is exactly the formula necessary to identify ghosts at scale.
Private companies have great incentives to undergo these types of projects, however this does not come without a greater risk for mismanagement of the information or prioritization of one demographic group over another. Also, like with most things, a fair compromise is needed from all parties.
The Indian government recently attempted to solve this issue with the “Aadhaar Project”, by which they opened a voluntary program for citizens to create a unique digital ID number and also the citizen’s biometric signatures. Through Aadhar, Indian citizens could link a bank account to their unique ID in order to access government subsidies, which had historically been subject to corruption and mismanagement.
Nandan Nilekani, the founder of one of India’s largest tech company, Infosys, makes the precision in an interview to Knowledge @ Wharton: “Their Aadhaar numbers will free them from the “poverty premium” — or bribes — they pay to access everything from food, jobs and loans to cell phones”.
The number of factors that need to align to allow for a regular person in a town with low infrastructure development to access a bank is enough to make most projects of this nature not viable. Consequently, there is a virtuous cycle that locks people in ghost towns, leaving them unable to connect with the rest of the world, and leaving institutions and politicians with the difficult task of solving this catch-22.
This, I believe, is where true disruption will occur in developing nations. Once the entire population is reached, identified and provided with a means to reach services they would not otherwise have access to — only then will these ghosts be able to climb out of underdevelopment at the same rate as the rest of the world is moving forward, without the need to wait for local governments to find the political and financial incentives to turn them from ghosts into citizens.
Identifying the right tool
However, the ghosts of yesterday did not have a tool available in many places where today’s ghosts currently live: the cellphone, and more recently, the smartphone. Smartphones today are easily available, even in underdeveloped nations. They standardly come with cameras, microphones, speakers, and — most importantly — access to the internet, which has become ubiquitous in most countries, regardless of their infrastructural connectivity.
The smartphone allows for any person who is too far away from a service provider’s branch office to access those services online. This is where the concepts of identity and trust come back to the fore. The signals a service provider can read from a smartphone — such as IP address, geolocation, time since charging — are not enough to create trust between the service provider and the person holding the device. There are many clever companies that use such signals in order to extend small loans, but this is far from addressing the actual problem.
Providing a service online has an inherent risk that “brick and mortar” services and stores do not have to manage: is this person who they claim they are? Such risks may seem trivial, but online, a skilled hacker can “come into” your store thousands of times in a single day and incur massive costs by testing out stolen credit cards. There are many other examples of fraud that are downright counter-intuitive to a region less familiar with digital tools.
So, in order to align the interests of the parties involved in providing a service to a ghost, a ‘layer of trust’ is needed between them in order to de-risk the fact that the service is provided online to a nondescript user. Service providers have little incentive to risk providing a service or delivering a good to a person online unless they have the right type of assurances that the person they are interacting with online is in fact who they say they are.
This solution is not without its glitches; however, these glitches pale in comparison to those encountered when trying to reach ghosts by current methods. For starters, the technology employed must be accessible to every ghost out there. That means cheap smartphones and affordable internet access. Then, the right form of identification must be chosen. Iris scanning is very secure, but it requires very high-end cameras in order to work properly, and thus excludes most ghosts. Fingerprint scanning is more common on today’s smartphones, but is considerably less reliable. We at Mati have found that the best way to attack this issue is by creating modular identity architecture that can easily adapt to different regions in order to provide flexible identity for all. Scalability is critical.
Identifying 1 Billion Ghosts
Most entrepreneurs are (correctly) focusing their attention on offering people in underdeveloped countries the means to access services, jobs, or gigs outside of their geographic location by using a smartphone. Empowering people through these means is great, undoubtedly, but it leaves out the central purpose of identity. Moreover, some of these companies do not actually empower the user outside of their use of the platform; they often focus primarily on obtaining more customers for whichever service or product they offer.
A good example of this is Uber (and many sharing economy businesses). Uber does not employ their drivers, but rather allows them use of their platform, for a price, which allows them to access ‘gigs’. Users are encouraged to enter reviews for each driver. The cumulative reviews over time become a ‘score’ that reflects the level of service each driver provides. The catch is, drivers cannot use that ‘score’ for anything outside of Uber. However, driving people from “a” to “b” is a service industry, and people who provide great customer service have a transferable job skill into a different industry, like tourism, or the restaurant industry.
Identity is more than your name, address and SSN, or a picture ID you can pull out of your wallet, although that is the understanding that we have operated on for the past hundred years. After all, this same old infrastructure has allowed 1 billion ghosts to live among us, unseen and unnoticed.
We no longer need to answer just the question of “Is this John?” We now have the need and the ability to ask: “Is this John? Is it really him, or is it possible someone is impersonating him? Where does he live? Where does he work now, and where has he worked before? Does John repay his loans? If he didn’t in the past, might he be able to currently?” And so on and so on. The possibilities that arise when we can answer those questions are endless.
All of the factors above lead to a simple, yet powerful realization: identity is upstream from financial services. Most financial services think of a product to start their incursion into underdeveloped nations, thinking for instance, “Mexicans currently buy X type of goods on credit at X rates. Therefore, better credit rates will allow for more people to buy said goods, thus, opening them up to the financial services industry.”
In the example above, credit is used as the “hook” by which these particular financial service providers approach the concept of appealing to a larger demographic. In most instances they will advertise the service through wider channels, but they will identify the final consumer at the point of sale, analyze them, and determine if they apply to the user. This will lead us, inevitably, to the conundrum mentioned earlier — that is to say, the need for a 100km road to offer a ghost a given service, with all that entails.
The remote identification of the final consumer via a smartphone eliminates all of this. Tools such as biometric verification on the phone, verifying data against government databases, and others, are the true way to “bank the unbanked” — to identify the ghosts.
This will be the way we eliminate 1 billion ghosts and acknowledge them as citizens in the global village we all want to live in.
By: Carlos I. Ruiz de Velasco T.
CLO at Mati