Trust is the key as payments & identity converge

First, the regulatory trigger: all European Union member states are required to offer their citizens access to the EU Digital Identity (EUDI) Wallet by the end of 2026. 

Citizens will no longer have to carry ID cards or paper certificates. Rather, they can securely store these as digital credentials in the app made available on their devices. Further, this universal ID solution will be recognized across the EU. Crucially, businesses and other entities that require strong customer authentication (SCA) will have to accept these wallets and the credentials within them as proof of identity by the end of 2027.

The EU’s member states are actively running large-scale pilots, with more than 350 business partners involved in the tests.¹ The technical specifications in each market – remember, each member state has to make at least one EUDI Wallet available to its citizens – are being finalized. The initial real-world use cases are already emerging from the pilots, with concerned parties strategizing how best to act on them.

The payment and banking industry is already moving to questions of implementation. In this scenario, working out where you stand as an organization is imperative.

The importance of digital ID

“Think of the EUDI Wallet as a personal digital wallet that lets you securely store and present your digital identity,” said Martin Zeisel, Digital Identity expert at G+D Netcetera. This includes electronic attestations of attributes and legally binding electronic signatures. 

It will follow common EU standards and be available across the EU for services such taxes, online prescriptions for medicines, or accessing social benefits. It is also usable across private services, from KYC requirements and bank onboardings to getting a SIM from your local mobile provider. Whether you’re shifting insurers or setting up a profile with a new e-commerce vendor, the EUDI Wallet and what it contains will suffice to prove who you are.

This is potentially transformative in the banking and payments space. “Security and trust are foundational in payments, from onboarding new customers to the authentication of transactions,” pointed out Zeisel. “A secure and robust digital ID framework provides that bedrock of trust, which is what everyone wants. The challenge is to provide that feeling and security in a user-friendly way, so the customer’s journey doesn’t suffer.” 

Think of how a KYC process often works today, from reams of paperwork and demands for cumbersome physical documents to unwieldy and expensive video calls with third-party providers. Imagine all that being replaced by a mobile app, with the customer secure in the knowledge that all data is only shared with their consent, and the bank knowing that the credential being presented carries government-level verification without government access to transaction data. The potential for removing friction and lowering costs while maintaining credibility and trust is huge.
 

Implications for payments

Beyond KYC, the shift from pattern-based fraud detection to cryptographic verification of credentials backed by the EUDI trust framework transforms payment security, pointing to a fundamental change in the industry as identity and payments converge. 

Entire categories of identity fraud, such as account takeover, credential theft, and synthetic identity fraud, are set to become much harder with authentication becoming cryptographically anchored to a government-issued identity. “Your organization’s risk modeling may be based upon pattern detection,” noted Zeisel. “That really isn’t relevant anymore. What matters is credential management. How are you interacting with the credentials your customers are presenting?”

Banks need to ensure fraud detection systems such as behavioral biometrics and transaction monitoring are updated to work with this new architecture of trust. “We used to worry about whether the customer could pay. But now the focus will move from proving the customer can pay to proving who they are. The payment will follow automatically,” stressed Zeisel. 

This is far more than just another authentication layer. It points to a fundamental restructuring of the flow of trust through payments, particularly in digital commerce. Correspondingly, banks and other financial institutions need to treat this as more than just another IT play. It is a strategic opportunity to come up with a new approach to identity architecture that helps them reposition their relationship with their customers in the EUDI Wallet era.

Provide and own a transparent journey

In line with the EU’s stated norms, EUDI Wallets are designed to give users maximum control over what they share, when, and with whom. Banks and other payments players have been gatekeepers of data in the past. This is set to change in a new paradigm that is based upon the user providing consent.

Those banks that pivot best to the new reality by offering the most transparent and user-friendly consent experiences will win the customer’s trust. The era of data mining may well be over. What will matter now is the best user experience (UX) design, and of course the consent architecture the bank provides to its customers.

Integration is a key challenge

No bank wants to turn a customer away because it can’t handle what it is required by law to accept. It is also a fact that most banks’ systems aren’t set up to interact with decentralized identity wallets. Solving that integration issue is key. Those banks that rise to the challenge in a way that best suits the customer and their journey will become market leaders and establish the standard that others follow. 

Among other things, translation layers and gateways that both fit with a bank’s existing system and speak to the wallets that will soon be presented are critical parts of infrastructure. Partners that provide a suite of such services are well placed to help a bank and other payment providers through the issues that the EUDI Wallets raise. 

G+D Netcetera’s integrated digital identity platform unites centralized identity management and integration with emerging digital wallets such as the EUDI Wallet. These components connect businesses to trusted identity sources and enable existing systems to work with multiple types of digitalcredentials. The ability to enable wallet acceptance without necessitating a full system overhaul is clearly a key consideration.

The challenges to come

The road to the EUDI era will have some bumps. The wallets issued by one country are required to be accepted across the EU. This presupposes interoperability, but the reality is probably going to be a bit different, as infrastructure and the pace of implementation vary quite dramatically across the EU.

However, banks that operate across the EU need to manage what could be a fragmented wallet landscape with agility and user-friendliness. The upside is that banks that are prepared for a measure of turmoil will be well placed to take advantage of opportunities that present themselves in those circumstances.

In the current scenario, most banks and payment providers are still searching for the right positioning in what is a moment of transition, with fundamental change on the horizon. Digital identity is converging with payments. This is undoubtedly a growth opportunity. But market leadership in that space is still up for grabs. 

While others grapple with technical specifications, rollout timelines, and compliance checklists, perhaps the real opportunity is in reshaping customer relationships and business goals in a truly strategic way. 

The EU has already shared its vision on the Open Finance ecosystem. The user will have unprecedented levels of control over their own data in this new formulation. As payments and identity converge, perhaps everyone needs to be considering what else can be added to these wallets, and how that impacts their future business models. As ever, the right partner can be invaluable to help a bank navigate these as yet uncharted waters.