Navigating the Future of Europe’s Digital Identity and Payments

Summary:

The European Digital Identity (EUDI) Wallet decouples digital identity from any specific activity / transaction (e.g. it is not tied to healthcare or payments), to then allow citizens to apply it across all activities and transactions.?

In this post I briefly discuss the progress it has made so far, including the pilots related to payments, and the challenges that still need to be resolved around implementation details, interoperability and privacy.

I then delve into the importance of integrating its capabilities into existing digital wallets to quickly achieve scale and user adoption, and explore the potential roles of various European payment initiatives like EPI (European Payments Initiative) and EMPSA (European Mobile Payment Systems Association). Banks are behind these payment initiatives, and they already have identity, authentication and risk management as part of their core competencies. It would make sense for them to provide digital identity solutions via their payment wallets, as a way to fight fraud, while reducing friction, for their customers.

Lastly I advocate for merchants, both European and international, to also join the work around the EUDI Wallet. Whether they choose to launch their own wallet (I am assuming local governments would allow unregulated entities outside of government, banking or healthcare to be wallet providers), or to leverage wallets launched by others, it will help them reduce fraud, and improve customer experience.?

What is the current status of the European Digital Identity Wallet?

The European Digital Identity Wallet (EUDI Wallet) is making great progress, with involvement from many market participants and targeting very relevant use cases by testing and learning in four large scale pilots . I am following particularly closely the two pilots that include payments as a use case:

• EUDI Wallet Consortium - Focused on travel credentials that include tickets, passports, and luggage tags, but also corporate identity credentials (to work anywhere), personal identity credentials (to connect with local governments from any EU country), and payment credentials (to pay safely online).?
• NOBID Consortium -? Focused on a single topic: The use of the EUDI wallet for the authorisation of payments for products and services by the wallet user. It addresses the issuance of wallets, the provision of payment means by financial institutions, and the acceptance of payment in a retail context.

Even with all the work being done and progress achieved, there are still many open questions that need to be answered, particularly as it relates to implementation details, interoperability and privacy protections. I recommend reading Andrew Tobin’s six-part series “EU Wallet In Depth ” - published on LinkedIn in February and March of last year - to understand some of the outstanding challenges.??

What will it take to get from pilots to adoption??

The truth is that solving all the technical, governance, and even user experience questions is just the beginning. In order to grow and achieve scale quickly, I fully agree with Susan Morrow when she says that “In terms of consumer identity wallets, the money will be in the system that can use existing wallets and deliver verified claims in the form of passes. ” Adding EUID Wallet capabilities on top of existing wallets that already have consumer adoption would minimize the need for marketing, education and behavioral changes.?

Although digital wallets today are mostly associated with holding payment credentials, we already expect them to also carry other credentials, such as loyalty cards, boarding passes, and concert tickets. In fact, we all expect them to fully replace our physical wallets at some point. Digital Identity will be “just” another capability of multi-purpose wallets, and what better way than to leverage wallets that already have reach to adopt the requirements of the EUDI Wallet (generally of eIDAS2 ) in the EU around identity and credentialing in general??

This is why I worry about the seemingly lack of involvement from existing popular wallets in the ongoing work. I say seemingly, because although their names are not on the list of participants of any of the large scale pilots, they may very well be participating in, or at the very least closely following, the conversations.?

When I think of wallets, of course I am thinking about the big elephants in the room (Apple and Google Wallets, maybe also WeChat and AliPay), but I would be particularly interested in seeing European home-grown wallets take part, more specifically those with clear pan-European ambitions and / or backing of the European Central Bank (ECB) and European Commission (EC) such as Wero (by EPI Company ), and all the local A2A solutions that are participating in the European Mobile Payment Systems Association (e.g. Bizum , Blik …).

What is EPI (European Payments Initiative)?

EPI is an ECB-backed, and EC-supported, initiative with the goal of creating a European payment system, built for Europe by European players, that would diminish Europe’s dependence on US and Chinese players for this part of its strategic infrastructure.?

It initially included over 30 European banks and aimed to create a pan-European payment system to rival Mastercard and Visa. In 2022 the number of supporting banks and processors shrank to 16 (mostly German, French, Dutch and Belgian), and the scope was reduced to creating a digital wallet working on top of Europe’s SEPA Instant Credit Transfer capabilities (SCT Inst).

In October EPI announced its acquisition of iDEAL and Payconiq International, which gives them ownership of the dominant pay-by-bank providers in the Netherlands and Belgium respectively. In December EPI announced Wero, their digital wallet, and made their first public transaction: € 10 payment between an account in Germany and an account in France.?

These achievements should make their goal of launching Wero, a cross-border A2A app, across Belgium, Netherlands, Germany and France in mid 2024 achievable. The ambition is to continue launching Wero in other countries.

What is EMPSA (European Mobile Payment Systems Association)?

Many of the banks that left EPI in 2022 are headquartered in countries with strong local A2A solutions. This is the case, for example, of the banks in Poland, Portugal, Spain and Italy. They wanted to support pan-European connectivity while also keeping their local solutions - instead of replacing them with a single brand and experience such as Wero -, so they joined EMPSA.?

EMPSA has 15 members in 16 European markets, representing more than 90 million users, more than one million merchants and hundreds of European banks. They have also achieved major milestones in the last few months. For instance, in January 2022, TWINT (Switzerland) and Bluecode (Austria + Germany) became the first mobile payment systems in Europe to achieve cross-border interoperability based on EMPSA specifications. Bancomat Pay (Italy) aims to join them shortly to form the EMPSA Alpine Cluster.?

Also, at the end of December,? MB Way (Portugal), Bancomat (Italy) and Bizum (Spain), three of the leading mobile payment services that are also part of EMPSA, signed a Letter of Intent to implement interoperability among them.?

Why is it important for EPI and EMPSA to be involved in the EUDI Wallet?

In reality EPI and EMPSA are the two sides of the same coin, trying to solve the same issue but starting from opposite ends of the spectrum - EPI with a top-down approach and EMPSA with a bottom-up approach. EPI will probably work best for countries without a dominant local A2A solution (such as France and Germany) and EMPSA for those with one (such as Italy, Spain or Poland). In order to serve all of Europe, EPI and EMPSA will need to be interoperable, and having a common identity layer across both would be key.

Granted, they could just connect with a different EUDI Wallet to prove the user’s identity. They could externalize / outsource this responsibility, but banks have identity, authentication and risk management as part of their core capabilities, why would they want to do this? Why would they not want the additional interactions and data points to improve their risk engines? And because there are consortiums of banks behind these initiatives, this could be a fantastic setup to jointly improve overall industry fraud and risk management, particularly if they also become one of the regulated bodies able to issue a PID2 (Persona Identification Data). Wero, MB Way or Bizum are not banks, but they are owned by banks, and their futures are linked together.

And actually, why not take advantage of this identity feature to “hide” payment complexities and enable more flexibility and options. These wallets could evolve to support sending money from one ID to another ID. I (person / company / bot) send the currency using my preferred payment method, which could be different based on amount or type of recipient or any other parameter. They (person / company / bot) receive it to their preferred account or card or any other method available. All the behind-the-scenes complexity can be hidden.?

If done well, it could even provide the type of magic that Curve1 brings to users. This is difficult to envision, as it would require the banks to step back and let their shared wallets put the user at the center, and provide guidance and smart options (via AI / ML) for users to use the most advantageous payment option at each moment. Whether or not it is the most profitable for a specific bank.?

In my view, building EUDI Wallet capabilities on top of these apps would not just help banks, but also the ECB and the EU succeed in launching and scaling a pan-European identity and payment collaboration. After a long history of failures - the table3 below gives some examples of failed regional payment efforts - it is now critical for the region to succeed.?

Where are the merchants?

The same way that I believe wallets and banks should be part of the EUDI Wallet Pilots, I also think some large merchants should be involved. Either as potential wallet providers, or to understand how they could use the wallets to reduce fraud, improve customer experience and create new flows.?

One reason why European merchants may be just watching from the sidelines is because there are no true pan-European merchants. Even the larger ones (Carrefour, Decathlon, Aldi…) are only present in a few countries. This would not diminish the benefits of participating, for their customers and themselves, but may cause them to be more focused on local initiatives in their core markets.

I believe this will open up the door for other international players with broad presence across the EU to take the lead. Of course this includes Apple and Google, but also others like Uber, Airbnb, AliExpress (part of Alibaba), Amazon and Etsy. Let's not forget about the likes of Roblox if we want to get the younger generation immediately involved. None of them are present in the EUDI Wallet conversations yet, but I believe they will as the project becomes more clearly defined.

Conclusion

There are many great companies and institutions working on the European Digital Identity Wallet - architecture, governance, user experience, pilots... But there are few consumer-facing household names. These are the players that will allow it to go from project to reality and finally to mass market in a reasonable timeframe. And we need this type of player to provide the supply and the demand for this solution. Banks, device manufacturers, retailers, gaming platforms, eComm marketplaces... We need them playing an active role in this work.

Link to this article on my personal website: https://trishburgess.com/f/navigating-the-future-of-europe’s-digital-identity-and-payments