Developing countries lack a healthy competition of businesses offering digital identities, a new report has found.

“We found relatively few firms that are building solutions for managing identity,” says the report by UK-based firm Caribou Digital, despite its “critical nature” for accessing services.

Outside of social media, banks and mobile network operators are the only companies with a “significant” database of digital accounts in countries outside of the US and UK, it said. “Neither groups seems prepared to build out identity solutions in the near term,” it added.

State-issued identity are currently the most trusted credentials in these markets, writes Bryan Pon, an author of the report. “The most critical need is for the legal protection and benefits that come from state-issued identity credentials”, he wrote in a blog post.

One of the ways to build up digital identity solutions is through government-led platforms, the report found. The United Kingdom’s Gov.UK Verify, for instance, relies on private sector firms to offer digital credentials for citizens to access government services.

The UK Government is “actively” encouraging companies to join the scheme. Such a “market-based public-private approach is less costly to the state”, the report said. A diverse market will also help avoid a scenario where the government must verify identities itself.

Estonia’s digital identity scheme is the most advanced, however. The country’s “ID-kaart” is used by 90% of its population – “a number reached through the tactical deployment of carrots, rather than stick”, the report said. Take-up has been driven by access to more convenient and quicker services, including voting in national elections, faster tax refunds, higher bank transfer limits and e-signing of official documents.

Private sector firms have begun connecting their services to the national ID platform, wooed by the large customer base. For instance, mobile operators have integrated their SIM cards with the ID cards – which means transactions can be carried out without any ID card or card reader. Online banking can be accessed through the national ID as well.

The country is now looking to expand this convenience beyond its citizenry through the e-residency programme. Non-residents and non-citizens can get a digital identity allowing them to open bank accounts and register businesses in Estonia.

Image by Public.Resource.Org, licensed under CC BY 2.0