LONDON, Jan 27: Developing countries swapping paper documents for digital identification systems could see their economies grow up to 13 percent by 2030, researchers said in the first study to assess the technology's economic value.
But the report's authors and rights campaigners warned such systems also raised privacy concerns as they could be misused to track and profile people.
More than 1 billion people globally have no way of proving their identity, according to the World Bank.
This makes it almost impossible for them to open a bank account, get credit or start a small business, said study co-author Anu Madgavkar, of the McKinsey Global Institute (MGI), the research arm of global consultancy firm McKinsey.
"(They) can't really participate in the modern economy," she told the Thomson Reuters Foundation by phone.
Another 3.4 billion people worldwide have some kind of identification but can't use it to securely prove their identity online - something that curbs their economic potential, according to the report. Digital identity systems are already in use in numerous countries, linking biometric data, such as fingerprints and iris scans, to a unique digital code allowing for remote identification.
In Estonia, for example, digital ID cards are used for everything from voting to submitting tax claims and signing documents, while India launched the world's biggest biometric database in 2009 to streamline welfare payments.
MGI researchers said they analyzed how, from increasing access to financial services to preventing identity fraud and reducing the time needed to vote or register a business, digital IDs could benefit the economy.
The study focused on seven countries - Brazil, China, Ethiopia, India, Nigeria, the United Kingdom, and the United States.
It found that if these countries were to extend digital ID coverage to a large part of the population, they could expect to"unlock economic value" equivalent to 3 to 13 percent of GDP in 2030.
Benefits were higher in developing countries, where they averaged around 6 percent of GDP against 3 percent in developed nations, it said.
"Digital signing alone saves every working Estonian at least an estimated five business days every year, amounting to a total efficiency gain of 2 percent of GDP annually," said Estonia's prime minister Juri Ratas.
"As they say, time is money," he added, speaking at the World Economic Forum in Davos, Switzerland, where the study was launched.
But the report warned that, if improperly designed, digital ID systems could be abused by governments and private companies.
"History provides ugly examples of misuse of traditional identification programs, including to track or persecute ethnic or religious groups," the authors wrote.
Tom Fisher, of London-based advocacy group Privacy International, added economic benefits of digital ID systems were often over overestimated.
"Practitioners have learnt to take projected savings and benefits with a grain of salt," he said.
"No system can become universal, denying people access through issues including biometric failure, bureaucratic problems, or lack of Internet access."
In India, campaigners have raised concerns about privacy and the safety of the data, the susceptibility of biometrics to failure, and the misuse of data for profiling or increased surveillance.