A digital wallet for all of Europe promises a more unified, accessible, and digital-ready EU. But its success hinges on a delicate balance between security, user experience, and seamless implementation.
The coming years will determine whether the initiative transforms into a cornerstone of European integration or faces the hurdles of practical implementation.
Imagine this common scenario. A Danish entrepreneur has built a thriving fintech startup in Copenhagen and has now identified a lucrative investment in Estonia. To facilitate this investment, she wishes to open a bank account in Estonia and needs to go through the KYC (Know Your Customer) process. Today, she would need to provide a plethora of documents to the Estonian bank, often in paper format, such as proof of address, identity verification, business documents, and tax records.
The verification process could be lengthy because the Estonian bank might not immediately recognise or trust foreign documents. They may need additional confirmations or translations. The back-and-forth could delay her investment opportunity, and she may face additional translation expenses or travel to Estonia for face-to-face verification with the bank. However, this scenario may soon be a thing of the past with the European Digital Wallet.
“it’s about convenience, enhanced experience, and maintaining control over one’s data. Sharing electronic documents or selecting identity details swiftly and securely is essential for digital life”
Roland Eichenauer, Vice President of Business Development in Digital Identity and eID Solutions at Nets Group
When the European Commission proposed introducing a unified digital ID across the EU in 2021, the goal was ambitious: a coherent system for the public and private sectors. Fast forward to today, the dream of a pan-European ID system is slowly taking shape.
“Potential benefits could be faster and better onboarding and KYC processes, better customer data, and the digital wallet could even help accelerate a financial institution digitisation journey,” says Roland Eichenauer, Vice President of Business Development in Digital Identity and eID Solutions at Nets Group.
According to Eichenauer, the digital wallet is an opportunity for financial institutions to think of possible identity-based use cases that can generate new value streams by expanding on current service offerings delivered today.
“Based on what’s achievable, the digital wallet has the potential to be both cost-effective and environmentally friendly. For users, it’s about convenience, enhanced experience, and maintaining control over one’s data. Sharing electronic documents or selecting identity details swiftly and securely is essential for digital life,” he adds.
Safeguarding citizens’ data
The vision of the European Digital Identity is to give EU citizens, residents, and businesses the ability to authenticate themselves or confirm specific personal data. Every citizen can access and use a personal digital wallet within the Union for various online and offline services.
The wallet, set to be initially developed as a prototype by Netcompany and their consortium partner from Sweden, Scytales AB, will be presented to the countries of the EU and other interested parties to help implement the stipulations of the Regulation for a European Digital Identity.
Thomas Rysgaard Christiansen, partner in Netcompany, sees a natural evolution in how citizens receive their services, moving towards the digital realm.
“Much like the evolution towards mobile banking, there might be a shift towards providing services directly within these digital wallets”
Thomas Rysgaard Christiansen, partner in Netcompany
“This is evident in Scandinavia, especially Denmark, both in the private and public sectors. While in other countries, this shift might be more pronounced in the private sector. But when using digital IDs, these might be created by other entities, be it banks or tech giants. This results in data that isn’t directly accessible to the users and might not be used in their best interest. Hence, there’s a desire in Europe to have greater control over personal data and decide who to share it with,” he says.
Netcompany is developing a standard framework to ensure interoperability across member states’ digital systems. By 2031, every EU citizen should be offered a digital ID compliant with these standards. According to Christiansen, the goal is for at least 80 per cent of EU citizens to use this digital ID actively.
“Having an ID recognised in 27 countries would simplify matters for individuals. Whether it’s for education, obtaining a loan, or making purchases, having a universally recognised digital ID in Europe makes life significantly easier for EU citizens,” he says.
New borders for early adopters
For Christiansen, the goal of the new framework is to make cross-border business more seamless, viewing individuals as EU citizens rather than national citizens. That will ultimately impact financial industries, revolutionising everything from service delivery to processes like securing bank loans using digital and certified documents and income statements.
“In essence, individuals should be able to use their ID and certified documents to access financial institutions outside their home country. The EU aims to simplify opening a bank account in any member state. In theory, a Danish citizen should find it as easy to open a bank account in Spain as a local Spaniard,” says Christiansen.
While Denmark is advanced in this digital transition, other EU countries aren’t. This digital shift may have a more profound impact in other EU nations than in Denmark, offering Danish fintech businesses expanded opportunities. However, it also introduces heightened competition, making business with Danish consumers more accessible to others and vice versa.
The digital wallet presents a massive opportunity for businesses that are early adopters and can grasp the emerging market, especially in the financial sector.
“Much like the evolution towards mobile banking, there might be a shift towards providing services directly within these digital wallets. Innovative and forward-thinking players will harness these technological advancements in expanding their market reach and redefining their service delivery methods,” Christiansen says.
Digital A-team and B-team
While there’s a requirement to make the system available to citizens by the member states, it doesn’t guarantee its use. If it’s too cumbersome, no one will want to use it. Christiansen acknowledges the risk of creating marginalised areas if the solution is not user-friendly due to the high-security standards mandated by the EU.
“In Denmark, we experienced how the transition to a new digital ID (referring to EasyID to MyID) can lead to numerous issues if users struggle to understand and use it,” says Christiansen and continues:
“Inequality exists in the digital realm. This is true both among the population and in the commercial sector. New businesses, for example, will require guidance and support to get started in this digital landscape. The same applies to citizens; alternative channels must be available since not everyone can navigate or benefit from these digital services, and the states must carefully consider these nuances during design.”
Christiansen emphasises that these projects are about 20 per cent technical and 80 per cent organisational, governance, competency frameworks, and other related aspects.
“We provide equal access by simultaneously making it entirely open-source and available to all. However, companies already proficient in digital services and data structure will naturally lead in this area,” says Christiansen.
Trust, Tech, Transition
Leveraging a digital potential on such a scale presents a unique challenge. While Europe, across various countries, has historically lagged in providing digital services to its citizens, transitioning to more digital interaction isn’t a straightforward process.
“In Scandinavia, there’s a high level of trust from the public in digital systems, a sentiment not uniformly shared across Europe. Even if robust digital services are introduced, there’s still the challenge of trust: will citizens accustomed to traditional methods believe in the security of a digital space?” says Christiansen.
Cultural shifts, like those seen in Denmark, are not easily achieved.
“For me, the biggest challenges are cultural rather than technical. Solutions will emerge for technical issues, but gaining widespread trust and uniformity across countries remains to be seen,” concludes Christiansen.
