Financial Inclusion and Government Disbursements – Combining National eIDs with Payment Features

In the Asia-Pacific region, about 1.2 billion people are unbanked with no possibility to receive micro credits, insurance or simply secure store personal savings.
National eIDs with payment functions can offer secure and efficient infrastructure schemes to overcome many challenges.

Cash, of course, is still the number one payment method in developing countries throughout the world. Cash is extremely flexible, however vulnerabilities are apparent: Corruption, black market transactions, illicit commercial activity and organized crime all feed of the non-traceability of cash highly damaging the country's economy. Billions of dollars are lost every year. It is this money that could be used to change the nature of the financial infrastructure and make it accessible to as many citizens as possible.

A shadow economy requires cash to prosper. The most efficient way to counter this hidden sector of the economy, where private cash transactions go unreported, is the increase of electronic transactions. This is especially applicable to developing countries, where the poorest of society are both marginalized because they do not have access to financial services and, at the same time, exposed to existential risks of losing their cash savings, be it through natural disaster or crime.

The introduction of a comprehensive electronic payment and transaction infrastructure has been an essential tool to improve law enforcements related to financial crimes in developed countries. Electronic transaction can be verified and traced, providing a solid basis to combat corruption, organized crime, tax evasion and fraud. Emerging countries, especially, suffer from fraud in the health and welfare system due to the cash nature of these systems. Fraudulent collection of salaries or welfare benefits due to dual employment and phantom jobs can pose a serious financial threat. Dual employment occurs when a person holds mtwo jobs in the public sector, both civilian and military, while non-existent individuals hold phantom jobs, created by others to earn additional income, or by individuals who do not perform their duties but receive salaries.

Electronic payment schemes are an efficient way to make financial transactions traceable. However, it does not solve the problem of multiple or false identities. Govern-
ments try to force financial institutions to thoroughly identheir customers. They are imposing Know Your Customer rules (KYC) and financial regulation laws. However, these actions are bound to fail without the means for reliable identification. Reliable identification requires nationwide registration and enrolment of citizens followed by biometric deduplication. The deduplication process compares a biometric feature, like a fingerprint, with the same biometric feature of all other registered citizens.

Nationwide registration and enrolment of citizens is typically done in a national identity card project resulting in the issuance of a national identity card which serves as government approved proof for one single identity. Countries with properly carried out national identity card projects resulting in high quality documents have signifi-
cantly less problems with false identities, multiple identities or identity theft.

Nations with identity cards provide the right tools to comply with KYC rules. What remains is the ability to check the document. Thorough training of clerks is required to avoid false identities based on fraudulent documents. Combining national identity cards with payment features move this task from the private company clerk with sometimes questionable training and motivation to the public officer issuing the national ID card. In addition, this officer can be equipped with biometric identification solutions. But missing reliable identification means are not only a problem of financial institutions having to fulfil government rules.

Governments are terribly suffering from fraud in the health and welfare system. The lack of identification means is exploited by people keeping up benefit payments for deceased relatives, redirecting disbursements or stealing benefit checks. When used for disbursement schemes, biometrics verification ensures that people are still alive when they receive payment and that they are the valid beneficiaries. In addition, the use of benefit checks or cash in government disbursement schemes produces significant operation costs. Service, support and security are major cost drivers. Electronic IDs with debit payment functionality can serve as reliable targets for disburse-
ment payments. With the introduction of an electronic system for social benefits disbursement the US were able to save one billion dollars in ten years.

In many developing and emerging countries mobile payment solutions are on the rise leaving the classic Point of Sale (POS) and ATM centered electronic schemes behind. These solutions have significant advantages when it comes to deployment and usability. However, certain challenges discussed in this article cannot be ad-
dressed by these systems.

The most prominent would be the issue of reliable identification. The eID with payment functionality can serve as the identity seed to these systems. Combin - ing eIDs and mobile payment solutions would lead to a perfect match of secure and user friendly electronic payment systems. Payment enabled identity cards provide a bank account for every citizen to push financial inclusion, a verified target for government disbursement payments, biometric identification capabilities to counter fraud and can serve as an enabler to push the development of cashless transactions bringing its benefits to governments and citizens. These multi-application cards go beyond the topic of reducing the amount of cards issued. The combination enables new use cases not available to multiple single application cards.

However the implementation of such solution is still a daunting task. Payment enabled identity cards have been in discussion for many years. The problems arising from bringing private owned financial institutions together with public authority driven national identity programs as well as the different technical specifications and con-
cepts have been preventing successful implementations for a long time. Recent developments and pilot projects have started to overcome these problems.

Reliable, trustworthy and competent partners, being aware of the requirements from both payment and ID projects, are required. Drawing on years of expertise in the government and financial sector of Veridos’ parent companies, Bundesdruckerei and Giesecke & Devrient, Veridos is able to provide turnkey solutions to the individual needs of their customers. Thanks to these crossindustry insights, it has carved out a unique market position – as a trusted trailblazer and dependable partner.

About Veridos GmbH

  • Veridos was established at the beginning of 2015 as a joint venture between Giesecke & Devrient GmbH and Bundesdruckerei GmbH and is headquartered in Berlin, Germany.

  • Giesecke & Devrient holds 60 percent of the shares in the company and Bundesdruckerei 40 percent.

  • The company offers identification and identity solutions.

  • The Veridos portfolio includes complete solutions for the production and personalization of passport documents, ID cards, driver's licenses, and healthcare cards. These are complemented by state-of-theart management systems for personalization, issuance, and documentation, as well as solutions for personal  identification, voter registration, and border control.

Frank Schmalz

Frank Schmalz is Director Innovations & Business Development at Veridos. As such he is responsible for the driving of innovative ideas and all technology research activities, as well as leading innovation projects. Frank Schmalz is a member of the Eurosmart eID working group, board member of Silicon Trust and active conference speaker.