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How digital identity could unlock Nigeria’s economic and social potential

 

Biometrics and digital ID

The potential benefit that digital identity could bring to financial services, e-commerce and government in Nigeria are explored in a new report commissioned by Nigerian verification firm VerifyMe.

Digital ID in Nigeria: State of the Industry’, conducted by Dalberg Advisors, which specialize in sustainable development, examines the current situation for national identity, digital identity and the interplay between Nigeria’s various functional IDs as they are gradually harmonized into a National Identity Database (NIDB).

Esigie Aguele, VerifyMe co-founder and CEO notes that he hopes the report will “provide a comprehensive snapshot of the Nigerian digital identity ecosystem, but we also believe it will promote standardisation and build capacity and collaboration within the Nigerian industry.”

The report is pro private sector involvement for developing digital economy ecosystems as well as benefiting from them, and highlights how resolving issues of trust, credibility, regulation and enforcement will be highly beneficially to Africa’s second-largest economy. But it stops short of addressing the risk of corruption.

Digital identity status quo

The National Identity Management Commission (NIMC) recently announced that 15 percent of Nigerians have both an e-ID card and National Identity Number (NIN) while around 30 percent have a NIN (66 million) but not e-ID card.

More than 100 million Nigerians, a little less than half the population, do not have any form of recognized ID, including other non-NIN ID, states the report. The average for Africa is around 40 percent, according to the World Bank.

The digital ID card has multiple inbuilt features such as enabling travel within the ECOWAS bloc and can receive funds from other individuals’ bank accounts, receive government social security payments, make payments at point-of-sale terminals and online merchants via a 4-digit PIN as well as withdraw and transfer funds at ATMs.

The chip holds biometric data plus the holder’s Primary Account Number (PAN) and Card Verification Value (CVV) for Mastercard payment.

The next generation of card will offer further features in step with the overall plan to centralize (generally referred to as “harmonize” in Nigeria) at least 19 government agencies. According to the report, harmonization “presents a remarkable opportunity to dramatically reduce the cost of identity management on a governmental level through the integration and interoperability of databases across various agencies and departments. The harmonisation framework is well-designed and makes provisions for clear linkages between functional ID systems and the NIDB in ways that do not compromise personal data via unauthorised use.”

Future cards will therefore integrate with the Federal Licensing Road Agency for driver’s licenses, the Independent National Electoral Commission to enable e-voting, the National Insurance Commission (NAICOM) to issue and renew insurance policies and schemes, and the Federal Inland Reserve Service (FIRS), states the report.

Why is the country only at 15 percent eID registration?

Despite hundreds of millions of dollars of World Bank funding on top of Nigerian government spending, registration is still low, despite attempts to strongarm the population to enroll for NINs via compulsory SIM registration.

The enrollment process is perceived by some to be too lengthy, enrollment centres are concentrated in city centers (Nigeria is 48 percent rural and peri-urban), gendered cultural norms and divisions in labour, access to funds, and access to transport likely play a role in the fact more men than women are enrolled in digital ID in most areas of Nigeria.

A lack of interoperability across legacy functional IDs prevents shortcuts to populate the NIDB and NIMC’s harmonized databases and is raising concerns about data integrity.

Users have limited incentives for uptake, according to the report, as most residents find enough utility in the functional IDs they already own and any consequences for not enrolling in digital ID have been loosely enforced.

“Nigeria has mandated that SIM cards be linked to NINs in order to continue mobile phone service, and that BVNs be linked to NINs in order to maintain a bank account. Enforcement, however, has been lenient,” states the paper.

This is unfortunate as the paper also find that “the Central Bank’s digital ID, the BVN, has achieved the most success in this regard and can serve as a model of what efficiency gains digital deduplication can have. The BVN system does an authentication check to ensure a user’s identity data has not been previously registered and links all financial products any resident uses to a single BVN.”

The potential benefits: economy, commerce, governance

Nigeria’s digital economy contributed almost 18 percent to real GDP in Q2 2021, according to the Ministry of Communications and Digital Economy, as quoted, and will continue to grow.

The paper quotes the World Bank multi-country study on the value of digital ID in seven focus countries. It found that by 2030, digital ID could add up to 7 percent of current GDP

to Nigeria, primarily through extending digital cash flow and banking tools for informal micro-businesses, and by reducing taxation fraud via improved digital record keeping and collection. The contribution to GDP in other countries was estimated to be 6 percent in Ethiopia, 4 percent in the United States, and 3 percent in the UK.

Looking at tax in a little more detail, the report finds that Nigeria has one of the lowest tax-to-GDP ratios in the world, managing just 6 percent of GDP compared to Africa’s next largest economy, South Africa, whose ratio is 25 percent. 72 percent of Nigeria’s 69.5 million overall employed are non-compliant and 62 percent of 120,000 registered businesses do not pay any form of tax at all, finds the report.

Nigeria is Africa’s second largest ecommerce market and 25th worldwide. For ecommerce and transactions, the report includes a vast array of figures for growth, propelled by COVID-19 pushing more transactions online. “Nigeria processed NGN 58.8 trillion (US$155 billion) of electronic transactions between January and March 2021, … volumes of e-payment transactions reached 366 million in 2020, a 57 percent increase from 232 million in 2019. In value, this translates to NGN 31.2 trillion ($81.6 billion), up 28 percent from NGN 24.2 trillion ($63.3 billion) and 18 percent of total GDP.”

But on the flip side, 2020 saw a 186 percent increase in overall financial fraud and a 330 percent increase in mobile payments fraud year-on-year.

Despite the BVN, KYC is a significant bottleneck for the country, and something which holds back finance, e-commerce and even government services.

Recommendations for reaching the digital ID panacea

The report has five recommendations for progressing NIN and eID adoption and reaping the benefits.

First, VerifyMe recommends assessing and leveraging legacy systems. Existing functional IDs have large user bases, and determining their value and connecting them to the NIDB and NIN could increase coverage. The country should find ways to incentivise adherence to regulation, public awareness, plus stricter enforcement for not complying to foster longer term trust in the digital economy.

Linking to an international digital economy is an opportunity to push regulation and implementation. Promoting regular dialogue between the private and public sectors would allow the country to make the most of its stronger sector.

Finally, the “government and private sector can continue to design and shape collaborations in order to leverage data from digital identity systems that advances the public good. By aggregating and anonymizing certain datasets, both government and the private sector can actively contribute to building and shaping a more robust data ecosystem that can serve both social and economic agendas.”

The private sector is already lending a hand at home and abroad, notes the report: “A collection of private digital ID companies in Nigeria are applying their time and resources to advancing the universal coverage objective. Around 200 private sector partners are licensed to enroll users on a pay-per-capture basis within Nigeria’s borders and 22 sites around the world cater to Nigerians in the diaspora.”

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