Page 97 - The Digital Financial Services (DFS) Ecosystem

ITU-T Focus Group Digital Financial Services
Ecosystem

the BVN will become the only accepted form of verification to access accounts or make transactions following
the end of the registration period in 2015. Reports suggests that public confusion over the new system and
registration requirements have triggered a panic that could potentially lead to a surge of citizens withdrawing
money from formal accounts rather than registering in the BVN program (Okoye, 2015).

Digital Banking

Though only five programs describe functional links to digital banking, the purposes of tying ID programs
to digital banking are diffuse. Applications of ID programs include streamlining government payments
and targeting delivery of subsidies, providing direct relief to disaster victims, and increasing financial
inclusion. Gelb & Clark (2013) write that biometric technology is driving the ability to conduct secure online
transactions. All five of the programs tied to digital banking are—or are planned to be—embedded with
biometric information.

Two of the digital banking links (India, Pakistan) are related to government cash transfer programs. Theory,
and some evidence, suggest that the use of electronic IDs can reduce leakage and improve delivery efficiency
(Gelb & Clark, 2013). A 2014 randomized evaluation of subsidy delivery by two welfare programs in Andhra
Pradesh, India, found that adding biometric verification to verify recipients’ identity before disbursing funds
led to a 35 percent reduction in leakages (Muralidharan, Paul, & Sandip, 2015). However, using biometric
scanners to confirm an individual’s identity and authenticate the recipients of subsidies can be problematic.

Pakistan and India are testing similar models on a national scale with their ID programs. During a disastrous
period of flooding in 2010 that affected over 20 million people, Pakistan used its already established biometric
citizen registry to confirm identities through fingerprint identification. Officials checked known citizen addresses
to ensure intended beneficiaries were from the affected area and then disbursed aid on electronic, prepaid
debit cards (PR Newswire, 2010; Malik, 2014). The digitized verification system also allowed officials to ensure
that poor women were direct recipients of transfers (Dahan & Sudan, 2015).
In India, over 150 million bank accounts are now linked to the national ID. Though many are not consistently
used, demand is expected to grow as India continues to link its social programs with direct deposits to
beneficiary bank accounts (Dahan and Gelb, 2015). As of 2014, “one out of six consumers of liquid petroleum
cooking gas (used widely across India) receives their subsidy” through direct deposits to bank accounts tied
to a national ID linked payment system (Chen, 2014). Again, as in Pakistan, directly linking bank accounts to
the Aadhaar number and biometric information has assisted efforts to deliver transfers to female recipients
(Dahan & Sudan, 2015).

Nigeria is taking a different course to provide financial services to the unbanked. In 2015, the government
partnered with MasterCard to produce a national identity card that doubles as a payment card. According
to MasterCard, “Nigerians can deposit funds, receive social benefits, save, or engage in many other financial
transactions that are facilitated by electronic payment” (MasterCard, n.d.). Plans are in place to deliver
social security benefits through the card, and also provide direct cash transfers to program beneficiaries of
hydrocarbon subsidies. In addition, MasterCard’s head of business for West Africa stated that the cards could
be used to establish credit ratings for the poor (Oxford, 2014). Kenya and Pakistan’s national IDs are also tied
to financial inclusion. Links with M-Shwari, a mobile savings and loan platform, facilitate access to digital loans
through the Central Bank of Africa (see below Mobile Money section). Pakistan’s national insurance company
partnered with NADRA to offer accidental death insurance upon purchase of an ID card for a small additional
fee (Malik, 2014).

Within our review, we find a few instances in which financial transactions are dependent on biometric
verification of a recipient’s identity on-site. As mentioned previously, Pakistan confirmed relief recipients’
identities by using fingerprint scanners. In India, on a pilot basis, wages paid to beneficiaries of the Rural
Employment Guarantee Act were made dependent on fingerprint identification (Jishnu & Sood, 2012). The
Central Bank of Nigeria’s BVN program also relies on biometrics. Across all Nigerian banks, customers are
issued a unique identity number at the time of their enrollment. At that time, a facial image and fingerprints
are also collected. When customers perform a transaction, like applying for a loan or transferring money, they
are required to authenticate their identity using biometric scanners (Central Bank of Nigeria, 2014a).

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