Published on Let's Talk Development

How is identity verification evolving for business start-up?

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In most economies, some type of identity verification is legally required in order to register a business. The COVID-19 crisis complicated traditional ID verification since in-person interactions were eliminated or restricted. As a result, there has been an acceleration of digitalization needs in the field of business incorporation to allow a continuity of business creation and avoid in-person contact. In several economies, the health crisis speeded up the provision of electronic services for business incorporation. As such, finding new ways of carrying out ID checks such as introducing digital IDs has become a crucial feature in this field. It is also important to note that beyond the needs imposed by the current health crisis, introducing verification of digital IDs in business start-ups is key to fighting identity fraud, increasing transparency and promoting secure online interactions in an increasingly digitalized economy.

Who is responsible for ID verification?

Some degree of identity verification is necessary when registering a company. In most economies, the government requires legal proof of identification either for   all shareholders or only for the manager and/or director of the company. These checks are put in place to confirm the identity of the person registering or managing the company and to ensure that there are no legal or other barriers that would prevent them from holding the role they are seeking. 

Traditionally, ID checks were carried out by a registrar at the time of company registration or by a notary when drafting the deed of incorporation (or by a lawyer if required in the constitution of the company). In the majority of economies measured by Doing Business — 136 economies out of 191 — the registrar is involved in the process of ID verification. In Latin America and in high-income economies of the Organisation for Economic Co-operation and Development, the notary, a public official with competencies to serve on non-contentious matters,    has a relevant role in verifying the identity of entrepreneurs, managers and directors when drafting the deed of incorporation. 


Figure 1. In two-thirds of economies the registrar is directly responsible for ID verification

How is ID verification carried out?

Most economies continue to require a physical check of identification. However, in certain economies, the introduction of online platforms for business registration has introduced ways to avoid physical interactions for ID verification. This process consists of uploading a picture of the ID to the online platform, sometimes along with a picture of the signature of the relevant individual to complete the identity authentication. Although this approach might not involve physical interaction, it remains labor-intensive as the person responsible for verifications still must check each ID document and signature uploaded to the platform.  

What are the new methods for ID verification?

In the past years, technology has revolutionized the process of ID verification in ways that has benefitted business start-ups. Several economies have introduced digital ID verification systems that have proven to be highly efficient and secure when incorporating a business. These economies are implementing fast and safe processes of ID authentication in the current health context. Unlike a paper-based ID, a digital ID can be authenticated remotely over digital channels and much faster, which guarantees greater efficiency and security in the process of business registration.

Estonia introduced Digi-IDs, which provide digital access to all of Estonia’s secure e-services. The Digi-ID is a card with a chip used as definitive proof of ID in an electronic environment. With it, entrepreneurs can log in to the company registration portal with their Digi-ID and a smart card reader. Once the ID has been authenticated, entrepreneurs create a PIN code that will replace the need for any digital signature. This enables entrepreneurs to register their companies online on the RIK portal. 

In Pakistan, entrepreneurs are able to rapidly verify identity using the Securities & Exchange Commission of Pakistan’s online platform, which has an e-Service registration system for company incorporation. Entrepreneurs need to upload their ID card numbers and other personal information on the eService registration system. When users input their 13-digit Computerized National Identity Card (CNIC) number, the system verifies the identity of the user from the National Database & Registration Authority (NADRA). The system also verifies the cell phone number of the applicant against their CNIC to ensure that the cell number is registered in the name of the applicant. Once this information has been checked, applicants receive a text message or an email with a PIN number that allows them to complete the incorporation process online. The PIN replaces the need for any digital certificate or signature.

In a similar fashion, in Saudi Arabia and Oman, new systems of digital ID cards are on their way to implementation. These digital ID cards are connected directly to a Ministry of Interior database and carry information about the ID cardholder. When registering a company, the applicant receives a PIN number on the mobile phone number associated with their ID, overriding any need for a digital signature to complete the process of company incorporation.  

Introducing digital verification of identity results in a fast and secure process of online company registration. Moreover, new solutions are needed more than ever if governments want to continue identity verification in the current context of restrictions on in-person interactions imposed by the COVID-19 pandemic. In a post-COVID economy, countries will need to spur business creation. Simplifying and adapting the first step of business creation is crucial to guaranteeing a dynamic entrepreneurial network. For business to adapt and recover rapidly in the post-pandemic environment, business creation processes ought to embrace technological advancements on ID verifications. 


Frederic Meunier

Private Sector Development Specialist

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