What are digital wallets?
The term broadly refers to mobile or software-based mechanisms that store a user’s digital information. Traditionally digital wallets have referred to payment credentials, however, they are increasingly growing to encompass wider digital identity information such as citizen credentials, driver’s licences, health records and more. When breaking this down through a public and private sector lens, we can identify two core types of wallets:
- Government or public sector digital wallets: These wallets are focused on personal identification and records, including digital ID cards, passports, and health related records.
- Private sector wallets: The wallets are largely focused on managing payments and services, with examples including Apple Pay, Google Wallet, Samsung Pay and PayPal, as well as train tickets and loyalty cards.
Digital wallets offer multiple benefits to users and organisations, from enhanced security and fraud prevention, to convenience for users, better experience and reduced friction, financial benefits and cost savings. Let’s take a closer look at how these platforms are being shaped in different regions.
The EU approach: Centralised, interoperable and privacy-focused
The European Union has established a coordinated approach at government level to the adoption of digital wallets and future identity strategies. The strategy is centred on trust, security, privacy and interoperability for digital wallets and ID frameworks.
Electronic Identification, Authentication and Trust Services (eIDAS)
The eIDAS regulation is at the heart of the EU’s digital identity strategy and mandates that member states provide their citizens digital IDs that can be used for digital services and platforms – as well as functioning across borders. An important update to the original eIDAS regulation is eIDAS 2.0 which introduced the concept of the European Digital Identity Wallet or EUDI.
This iteration of the framework puts the focus on the development of a central wallet (mobile app or tool) that citizens from across the EU can use to store identity credentials and access public and private services. The goal being to simplify the use of digital identity across the region.
Key principles of this approach include:
- User control and privacy: Alignment with the EU’s GDPR (General Data Protection Regulation) principles of data protection and allowing users the ability to decide what information they share and with whom.
- Security: The framework of the wallet has adopted enhanced security standards, including features like multi-factor authentication to prevent fraud or misuse.
- Interoperability: A key aim of the approach is to create a common technical framework that allows for a high level of interoperability between national systems and the EUDI.
Opportunities for the EU approach
- The EU’s approach could ultimately set a global standard for secure and interoperable digital wallets
- eIDAS 2.0 offers a versatile set of use cases or ‘trust services’ for different digital identity scenarios across multiple sectors, including electronic signatures for banking and finance services alongside electronic seals to authenticate government services
Challenges facing the EU approach
- Varying levels of adoption of digital ID technologies and digital wallets across various EU member states poses a challenge alongside different levels of digital infrastructure
The US approach: Private sector driven and fragmented
The ecosystem surrounding digital wallet technologies and frameworks in the US is driven largely by the private sector and major tech companies such as Apple, Google and Paypal, and banks and financial institutions. The landscape is dominated by services that focus on convenience, payments and consumer rewards.
Contrasting with the EU’s overarching regulatory framework for digital wallets and IDs, within the US there is no centralised strategy. This has created a somewhat fragmented approach where services are managed by specific industries or at state level. Some states including Colorado, Maryland, and Arizona have introduced services like mobile drivers licences but adoption does not yet extend nationwide.
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Without a national level unified ID solution, the US landscape does pose a challenge for a cohesive system; this is also compounded by scepticism and mistrust from US citizens to government digital wallets. Privacy concerns are valid, especially in a market dominated by private sector tech giants – which is also a driver behind the EU’s public sector-first digital identity initiatives.
The US’s market driven approach does however, offer benefits for users and digital identity innovation:
- A competition driven market between technology companies drives innovation as solutions become more refined.
- Such a market environment offers responsiveness to new consumer demands and trends.
- The variety of wallet options available in the region gives consumers choice and flexibility to suit their needs.
- There is an argument that decentralised digital identity solutions and wallets offer enhanced user privacy than government-owned services.
How should the UK approach digital wallets?
The UK is in an interesting position when it comes to approaching a strategy for digital wallets and identity. Having left the EU in January 2020, the UK still maintains close regulatory ties with Europe, however, it also has some alignment with the US’s approach to digital innovation and market-driven tech. There is an opportunity to capitalise on these approaches and adopt a best of both worlds solution tailored specifically for the UK public and private sector.
The rise of the digital wallet
Digital wallets adoption for payment and transportation services have seen rapid adoption in the UK. Figures project substantial growth by 2027 across both e-commerce (£203.5 billion transaction value equal to half of total spending), and traditional point-of-sale services (rising from 14% to 29% of purchases).
Like the US, this growth has been driven by private services like Apple Pay and Google Wallet – furthermore, the UK’s thriving fintech sector has played a key role with digital-first banks like Monzo, Revolut and Starling Bank offering their own digital wallets, convenience verification features. In essence, the UK has established itself as an engaged environment for digital wallets to evolve.
But what about the public sector?
Public reticence towards centralised identity in the UK poses a challenge and led the previous government to create a fact sheet in response to concerns. Currently, the focus is on approaching identity for separate services including the NHS Login service for healthcare and Gov One Login for some government services. Outside of this, there are no current plans for a centralised digital ID wallet like that outlined by the EU.
A hybrid opportunity focused on privacy and user experience
Despite challenges, the UK’s digital landscape offers a unique opportunity to craft a leading pathway for digital wallets:
- Hybrid public-private approach: Creating a model that combines private sector innovation and government frameworks. Government standards would ensure that security, privacy and interoperability remain at the heart; harnessing private sector tech would support innovation.
- User-centred and privacy-first: By applying user-centred principles to service design, there is opportunity to craft a privacy-focused digital wallet that allows citizens to have full control over what data they share with whom. Harnessing inclusivity and accessibility features throughout would also help to build trust with users and support adoption.
- Interoperability with the EU and global frameworks: Ensuring that frameworks and systems are built to consider the eIDAS framework and other global solutions could offer benefits for UK citizens and businesses on an international platform.
The digital wallet and ID landscape of the UK is at a crossroads. Now is the time to lay the foundations for a cohesive national identity framework. With investment from both public and private sector stakeholders, to demonstrate a motivation to really deliver from both sides, the UK has a real opportunity to create a hybrid model that draws on private sector agility and innovation without compromising government-driven privacy and security standards.
