The UK government’s latest plan to introduce a national digital identity scheme has reignited a fierce civil liberties debate, with critics warning of “mass surveillance” and more than 1.6m people signing a petition against the plans.
Yet behind the controversy lies a powerful opportunity: a secure, inclusive digital ID could be the key to tackling the UK’s financial exclusion crisis and unlocking new growth across the economy. Here’s how.
Closing the inclusion gap
Financial exclusion remains an intractable problem for markets globally. In the UK, the Financial Conduct Authority estimates that around 900,000 adults – close to 2% of the adult population – are unbanked, rising to 8% among unemployed adults. Millions more cannot access affordable credit or insurance. Research by the University of Bristol shows that households locked out of mainstream finance pay a “poverty premium” averaging £490 a year on essential goods and services.
Under the current system, which requires physical documents, identification is one of the main barriers to inclusion. Opening even a basic bank account often means producing passports, driving licences or utility bills, documents that many people on unstable incomes simply don’t have. Renters, students, gig economy workers and new migrants can find themselves locked out because verification processes were designed for another era.
A secure, universally accepted digital ID could change that. With a trusted digital credential, individuals could prove who they are instantly, open accounts, and build financial histories with minimal friction.
How digital ID could unlock hidden economic growth
The UK’s unbanked population represents close to £6.4 billion in unrealised contribution to the economy, according to recent modelling by WPI Economics. Their findings show that £5.9bn could be raised annually from increased productivity and employment due to improved financial wellbeing. More broadly, bringing excluded individuals into the financial system would boost productivity and consumption across the economy.
Countries that have embraced inclusive digital infrastructures demonstrate the potential. Kenya’s M-Pesa turned mobile phones into financial lifelines, lifting financial inclusion from 26 to 84 per cent. Brazil’s Nubank, established in 2013, offers simple, low-cost products for underserved users. Today, they are one of the world’s largest digital banks, with over 100m customers and a valuation in excess of $60bn.
When identification becomes seamless and secure, participation rises, financial activity deepens and economies become more resilient. The benefits also reach beyond finance. A trusted digital ID could simplify access to healthcare, education and government services, speed up recruitment and compliance checks, and reduce administrative costs for businesses. It would connect citizens securely to both public and private services, forming the backbone of a more dynamic, inclusive economy.
Delivering new markets for banks
Despite an expected £52.6bn in pre-tax profits this year, the banking sector continues to overlook 900,000 unbanked UK residents – a large missed opportunity. Reliable digital ID could enable banks and fintechs to reach underserved customers and close this long-standing market gap.
Sweden’s BankID shows how inclusion and commercial success can align. Used by more than eight million citizens, it enables access to banking, healthcare and government services while cutting fraud, speeding up onboarding and driving near-universal participation in digital finance.
For UK banks, digital ID offers similar potential. Simplifying verification lowers costs and opens markets once seen as unprofitable. Achieving this requires new thinking about data, risk and product design. Services built for people without passports, fixed addresses or regular salaries will better serve today’s flexible workforce. Those who act early will transform inclusion from a compliance issue into a competitive advantage.
A careful rollout is key
Public confidence will make or break the digital ID rollout. A national system must include clear limits on data use, transparent oversight and strong governance to prevent misuse. The government will also need a smart education campaign to build trust, a gradual rollout that allows people to adapt, and genuine consultation with civil liberties groups in shaping the framework. Done well, digital identity could deliver what all sides of the debate want: greater privacy, improved financial inclusion and stronger economic growth.
Alessandro Hatami is the founder and CEO of Pacemakers.io and the author of ‘Inclusive Finance.’
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