State-issued digital IDs are taking hold. Are banks ready?

More states are issuing digital driver's licenses or considering doing so, which is upping the ante for banks to think about how to accept mobile IDs for verification. 

About a quarter of states, including Utah, Maryland, Virginia and New York are already issuing mobile driver's licenses, and more than a dozen, including California, New Jersey and South Carolina, are piloting a program, have enacted legislation or are studying the issue, according to mDLConnection, an online resource from the Secure Technology Alliance, an organization focused on identity, access and payments. Other countries including Australia, the United Kingdom and Ireland are in the process of implementing mobile driver's licenses, underscoring the global nature of these initiatives.

Given the behind-the-scenes work necessary to make acceptance a reality, banks should start to get the ball rolling now—before customers start asking about it, said Christopher Miller, lead analyst of emerging payment technology at Javelin Strategy & Research. 

You're not going to have "a rush of folks" in 2025 demanding to use their digital IDs, but now is a good time for banks to start thinking about how to accept digital IDs across their various systems, he said.

Here's what banks need to know about the movement toward digital licenses:

Why should banks care?

First and foremost, banks should care because customers with a mobile driver's license are going to want to use it for authentication. Many Americans are tethered to their phones and a growing number are using digital wallets to pay, so having a mobile driver's license is a continuation of the trend. Industry participants predict that digital wallets could gain more traction as the movement toward digital IDs intensifies.

Payments

How state-issued IDs are driving Google Wallet's strategy

January 3, 2024 10:11 AM

Potential bank use cases include verifying a customer for in-branch teller transactions, authenticating a new customer for account opening at a branch, loan applications or verifying a customer for self-service at an ATM or kiosk, according to a white paper by the Identity and Access Forum, a collaborative group that's part of the Secure Technology Alliance and focuses on the development, advancement and adoption of secure identity technologies. 

Mobile driver's licenses can help banks reduce friction, eliminate synthetic IDs and mitigate identity fraud risk while maintaining required regulatory compliance, said Carolyn Manis-Sorensen, founder of Skavi Dev, an independent consulting firm that focuses on digital identity. "Financial institutions that embrace this shift stand to gain immensely, and so do their customers," said Manis-Sorensen who chairs an Identity and Access Forum working group on mobile driver's licenses.

How do mobile driver's licenses work?

Some states have dedicated state-run apps that hold a consumer's digital ID. These act as a wallet very similar to an Apple Wallet or a Google Wallet, but it's specialized for just that state, Manis-Sorensen said. Separately, Apple, Google and Samsung are working with some states so residents can capture and hold their mobile driver's license in the companies' respective wallets. 

In-person verification is already happening in some locations. Utah residents, for example, can use their mobile digital license at Utah Community Credit Union branches. America First Credit Union accepts digital licenses for in-person verification in Utah and Arizona. 

It's expected mobile driver's licenses will eventually be used for online verification as well. The International Organization for Standardization (ISO) last fall released standards for online presentation and "that's really something that has potential to change how people interact with websites," Manis-Sorensen said.

What are the next steps banks should take?

It's a good time to start understanding what type of technology you might need to accept mobile driver's licenses and begin exploring potential partners—without committing just yet, Miller said. "You have to think through it from each of the different channel types," Miller said. There are already a number of companies that are introducing hardware and software solutions for supporting identity verification, but it's still a developing market.

Banks should also start to prioritize which areas of the business will be the first to accept mobile driver's licenses for authentication. A bank might decide it doesn't think home equity lines of credit are that critical for digital ID acceptance, at least initially, but credit card issuance might be a priority. "There's not a one-size-fits-all answer," Miller said.

Issuance and Acceptance are Expected to Grow

While the issuance of mobile driver's licenses has been gaining steam, grocery stores, retailers, banks, airlines and others have to accept them for digital licenses to become the norm. Javelin data suggests that consumers are not the holdup, especially considering they use their mobile devices for multiple types of authentication purposes. More than half of consumers—58%— have used a mobile device as an entry pass or ticket to a concert, movie, sporting event or the like, according to Javelin's 2024 North American Payments Insights survey. Of consumers who have used their mobile phones for these purposes, 45% are aware of the Digital ID concept, and 79% of those who are aware know whether or not Digital ID is available in their state. "The willingness is there, but the acceptance is not and the issuance is not," Miller said.