Back In The Day, if somewhere like a car hire agency wanted to record proof of identity they'd photocopy your driver's license on paper, and store it in a filing cabinet. The computer record of a customer's account would just say "driving license checked, on file at branch #1234"
Security-wise this comes with obvious downsides - but as protection against cyberattack, it's pretty much the gold standard.
To abuse that requires physically going to a file cabinet. People in that office are going to question you. If something happens, it is isolated to a single office, limiting suspects to a small number. Putting it online makes it vulnerable to the entire planet with about 8 billion suspects.
Would it be better if it was a digital copy, or what? Somehow, my drivers license, passport and ID has been photocopied and digitally copied countless of times, in multiple countries, over more than three decades, yet not a single time I've been affected by identity fraud. So somehow, seems it doesn't "lead to" always but I'm sure it does happen sometimes, yes.
Security-wise this comes with obvious downsides - but as protection against cyberattack, it's pretty much the gold standard.