The Competitive Advantage of Decentralized Identity in European Finance

From opening a bank account to approving a mortgage or executing a cross-border payment, trust in a person’s digital identity is what keeps the financial system running smoothly. But in Europe, the digital identity landscape has long been fragmented with each country relying on its own tools, trust schemes, and identity providers. For financial services providers operating across borders, that means rising compliance costs, customer friction, and missed growth opportunities. The EU’s eIDAS 2.0 regulation is about to change all that, and for banks, insurers, and fintechs, the implications are massive.

The original eIDAS framework, launched in 2014, aimed to bring consistency to digital identification and trust services. It made digital signatures and cross-border ID recognition possible, but only for public services. Financial institutions were largely left to navigate identity verification on their own.

eIDAS 2.0 flips the script. It introduces a powerful new tool, the European Digital Identity (EUDI) wallet, and expands legal obligations to private sector players, including those in financial services. This wallet will allow citizens and businesses to store and selectively share their digital identity securely, from proof of age and residency to bank account details and education certificates.

eIDAS 2.0 also provides a framework to converge (or tightly bind) payment and identity into a single, simple, secure user interaction where the user never has to type a credit card number, expiration date, name, or billing address ever again, replacing the unreliable autofill and vulnerable stored data from platform services and web browsers. 

Multiple EU pilot programs funded by the government have already demonstrated the value showing a drastic reduction in merchant fraud. As a result, multiple EU member nations are incorporating payment capabilities into their official government-provided wallets and working closely with financial institutions to implement usage. 

80% of E.U. citizens

Proportion of the EU population to
have access to a EUDI Wallet by 2030.¹

What sets it apart is the decentralized identity model underpinning it. Instead of siloed databases and one-size-fits-all logins, eIDAS 2.0 moves toward self-sovereignty and user-controlled, portable digital identity. This opens the door to faster onboarding, stronger verification and authentication, and a radically better customer experience (CX).

eIDAS 2.0 entered into force in May 2024. By mid-2025, the European Commission will deliver the full technical architecture and interoperability standards. Every EU member state must begin piloting compliant wallets, with at least one publicly available by 2026.

By mid-2026, very large online platforms (VLOPs), including financial institutions offering high-value or regulated services, will be required to accept the EUDI wallet for customer authentication. By 2027, that obligation expands across the board to cover public services and private-sector transactions requiring strong authentication.

For financial institutions, the countdown has begun.

At its core, eIDAS 2.0 signals a move from centralized to decentralized identity. In the traditional model, identity data sits with individual service providers or central authorities. That leads to duplication, lack of control, and fragmented experiences. Worse yet, stale copies of data are proliferated to every relying party unnecessarily, even if the user is only occasional in their interaction level. 

With decentralized identity, users hold their own credentials and share only the minimum necessary information backed by cryptographic proofs. The EUDI wallet supports standards like verifiable credentials and decentralized identifiers (DIDs), giving people full control over what they share, when, and with whom. Issuance and lifecycle management tools also keep the data fresh so relying parties can have accurate, up to date data every time they interact with a user.

One of the key benefits of decentralized identity is that the same verified credential a user presents online to verify trust, can also be used in-person (including when offline and no internet communications are available). This means customers can have the same or similar user experiences both online and in-person at a brick-and-mortar. This is the first time digital identity technology has delivered such harmonious user experiences across multiple channels.

Financial service providers no longer need to ask customers for everything at once. Instead, customers get validated access to the authorized data, instantly and securely. With a new model comes a new market - the global decentralized identity market was valued at just over $1 billion in 2023 and is projected to grow at a compound annual growth rate (CAGR) of over 70% from 2024 to 2032.²

eIDAS 2.0 is more than a compliance exercise. It’s a springboard for innovation across every corner of the financial services industry.

Take onboarding, for example. Instead of slow, document-heavy processes, users can share verified identity attributes instantly. That means onboarding in minutes, not days with a higher degree of assurance. Operational costs fall, satisfaction rises.

Then there’s fraud prevention. With digital mobile government IDs issued and validated under national identity schemes, and protected by cryptographic verification, the risk of impersonation and identity theft drops dramatically.

Cross-border growth becomes a reality. With mutual recognition of identities across the EU, financial institutions can serve customers in any member state without duplicating verification processes.

And the possibilities don’t stop there. The EUDI wallet aligns with blockchain, AI, and smart contract technologies, enabling automation in “know your customer” (KYC) compliance, real-time eligibility checks, and new forms of secure transactions. It could even become a core component of future central bank digital currency (CBDC) wallets.

For consumers, the EUDI wallet brings a much-needed shift in digital identity: one that puts them in control. Instead of handing over full personal information for every transaction, customers will be able to share just the data that's needed and nothing more. Whether proving you're over 18 or verifying your residency to open a bank account, the wallet lets people share verified data with minimal friction.

Privacy is built in by design. With support for selective disclosure and even pseudonymity in some contexts, individuals can maintain more privacy than ever before in online interactions. The EUDI wallet also gives users a clear audit trail who they shared what data with and when. That visibility builds trust.

Convenience is also a major gain. From applying for a loan to signing documents digitally, consumers will enjoy secure, seamless access to services without repeated manual steps. The user-centric design of the EUDI wallet shifts the balance of power in digital interactions, fostering transparency, autonomy, and efficiency.

This change forces a mindset shift within financial institutions. For decades, identity verification has been provider-centric: built to serve regulatory needs, often at the expense of experience. With eIDAS 2.0, financial service providers must adopt a user-first perspective.

That means designing onboarding and servicing flows that begin with the user. Instead of treating identity as a hurdle, it becomes an enabler. The EUDI wallet enables personalized, permission-based interactions that feel more like modern digital commerce and less like bureaucracy.

Institutions that embrace this mindset will win in the long run. They’ll increase security, reduce risk, gain loyalty, and differentiate themselves as trust-first brands. In a world where consumers have more control and choice, that matters more than ever.

Adversarial and generative AI are being used more and more to attack and game all digital connections in the cloud with key success against application programming interfaces (APIs) and federated identity integrations. Banks typically manage tens-of-thousands of APIs and thousands of federated access connections. Security leaders at the largest banks are now sounding the alarm that business-as-usual in these cloud and centralised models cannot be sustained anymore safely and securely.

By rerouting at least a portion of the transaction out-of-band through the wallet for as many users as possible, financial service providers can greatly reduce the attack surface and make it much harder for fraudsters and hackers to be successful. The key here is to leverage the decentralized channel for identity and authentication and keep the authorization centralized as needed, by combining the APIs with out-of-band channels for continuous identity verification. This is precisely the new world of “verified trust” we have now entered into. 

This frustrates fraudsters including adversarial AI due to the double cryptography involved and the fact they have to hack phone-by-phone-by-phone. This is not only an expensive proposition but may also require local device access.

Adding biometric data to a credential and then matching server-side with advanced deep fake technology provides additional levels of assurance including proof of humanity. This ensures that relying parties do not have to worry about any biometric processes potentially being compromised or spoofed on the device.

Digital credentials and wallets enable a uniquely strong link between the issuer, the user's identity, their device, verified assurance, and the access rights granted. Crucially, these credentials remain fully portable thus empowering users to present and use them wherever they choose. This ensures true user-centricity and seamless portability.

Some financial institutions aren’t waiting for the 2026 deadline. They’re already laying the groundwork to lead in the decentralised identity era.

One major north European bank is exploring integration of decentralised identity to enhance customer onboarding and authentication. Another European multinational bank is investing in interoperability and user control, participating in pilot programmes to test EUDI Wallet capabilities. Beyond this, a major German bank is actively evaluating how to integrate the EUDI wallet into its existing infrastructure, while another major multinational bank headquartered in London is preparing pilot projects to embed the EUDI wallet into its authentication flows.

These early movers understand what’s at stake. They see eIDAS 2.0 not as a compliance exercise, but as a strategic opportunity.

Getting there requires more than vision, it requires robust identity and access management (IAM). IAM systems will serve as the interface between the EUDI wallet and your back-end systems, enabling secure, standards-based authentication, identity proofing, and consent management.

Done right, IAM will allow your institution to support selective disclosure, integrate with credentials, and manage trusted data flows across multiple jurisdictions. It’s the glue that makes decentralised identity work at enterprise scale.

This includes out-of-the-box support that enables existing applications and single sign-on (SSO) systems to interact with wallets without changing any code or configurations. Standards like SIOPv2 built into ready-made wedge adapters enable existing applications to talk to a wallet using a federation interface without even realizing it to ensure backwards compatibility. 

Beyond that, upgraded applications can take advantage of standards like OpenID4VP and OpenID4VCI to have a richer, native interaction with wallets and take advantage of new capabilities not available in federated integrations.

Purpose-buit IAM provides the infrastructure and tools needed to turn eIDAS 2.0 compliance into business advantage. With established expertise in IAM, the right identity solution can help financial institutions build secure, scalable, and standards-based digital identity ecosystems.

The Ping Identity Platform enables seamless authentication across EU member states, using open protocols like OpenID Connect, OpenID4VCI, OpenID4VP and SIOPv2 to support cross-border recognition. Its native and/or third-party identity verification services support fast, compliant onboarding, and verification against multiple government identity schemes.

For decentralized identity, the Ping Identity Platform empowers users with verifiable credentials and decentralised identifiers, fully aligned with the EUDI wallet model. The platform supports selective disclosure and privacy-preserving data exchange, giving users control while meeting regulatory standards.

This layered security stack, including FIDO-based multi-factor authentication (MFA) and real-time threat detection, ensures wallet integrations meet the highest levels of assurance. And with experience managing over eight billion identities, Ping Identity offers the scale and trust needed to support mission-critical services in banking and finance.

The message is clear: compliance is mandatory, but leadership is optional. And those who move first will have the best shot at capturing new customers, cutting operational complexity, and shaping the next chapter of digital finance in Europe.

The EUDI wallet won’t just change how people log in. It will redefine how trust is built, data is shared, and value is exchanged. For those ready to embrace it, the future is wide open.

1. ABi Research - EU Digital Identity Wallet Expectations in Europe

2. Global Market Insights - Decentralized Identity Market Size, By Identity Type