Words by Adam Kissane, founder of Nua Léargas and strategic alliance partner to Project Foundry.
European Commission regulation, eIDAS 2.0, more commonly known as, the European Digital Identity Wallet (EDIW) aims to provide every EU citizen with a secure digital identity that can be used across member states. For consumers, it promises to simplify a wide range of activities, from logging into online banking services to opening accounts, authenticating e-commerce transactions, for travel, accessing public services, manage health records, access social media platforms and much more. For businesses, particularly those in the B2C and B2B sectors, the opportunities are even more exciting.
In collaboration with industry expert Adam Kissane, founder of Nua Léargas, we provide strategic guidance to fintech businesses, helping them navigate the complexities of evolving regulations such as Payment Services Directive 3, Payment Services Regulation, eIDAS 2.0 (European Digital Identity Wallet), the Digital Euro, and more.
EIDW: Potential Impacts
The EDIW paves multiple paths for expansion and innovation within the fintech industry. From streamlining customer onboarding to enabling cross-border services and creating new financial products, the potential impact of the EDIW is vast. Here are just a few:
Streamline customer on-boarding
Fintechs can leverage the EDIW to streamline customer onboarding processes by efficiently verifying customer identities and accessing trusted attributes stored in the user wallet. This accelerates customer acquisition, enhances efficiency, and reduces costs associated with traditional Know Your Customer (KYC) procedures. The high level of assurance in identity verification mitigates fraud risks while improving the user experience, leading to higher conversion rates. Some critical considerations are yet to be resolved, including the type of information the EDIW will provide and the party responsible in the event of an error.
Expand into new markets
The EDIW’s interoperability and wide acceptance across member states significantly reduce market entry barriers for fintech companies. By providing a standardised approach to identity verification, the EDIW enables fintechs to expand their services seamlessly throughout the European Union. This cross-border functionality facilitates access to new markets and streamlines regulatory compliance, potentially reducing hurdles typically associated with international expansion. As yet it is unknown how many wallets will be provided in each member state and how relying parties will integrate and maintain connectivity to each wallet.
Launch new and innovative products
Fintechs, especially those integrated with ecosystems of connected B2B and B2C services, can leverage the EDIW to create innovative financial products and services. For example, by combining identity verification with payment functionalities, fintechs can develop seamless and secure solutions such as instant point-of-sale lending or user registration / shipping and loyalty programs with online merchants. The integration of digital identity and payment credentials in a single wallet opens up new possibilities for enhancing the payment ecosystem, with the EDIW’s emphasis on a decentralised, privacy-centric, and standardised approach providing a robust foundation for innovation. Of course, when it comes to payments, careful analysis and consideration of overlaps with existing and upcoming payment regulations is required, not least Instant Payments and the proposed Payment Services Regulation.
Adopt new roles in an expanding digital ecosystem
As the EDIW gains traction, there will be a growing demand for seamless integrations and connectivity across the EU. Fintechs can provide low-code integration solutions, facilitating easy adoption for businesses looking to connect with EDIW systems across member states. Additionally, there’s potential for fintechs to position themselves as trust service providers within the EDIW framework, offering services such as attribute provision or relying party solutions. The practical workings of the relying party model remain to be seen. For instance, it is unclear whether technical service providers will be allowed to integrate with wallets for end relying parties—a crucial step to ensure the inclusion of small and medium enterprises and to simplify the complexity of connectivity for businesses.
Drive adoption and growth of instant payments
By providing a secure and trusted digital identity solution, the EDIW can simplify the authentication and verification processes required for instant bank transfers. Customers can leverage their digital identity stored in the EDIW to initiate and authorise SEPA Instant payments seamlessly, eliminating the need for cumbersome authentication methods or sharing sensitive banking credentials with third-party providers. Additionally, the EDIW’s interoperability across EU member states can facilitate cross-border instant payments, aligning with the SEPA Instant scheme’s goal of enabling real-time euro credit transfers within the Single Euro Payments Area.
Leapfrog traditional players
The EDIW may catalyse a significant shift in the financial services landscape, potentially enabling fintechs to overtake traditional players like banks. Fintechs, with their inherent technical agility and innovative mindset, are better positioned to rapidly integrate and leverage the EDIW’s capabilities into their existing systems and develop new, cutting-edge services. Unlike traditional banks that often operate within domestic or local markets, fintechs typically embrace cross-border business models from the outset, aligning perfectly with the EDIW’s pan-European functionality. Some important considerations include whether the EDIW will prompt FSI firms to consider offering services across the single market and whether their future is at risk if they choose not to.
Next steps
To capitalise on these opportunities, fintech companies should take proactive steps to;
– thoroughly understanding the eIDAS 2 regulation,
– exploring integration of Digital Identity Wallets into existing systems,
– participating in pilot programs, and
– investing in necessary technical infrastructure and skills.
About the author
Adam is a payments professional with 18 years’ experience supporting businesses to adapt their organisations in response to a rapidly changing payments landscape. Adam started his payments journey with Ryanair plc, supporting Europe’s largest low-cost airline to streamline its payment acceptance services across multi-gateway and acquiring bank relationships. For five years Adam was head of programmes and change management with AIB Merchant Services, a joint venture between AIB Bank and First Data (latterly Fiserv). More recently, for 8 years, Adam worked led the payments advisory practice for Deloitte Ireland where he supported Deloitte cross-industry clients to address their most pressing payments challenges.
