The introduction of the digital identity in Europe and UK

The digital transformation of our society has introduced many changes in various sectors that have allowed to offer services which require a certain level of security, data protection and validated identifications. This has led to the increasing need to prevent and address challenges related to technological innovations without hindering the process of digitalisation. As a result, our society is moving towards the adoption of digital ID solutions, i.e. the trusted digital format of a person or company’s identity.

In the European Union a new proposed initiative will soon be a reality: from 2026 it will be possible to have a digital identity or electronic identification and authentication.¹ Thanks to this identification method, individuals can prove their identity and share documents simply by using a smartphone.

The UK decided to go down a different route for identity verification with a strategy to prevent frauds: the Digital Identity and Attributes Trust Framework (DIATF). This new fraud prevention method aims to reduce fraud by 10% by 2025 and represents the first step towards the digital ids in the UK.² Let’s dive into these digital identity frameworks and see how they are shaping the European and British Ecommerce scenarios.

How EUDI Wallet is revolutionising the payments market in Europe

The adoption of digital ID solutions, leveraging innovative technologies, such as biometrics, comes in many forms: an example is represented by the EU Digital Identity Wallet (EUDI Wallet). The EU Digital Identity Wallet is the response to the challenges of digital identification. It is a tool which allows customers to securely identify themselves online when accessing public and private services, as well as store, present and share electronic digital credentials and electronically sign or seal documents.³ It will be available to EU citizens, residents and businesses, who want to identify themselves or provide confirmation of certain personal information. It can be used for both online and offline public and private services across the EU.⁴  

This new data control technology has several advantages:

• Connection: the digital identity is recognised anywhere in the EU.
• Security: the possibility to control how much and what information you want to share with the services.
• Accessibility: the wallet with digital identity is available online and offline on mobile phone apps and other devices.

Digital identity solutions are becoming increasingly relevant for the payments and financial services sector, because they offer companies the opportunity to move further into the digital environment.⁵ In other words, both companies and consumers can benefit from the advantages of digital ID, which ensures security at various stages of payment. An example is the KYC procedures, which involve verifying the identity and information of customers to prevent fraud such as money laundering. Another example is digital onboarding, where the data stored in the digital identity wallet can speed up onboarding and thus the registration of new customers. All of this is made possible thanks to the opportunities offered by PSD2. But how does the use of the digital identity wallet work in the payments world within the legislative context of PSD2?

The role of PSD2 in the next steps towards digital identity

Digital ID solutions are becoming increasingly relevant for payment processes and financial services. Thanks to the new European regulations, it is possible for providers of different sectors to integrate their systems with the European Digital Wallet. PSD2, for example, has introduced new figures, including Payment Service Providers, which play a key role in the authorisation process of payments. PSD2 requires all payment service providers to apply strong customer authentication (SCA) whenever a user initiates an electronic payment transaction or accesses its payment account online. According to the proposal for the European Digital Identity Wallet, payment service providers will have to accept it for the SCA, if the client wishes to use the wallet.⁵ Moreover, in order to ensure a secure and user-friendly innovation, the European Commission is reviewing the PSD2 to improve and modernise it with a third Payment Services Directive (PSD3). This new Directive will update the mandatory Open Banking standards in the EU and may add new directives relevant to digital IDs.

Digital identification methods in the UK

The UK has currently not implemented a national identification system, which already exists in several countries. However, the UK is moving towards a digitalised society, in order to offer citizens more control and security over their data. An example of existing digital id in the uk is represented by the range of tools, that the Government Digital Service (GDS) has developed to enable users to register, authenticate and access government services online, such as the GOV.UK, a verify program which allows users to prove their identity online quickly and securely.⁶  But how does the UK deal with the risks related to digitalisation in the financial world?

With the expansion of the digital finance industry, security in payments is becoming an increasing challenge and fraud has been a serious threat for many years, so the UK developed the Digital Identity and Attributes Trust Framework (DIATF): a digital identity solution, which enables users to identify themselves, improving customer experience and increasing security. In particular, the trust framework is a set of rules that different organisations agree to follow to deliver one or more of their services. This includes legislation, standards, guidance and the rules in this document. By following these rules, all users and organisations using the trust framework can describe digital identities and attributes they’ve created in a consistent way, they can also complete interactions and transactions or share information with other trust framework participants⁷, improving user experience and developing new services.

The future of digital identity solutions

Although Europe and the UK are moving in different directions, a common goal is shared: to ensure safe and easy digital identification for everyone, in order to meet the challenges of a society that advances towards innovation. The digital developments achieved in recent years allow the different applications of digital identity but create also new risks for consumers and organisations related to cybercrime and online fraud.

The digital id solutions can be a great opportunity for enterprises and financial institutions to leverage the advantages offered by Open Banking, to prevent online fraud, while achieving increasing security levels and cost reductions. If you are interested in finding out more about how to optimise online fraud prevention, download our free whitepaper on the topic.