From patchwork to platform: why Europe is resetting digital identity

Successful adoption of the European Digital Identity Wallet relies on early, structured preparation rather than last-minute compliance, say Thede Consulting payment experts Dr. Carlos Nasher and Simon Wallner.

Europe’s digital identity landscape remains highly fragmented. Financial institutions and their customers still contend with a patchwork of national e-identity schemes, each with its own standards, user experiences, and technical hurdles. This lack of harmonisation has led to persistent interoperability challenges, particularly for cross-border transactions and acceptance, while creating complex and costly integration efforts for private-sector players.

For banks, PSPs, and fintechs, the absence of common standards and clear value propositions has translated into limited incentives to invest. Institutions remain dependent on fragmented KYC and onboarding processes, often duplicating efforts across markets without achieving scale. As a result, digital identity has struggled to move beyond isolated use cases, contributing to low adoption rates.

To address these issues, the European Union is moving forward with a major regulatory overhaul. From 2024, the revised eIDAS 2.0 regulation will set out to unify the digital identity ecosystem, aiming to deliver secure, interoperable, and user-centric solutions for all EU citizens and businesses. The regulation introduces a series of significant changes, most notably the launch of the European Digital Identity Wallet (EUDI Wallet). It will enable users to store and share verified credentials and official documents. By 2027, both public authorities and regulated private entities, including banks, must accept the wallet.

How the EUDI Wallet will reshape banking and financial services

From optional to mandatory - what banks must do

With eIDAS 2.0, digital identity moves from a largely voluntary, fragmented capability to a regulatory obligation for financial institutions. The regulation introduces binding acceptance requirements for banks and other regulated entities. By December 2027, they must be able to accept the EUDI Wallet for identification, authentication, and strong customer authentication (SCA).

This obligation is broad in scope. It applies not only to customer onboarding but also to payments, transaction approvals, account access, and any other process where SCA is required under PSD2 today and PSD3/PSR tomorrow. In practice, this means that identity can no longer be treated as a standalone onboarding topic. Banks will need to ensure wallet acceptance across multiple customer journeys and channels, from opening an account to authorising a high-risk transaction. At the same time, compliance does not happen in isolation. New digital identity requirements interact closely with existing regulatory and legal obligations for financial institutions, particularly in areas such as AML/CFT, data protection, and risk controls. Banks therefore, need to design solutions that work coherently across these overlapping frameworks, rather than addressing individual requirements separately.

The operational and technical impact of wallet-based identity

Meeting these obligations will require changes to core banking processes. Digital onboarding flows must be adapted to consume wallet-based identity data. Authentication mechanisms need to be redesigned to incorporate wallet-based credentials. Wallet-based consent flows need to be considered in consent management systems and furthermore, digital signatures of documents or contracts performed with the EUDI Wallet must be verified. From a technical perspective, complexity initially increases. Banks will need to interact with multiple national EUDI Wallet implementations, each aligned with common EU standards but potentially differing in technical details. These standards will continue to evolve in the coming years, requiring flexibility and ongoing adaptation.

Operationally, the biggest challenges lie in avoiding siloed or duplicated identity investments across business lines and ensuring a consistent customer experience across channels and markets. Identity is no longer just a compliance function or a front-end feature. Under eIDAS 2.0, it becomes a foundational capability that cuts across onboarding, payments, security, and customer experience.

How eIDAS 2.0 creates opportunities beyond compliance

While the regulatory effort is significant, eIDAS 2.0 also opens up strategic opportunities for banks who are early adopters. Operational efficiency is one of the most immediate benefits. The EUDI Wallet enables access to high-assurance, verified identity data that can be re-used across products and services. This allows banks to streamline KYC and KYB processes, reduce manual checks, accelerate onboarding, and improve data quality. Over time, this can materially lower costs and improve scalability.

In payments and fraud prevention, wallet-based SCA offers a rare combination of higher security with less friction. Strong, cryptographically secured authentication reduces fraud risk while enabling smoother user journeys, such as faster checkout experiences or seamless authentication across devices and channels.

Beyond efficiency gains, the wallet also enables new business models. Cross-border account opening becomes easier to scale. Lending and other products can be activated instantly once identity and attributes are verified. Banks can enrich their services with trusted identity data, enabling more personalised and context-aware offerings.

For corporate and business banking, the EU Business Wallet (an identity wallet specifically for businesses) presents a distinct opportunity to modernise B2B relationships and streamline corporate customer journeys. Business wallets will enable companies to digitally prove legal representation, mandates, and beneficial ownership in a standardised, verifiable format. As businesses increasingly expect the same digital convenience in their banking relationships as consumers do, the EU business wallet could become a key enabler for competitive corporate banking propositions.

More strategically, the EUDI Wallet enables the large-scale use of fully digital, end-to-end processes at high levels of assurance. These assurance levels are grounded in the use of verified, government-issued identity data, combined with strong identity binding and security controls defined under eIDAS. Existing solutions and providers will need to consider how they can achieve a comparable level of assurance, either by integrating with the wallet itself or by leveraging wallet-issued identity data. Institutions that leverage this shift can strengthen their position in the European digital identity ecosystem and offer new, eIDAS-compliant services at scale.

The playing field changes as banks become identity providers

An important shift introduced by eIDAS 2.0 is that it creates a more level playing field between public and private actors. While member states are responsible for issuing wallets, the regulation also allows for private-sector innovation on top of the wallet ecosystem. Some banks have already announced plans to extend their existing banking apps into EUDI Wallet-compatible solutions or to offer wallet functionality themselves. For banks, this is a natural extension of their role as trusted custodians of sensitive data. While not every institution will choose to go down this path, the option itself is significant, as identity is no longer owned exclusively by the public sector; identity is becoming a competitive domain rather than a neutral utility.

The cost of waiting and risks of inaction

The biggest risk for financial institutions is not over-investing too early, but starting too late. Delayed preparation increases integration complexity, compresses timelines, and drives up project costs as 2027 approaches. It also raises regulatory and operational risk if wallet acceptance is not ready in time. Late adopters may also find themselves at a disadvantage compared to more agile banks and fintechs that embed wallet-based identity earlier and build new experiences around it. As identity becomes a differentiator in onboarding, payments, and digital trust, falling behind can translate directly into lost market share. Under eIDAS 2.0, digital identity is no longer just infrastructure. It becomes a strategic asset, and how banks respond will shape their role in Europe’s digital economy over the coming decade.

Turning eIDAS 2.0 into action for banks

While much of the discussion around eIDAS 2.0 focuses on future deadlines, the real challenge for banks lies in the decisions that need to be made today. Successful adoption of the European Digital Identity Wallet will depend less on last-minute compliance efforts and more on early, structured preparation. A practical way forward can be framed in a four-step, multi-faceted approach.

Analyse where identity really matters

Key customer journeys where digital identity is required need to be clearly identified, from onboarding to payments and other actions requiring strong customer authentication. Mapping these touchpoints creates transparency around regulatory exposure and enables prioritisation based on urgency, customer impact, and operational complexity. This analysis should also surface opportunities where verified digital identity can support new business models. Early focus on these areas helps financial institutions position themselves as trusted innovators and strengthen their competitive position.

Redesign processes in line with regulatory standards

Processes affected by eIDAS 2.0 should be reviewed end-to-end, including onboarding, KYC/KYB, authentication, and consent management. The focus should be on embedding wallet-based identity into core customer journeys, rather than adding it as a bolt-on integration. This also requires assessing which products and services can be simplified or enhanced through wallet usage. Digital identity needs to be treated as a cross-regulatory capability, with early alignment across PSD3, AML/CFT, and data protection requirements. Governance, auditability, and consent management should be aligned from the outset of the wallet integration, rather than introduced after implementation.

Decide how to integrate: build, buy, or partner

How EUDI Wallet functionality is integrated will differ by institution and use case. Some capabilities may be best developed in-house, while others can be sourced from existing providers or delivered through partnerships within the emerging identity ecosystem. Making these decisions early on helps balance speed, compliance, and long-term flexibility.

Build readiness and trust early

Finally, preparation is not purely technical. Banks should invest in internal training across compliance, IT, and customer-facing teams, while clearly communicating to customers how wallet-based identity will (and can) be used. Early pilots and phased rollouts help test assumptions, refine experiences, and build organisational confidence well ahead of 2027.

About Dr. Carlos Nasher

Dr. Carlos Nasher is managing partner at Thede Consulting. As an industrial engineer with a PhD in Data Science and over 10 years of experience, he is an expert in the innovative creation of digital payment processes and the development of cross-industry platform solutions, as well as in the areas of loyalty and programmable currencies. With comprehensive expertise in business models, products, and technology in payment and banking, his team delivers innovative ideas for decision-makers.

About Simon Wallner

Simon Wallner is a manager at Thede Consulting. He is a strategy and digital transformation expert with extensive experience in payments, banking, and financial services. He advises leading institutions on the development and implementation of innovative business models, digital platforms, and payment solutions, drawing on a strong background in project management and product development.

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