The European Union's proposed digital wallet could struggle with adoption, despite its improvements to payment security, because it restricts companies from profiting from the project.
The EU is expected to announce plans for an electronic wallet that would be available to citizens in its 27 nations. The wallet would store driver's licenses, payment credentials and a single online identity to access public and private services. Consumers will use standardized biometric authentication such as fingerprint and retina scanning, among other methods, to enter a portal to apps from participating banks, payment companies and other enterprises.
The EU is developing these standards with member states, who will have to sign off on the protocols, with the app expected to be released in about a year. The wallet project is scheduled to be formally announced this week following months of discussion and rumor, according to the
The near-term benefits would be limited to security, enrollment and transaction vetting. The FT reports companies that access user data through the wallet will not be allowed to use that data for marketing or related commercial activity. Other digital wallets, such as Apple Pay and Google Pay, use enrollment as the basis for cross-selling a variety of other financial services and unrelated products such as streaming content. Apple Pay is the basis for Apple Card, a partnership with Goldman Sachs that uses Apple's digital wallet as a springboard for card issuance and App Store sales.
For banks and fintechs, the EU project is designed to address a long-standing goal of migrating away from static authentication such as passwords toward a more flexible form of
There are potential benefits for financial services that use open banking, which link bank accounts to third parties such as payment and financial management apps. A standardized form of authentication recognizable across the EU could make it easier to enroll and onboard users for repeated usage since all parties in the open banking relationship would be using the same form of authentication. A user could order a car from a ride-sharing app, order ahead at a restaurant and make a payment through the same experience. The wallet could also be used to enroll consumers in digital bill pay for utilities or other monthly payments, or to check in at a hotel or airport.
"I would imagine banks and payment systems will come to use it as part of validating users' identities when making payments, applying for credit or establishing a banking relationship," said Eric Grover, a principal at Intrepid Ventures.
The messaging around the EU's project, based on earlier speeches from EU officials, is that standardized digital ID is necessary in a post-pandemic economy that's more reliant on e-commerce, online banking, and contactless or remote engagement with companies and government facilities.
Multiple European media sources referenced a speech Thierry Breton, the EU Commissioner for digital policy, gave earlier this year saying broader digital ID would provide an "extra secure" ecosystem for post-pandemic life and give Europeans a key to their "digital twin." The data marketing prohibition is being positioned as an incentive for consumers to adopt the digital wallet, which is optional. Breton's office did not return a request for comment by deadline.
The technology that supports digital ID is not new, and almost nobody is in favor of keeping passwords for different relationships. The complication arises because digital or federated ID requires participants in an open loop network to
Allowing companies more flexibility over how the digital ID system is used could provide incentive for financial institutions to share their security technology.
"While having an industrial-strength standard means of authenticating users will have value for banks and fintechs, being able to use it for marketing as well would have enormous value," Grover said.
The EU's new wallet project is itself borne out of interoperability concerns and is part of a
A limited number of EU countries have federated digital ID schemes, such as
"These schemes allow easy verifications through the e-banking infrastructure, not only for bank account access but for all kinds of services including government," said Ron van Wezel, a senior analyst at Aite. "But these are local and can't be used in other countries."
The EU also has a program called
"With the new scheme it would extend its scope to private services as well," van Wezel said, adding there's "huge potential" to make identity vetting easier and shareable across states, but not as much potential to make money on the ID service itself.
