Worldwide, more than 4 billion people are connected to the internet. They spend an average of about six hours a day on internet-enabled devices and services. In Thailand and the Philippines, average daily usage is 9.5 hours; in the United States 26 percent of the population is online "almost constantly"; and 1 billion more people in the world are projected to join the ranks of internet users by 2022.

Yet as we embrace the digital world, the complexity of navigating it securely, efficiently, and in a personalized manner becomes more acute. One promising solution is already being deployed in some countries: digital identification.

Potential of biometric 'proof of identity'

The case for "digital IDs"-the electronic equivalent of physical identification-is strong. For starters, most internet users are unable to keep track of their digital footprint and find it inconvenient to register, authenticate and manage online accounts. On average, 90 online accounts are linked to every email address, and this total doubles every five years. No wonder that 25 percent of users forget one password at least once a day, and about one-third of all calls to the call centers of banks are requests to reset misplaced or forgotten passwords.

Carefully designed digital IDs can also help defend against data breaches targeting retailers, a growing concern for many consumers. In the last two months alone, for example, security breaches were reported by the US companies Marriott International and Quora, exposing the personal information of hundreds of millions of customers. As the scope and sophistication of hacks increase, the need for better security is obvious.

But perhaps the most compelling argument supporting digital IDs is the most basic: people in developing countries need them to prove who they are. According to the World Bank's ID4D initiative, nearly 1 billion people lack any legal identification, making it difficult or impossible to vote, bank, access subsidized food, or buy property. Of the 1.7 billion adults who are currently "unbanked", 20-30 percent cite their lack of documentation as a primary reason.

Recognizing the problem－and the potential－dozens of countries are implementing digital IDs in some form. India's Aadhaar personal identification program, for example, is a biometric "proof of identity" that covers more than 1.2 billion residents, which among other things is used to coordinate distribution of some government benefits. In Estonia, 98 percent of the people have an electronic ID, and 99 percent of public services－including voting-can be accessed online.

The topic is also appearing more frequently on human development agendas. In Africa, governments, development agencies and business leaders gather annually for the ID4Africa forum, which promotes "robust and responsible ID ecosystems".

The private sector－led by financial services and technology industries－is taking steps to develop digital ID systems. Since 2003, for instance, a consortium of banks in Sweden has used BankID to authenticate digital transactions, and the government has since adopted it to streamline access to public services and health records.

Current programs fail to tap potential

Yet digital ID programs have had mixed success to date. While a few have achieved large-scale implementation, many have failed to attain even modest levels of usage. Most of the world's digital IDs are limited in scope, enabling only a few of their many possible economic, political and social functionalities. Digital IDs could play a much more expansive role in the way individuals and institutions interact with each other.

Digital ID systems that succeed in driving high adoption could create significant economic value for individuals, businesses and government institutions. As McKinsey& Company document in a new report, digital IDs have the potential to reduce fraud rates, cut customer on-boarding costs, boost financial inclusion, and deepen savings and credit for under-banked customers. They can also spur development by enabling digital talent matching and streamlined employee verification, resulting in higher participation in the labor market.

Digital IDs could even establish a means to control data and digital footprints in interconnected online ecosystems. Overall, we estimate that high adoption of digital ID could help produce economic value equivalent to 3 percent of GDP in a typical advanced economy and as much as 6 percent in a typical emerging economy.

But digital ID technologies are akin to dual-use technologies that can be used both to the benefit of society and for undesirable purposes. Poorly planned digital ID systems do carry risks. Without proper design principles and controls, a digital ID system can put enormous power into administrators' hands, enabling unfair discrimination or other inequities.

Tough data protection, privacy laws needed

To mitigate these risks, countries have to enact tough data protection and privacy laws, and take robust enforcement and security measures. Advances in registration and authentication technologies－such as electronic cards, cryptography and biometrics－will help, but strong policies will also be essential.

Still, while the challenges are real, our research shows that the economic, social, and political benefits are simply too great to ignore. If governments and developers are aware of the risks and act to minimize them, digital IDs could become a key to inclusive growth.

Anu Madgavkar is a McKinsey Global Institute partner in India, and Olivia White is a partner in McKinsey& Company's San Francisco office.

Project Syndicate