Digital Identity in the Age of Interoperability

Interoperability is a hot topic for 2025, as governments and businesses attempt to shift to this new way of being - particularly when it comes to digital identities.

However, identity in the context of Know Your Customer (KYC), is facing multiple challenges. Modern KYC infrastructure is actually becoming increasingly fragmented - and it’s not because the businesses who need to use KYC solutions want it to be that way. Certainly, no product, technical or compliance team actively pursues multiple integrations, complex systems and manual processes as a strategy!

Instead, businesses have customers across borders, those customers in turn have expectations on how they want to interact with those businesses, and what data they share, and last but not least, regulation which is pushing for standardization of electronic identities (eIDs). 

The goal of interoperability is a worthy one, but let’s have a look at the challenges that need to be considered and how businesses can prepare.

The Bigger Picture

KYC is inherently complex. Depending on the nature of business, and the industry and geographies the business operates in, it needs to comply with the regulatory requirements of the industry and of the country. Fintechs and financial institutions, for example, easily have eight verification methods - from documentation, to proof of address, to biometrics, to liveness, to open banking, and others - the volume and variety of providers to support all these methods is vast. 

Against this backdrop, the first of the challenges we’ll discuss is:

Evolving regulation, most recently eIDAS 2.0

eIDAS 2.0 has been grabbing headlines and headspace as it heralds a paradigm shift for digital identity in Europe. By 2026, EU member states will need to make a national digital identity wallet available to citizens. These wallets must contain at least two digitized government documents, such as driver’s license and passport. The digitized documents in turn will be government-approved eIDs. While the Nordics are well known to have been ahead of the curve by several years, countries such as Poland already have eIDs and digital wallets implemented, with Germany, France and Italy, amongst others, also in various stages of delivery. The United Kingdom will also launch their own digital identity wallet in the summer of 2025, starting with digitized driving licenses. 

Accommodating these new eIDs as verification methods is not optional for businesses with operations in the United Kingdom and European Union. New digital identity verification methods will affect multiple industries, from gambling, to crypto, to finance (particularly around SCA), and more.

In parallel: user adoption of digital wallets and expectations

While overall adoption rates of digital identity wallets in European countries has been rising steadily since the early 2020s, with countries such as Norway seeing 79% of the population owning a digital identity and Netherlands with 87% and France with 61%, the demographics of adoption is where businesses will also need to pay attention. 

For many businesses, demographic information is vital when it comes to informing product development and delivery. Being aware of user expectation can make the difference in competitive markets, when it comes to acquiring new customers and maintaining customer loyalty. 

When we look at the demographic breakdown by generation for digital wallet adoption, the numbers are higher than people expect:

• 79% of Generation Z consumers
• 67% of Millennial consumers (aged between 29-44) 
• 45% of Generation X consumers (aged 45-60)

Needless to say, these two major factors result in a push-pull relationship where, if a business is to remain competitive, they need to balance between compliance and customer experience, and customer expectation. For many customers, the future is digital and eIDs will be a part of it. 

When external factors and internal realities collide

All we’ve discussed so far, collides over the heads of the people responsible for product, technology, operations and compliance. If a business is in a regulated industry, it is these teams who must balance compliance and customers.

And, as the Authologic team speaks to people from these teams regularly, some of the top challenges we hear about are:

• Speed of new integrations: as verification methods continue to evolve and increase, teams are finding it difficult to keep up with demand as each new provider and/or method requires its own integration and testing.
• Optimizing services: a close second to new integrations, is the need to A/B test different services to ensure conversion rates are improved and efficiencies achieved in provider spend. The ability of teams to do this is a challenge as each service needs to be set up, run in parallel, analysed, and so on. Managing multiple, individual services is a time consuming process.
• Data consistency: managing different providers for multiple verification methods produces a lot of datasets - nearly none of which are consistent with each other. Therefore, the work required by internal teams to normalize data across multiple providers and methods takes yet more time, and is a headache.
• Orchestrating OCR and eIDs: many businesses utilize OCR/Liveness technologies, yet they will still need to have eIDs. They will need to orchestrate these two systems and trying to manage it results in high infrastructure and maintenance costs.

For businesses grappling with the challenges of interoperability vs siloed solutions, and especially for those trying to build, manage and maintain it all by themselves, this introduces levels of risk (from security, to data processing, to tribal knowledge, to complexity of systems) and overhead, not to mention opportunity cost. 

The future is interoperable eID

As KYC and verification methods continue to evolve, businesses should consider streamlining where they can. It is possible to maintain traditional verification methods and incorporate eIDs into KYC processes.

For businesses interested in this, Authologic’s eID Hub has helped customers successfully address the challenges discussed, and through its API-first approach, enabled customers to:

• Solve the interoperability challenges of KYC infrastructure, through aggregation, orchestration (including OCR/liveness) and data standardization.

• Stay up to date with regulatory requirements via automatic updates.

• Centralize management of KYC processes, A/B test quickly and easily, automate processes and reduce manual checks.
• Access analytics to determine performance of KYC checks, methods and conversion rates.
• And more…

If you would like to find out how Authologic could help your business, we’d love to chat! Get in touch here.