Digital Identity is an electronic record representing a person or organisation that a third party can verify, built from attributes such as name, date of birth, nationality or company registration number, bound to credentials like a passport chip, a qualified certificate or a government-issued app. In financial services it serves two jobs: proving who a customer is at onboarding, typically by reading a passport chip and matching a live selfie, and proving the same customer is back at each login or payment through strong customer authentication. The revised eIDAS Regulation requires member states to offer a European Digital Identity Wallet by December 2026, which banks, e-money institutions and payment providers must accept by December 2027.
How does digital identity verification work
At onboarding, a provider collects identity evidence and checks it. A typical remote flow reads the NFC chip in a passport, compares the chip photo with a live selfie using liveness detection, and screens the name against sanctions and politically exposed person lists. The result feeds know-your-customer files that the firm must keep under anti-money-laundering rules.
Authentication is the second job. Under PSD2, strong customer authentication requires two of three independent elements: knowledge (a PIN), possession (a registered phone) and inherence (a fingerprint or face). A digital identity is only as strong as the weakest link between the verified person and the device or credential later used to authenticate.
What is the EU Digital Identity Wallet
The revised eIDAS Regulation, (EU) 2024/1183, entered into force on 20 May 2024 and requires every member state to offer citizens a European Digital Identity Wallet by December 2026. The wallet holds a verified identity and other attestations, such as a driving licence or a bank account, on the user's phone, and the user chooses which attributes to share with each relying party.
For financial firms the key date is December 2027. By then, regulated private relying parties, including banks, e-money institutions and payment service providers, must accept the wallet where strong customer authentication is legally required. Micro and small enterprises are excluded from the obligation.
Digital identity in banking: a worked example
Take an illustrative EMI onboarding 20,000 customers a month through document-and-selfie checks at €1.50 each, with 25% of applicants dropping out mid-flow. If a wallet-based flow costs less per check and halves the drop-out rate, the same marketing spend yields 2,500 extra accounts a month. The verification data also arrives as signed attributes from a government issuer rather than as an image the firm has to interpret, which reduces disputes over document fraud.
Digital identity and corporate customers
For businesses, digital identity means the company itself plus its directors and beneficial owners. Know-your-business checks pull registry data and then verify each controller as an individual, so a firm with three layers of holding companies may need a dozen identity checks before its account opens.
For a buyer of a regulated fintech, the identity stack is a diligence item in its own right: which vendors run verification and authentication, whether contracts can be assigned to a new owner, how long verification evidence is retained, and whether the firm has a plan to accept the EU wallet before the 2027 deadline.