DPI can provide an affordable path to digitalization, support domestic industries, widen access to financial tools and strengthen public finance management, such as tax collection and anti-fraud efforts.
Digitalization is a necessary condition for both modern domestic growth and participation in the global economy. However, traditional approaches to this process carry too high a cost for most countries to pursue at scale. Estimates by Professor David Eaves of University College London put the average annual spend on such projects by the governments of advanced economies at around $250 per capita, compared with just $14 dollars per capita in the rest of the world. To rebalance this disparity would require nearly $1.4 trillion in new annual IT spend. Such an investment was unrealistic even before recent tightening of government budgets. In this context, the search for new, affordable ways of building these systems should be a priority.
The DPI principles of interoperability, openness and the prioritization of public good enable countries to adopt a new, more affordable approach to building key digital systems – through the use and re-use of shared, open systems. As mentioned earlier, traditional ways of developing digital systems tend to result in expensive and inefficient silos where departments procure and maintain separate IT systems that are often locked into a single vendor for assistance. These systems are typically not interoperable with other private and public services, unable to share data with other departments, closed, or cannot be built upon for future services. To use an example from the UK, citizens are enrolled in dozens of siloed ID systems: national insurance numbers, passport numbers, NHS numbers, driving licence numbers, unique taxpayer references, unique pupil numbers, Proof of Age Standards Scheme (PASS) cards and so on. This expands to hundreds of IDs across the private companies and services that citizens use, from banking to online retailers, each demanding citizens prove and re-prove who they are. This duplication increases the vulnerability of users, whose data is replicated and retained in dozens of places at once, and also creates enormous inefficiencies – in contrast, Estonia claims its DPI approach to public services, enabled by a digital ID, saves more than 1,400 years of working time and 2 per cent of its GDP annually.
As well as the potential budget savings, there are clear opportunities to boost economic growth. The fact that digital infrastructure underpins both the public and private sectors means government IT budgets could be spent in the service of the economy as a whole, rather than on narrow, single-use solutions.
Research from India and Brazil highlights a significant uptick in economic outcomes as cashless transfers become available and transactions become faster and cheaper.
University College London’s Institute for Innovation and Public Purpose has put forward 11 ways in which the positive economic impact of a new digitalization strategy like DPI might be measured. These include reduced costs and increases in service quality and availability, but also capture a range of second-order market-shaping benefits: the creation of space for new businesses, increased competition through improved accessibility and expanded opportunities for consumers. Research from India and Brazil highlights a significant uptick in economic outcomes – more commercial activity, sales and higher tax revenue – as cashless transfers become available and transactions become faster and cheaper. During the pandemic, countries with DPI in place before the COVID-19 outbreak were able to inject cash into their slowing economies by reaching three times more beneficiaries with emergency cash transfers than those countries without. This demonstrates the ability of DPI to provide a vital boost for the economy in times of economic strain.
DPI can give all businesses the digital tools to compete with better resourced overseas players. Mobile wallets allow customers to pay for goods and services efficiently, streamline payment processes and reduce transaction costs for business owners by removing third parties. Pix, an instant payment platform created and managed by the Central Bank of Brazil, reduced transaction costs for its users – with an average cost to merchants of 0.22 per cent, compared with fees of 2.2 per cent for credit cards in Brazil. The reduced costs for its 153 million users both support Brazilian small and medium-sized enterprises and contribute to a more balanced, inclusive and dynamic marketplace.
Alongside direct benefits, payment systems made possible through DPI shape the economy by increasing market entry points and enabling new groups to participate more fully in financial systems. With the introduction of Aadhar in India, the cost of verifying a customer’s identity plummeted from $10–$12 to about $0.20, making it feasible to serve millions in low-income and remote settings and enabling economically disempowered people to save, invest, access credit and better control their finances. According to the World Bank, the number of Indian adults with a bank account more than doubled between 2011 and 2021, which studies attribute to cheaper and more widely-available digital ID checks and digital payment systems. Between 2006 and 2013, Kenya’s dominant mobile payment system, M-PESA, contributed to the country’s 3.4 per cent per capita real income growth. As sign-ups to the platform increased, so too did economic gains.
There is evidence that DPI approaches present further opportunities for improved public finance management. In Kenya, 59 per cent of the country’s GDP flows through M-PESA. This has drawn firms operating in the informal sector into the tax net and provided new opportunities for collecting tax. In 2024, the Kenyan government imposed a controversial 3 per cent duty on M-PESA transactions, which critics say counters the benefits of financial inclusion. DPI that brings together identity systems and direct payments can reduce instances of fraud: India’s government reported its Direct Benefit Transfer system enabled quick distribution of COVID-19 relief funds, ‘ensuring accurate targeting of the beneficiaries, de-duplication and reduction of fraud’. By contrast, many advanced economies reported rampant fraud in the distribution of COVID-19 relief funds. An Associated Press analysis estimates $280 billion of US COVID-19 relief funding was lost to fraud.
Replicating outdated methods of digitalization is not feasible for most nations. Using DPI principles can provide a credible and cost-effective digitalization strategy. With relatively low implementation costs compared to standard digitalization approaches, DPI strategies can utilize a range of different financial resources, such as philanthropic funding or political union support. MOSIP (Modular Open Source Identity Platform), a digital ID system with over 100 million users worldwide, was launched through $28 million of philanthropic support from the World Bank, Gates Foundation and the Omidyar Network, among others. Today, MOSIP has an estimated annual operating budget of between $5 million and $7 million, yet the project has engaged over 25 countries across Asia Pacific, Africa, Latin America and the Caribbean. Similarly, a 2018 extension of Estonia’s X-Road to enable data sharing across European borders, with an estimated cost of €252,000, had full EU support through the European Regional Development Fund, which offered to cover up to €352,000 through the Operational Programme for Cohesion Policy Funding for the 2014–2020 period. These projects demonstrate high engagment, cost-effectiveness and investment diversification.
By circumventing the mistakes of siloed digital services, a DPI approach lays a strong foundational layer for a country’s economy, reducing costs, contributing to growth and unlocking new avenues for financial inclusion, participation, innovation and efficiency across sectors.
