Business Models for the EU Digital ID Wallet and Decentralized ID [Video + Takeaways]

Also on Spotify and Apple Podcasts.

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If you’ve been following the latest developments in digital identity, you’ll know that business models for decentralized solutions—especially under the European Digital Identity (EUDI) framework—are a hot topic.

Recently, we hosted a conversation with Joran Frik, a Senior Manager at Deloitte who has spent the past seven years advising on digital identity strategy, enterprise solutions, and citizen-centric identity initiatives.

During the session, Joran presented a deep dive into how EU Digital Identity wallets fit into broader identity ecosystems. He explained the importance of aligning government mandates, private-sector incentives, and end-user benefits—an essential triangle that can make or break adoption.

Below, you’ll find the full takeaways from this insightful exchange.

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Regulatory Context Under EUDI

• Member State Provision
  
  • The EUDI Wallet must be provided by (or under mandate from) a Member State.
  • Implies government involvement in wallet issuance, though private providers may also be certified.
• Key Constraints from the Proposed Regulation
  
  • Free for End Users: Especially for issuance, usage, and revocation of the EUDI wallet and qualified e-signatures (for natural persons).
  • Open Source Requirement: Wallet source code should be published unless duly justified exceptions apply.
  • High Level of Assurance: EUDI wallets aim for LoA High, covering rigorous security features.
  • Unlinkability of Transactions: Issuers cannot track whether, when, or how frequently a user’s credential is being consumed by verifiers.
• Tension Points
  
  • Unlinkability complicates typical business models, where usage volume or attribute-based fees are standard.
  • Governments are not typically specialists in building commercial business models, yet the regulation pushes them to consider cost structures.

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Rationale for the Wallet Approach

• Historical Lessons from eIDAS 1.0
  
  • eIDAS set global standards for secure eID but did not achieve high daily use or broad reach for citizens.
• Threat of Alternative Wallets
  
  • Big tech platforms (Apple, Google, Samsung) and private companies can offer wallets outside the EUDI regulation.
  • European efforts must demonstrate high trust use cases to remain relevant and widely adopted.
• Overcoming Market Gaps
  
  • The regulation assumes that, without government involvement, high-trust wallets may not organically emerge or be sufficiently ubiquitous.
• Why Focus on Business Models?
  
  • To ensure widespread take-up of the wallet, covering user incentives, issuer incentives, and relying party incentives.
  • To avoid reliance solely on public funding and to foster healthy competition in the identity market.

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Focus on the Ecosystem vs. Just the Wallet

• Shift from “Wallet Business Model” to “Ecosystem Business Model”
  
  • The wallet itself is often cost-intensive to develop and maintain.
  • Real value lies in connecting issuers, verifiers, and holders across numerous use cases.
• Critical Mass and Flywheel Effect
  
  • More issuers providing high-value credentials → more relying parties adopting the ecosystem → more users carrying the wallet → further issuers onboard.
  • Subsidies or market-driven incentives may be crucial in kickstarting that cycle.

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Traditional Federated Identity Payment Flows (Pre-EUDI)

• Established “Verifier Pays Issuer” Models
  
  • Traditional federated identity: A service provider pays an Identity Provider (IdP) for verified user attributes.
  • Example: Banks paying for an authentication or KYC check from an official source.
• Simplified B2C Flow for Decentralized ID
  
  • User → obtains verified attributes from Issuer → uses them at Service Provider (Verifier).
  • The Verifier pays for this reusable identity transaction if it saves them onboarding costs.

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Added Complexity of Decentralized Credentials

• Multiple Attributes, Multiple Issuers
  
  • Beyond a single “identity,” wallets can hold many credentials (e.g., driver’s license, diplomas, bank statements).
  • Each has unique trust levels, validity periods, and value in the market.
• Potentially Many Relying Parties
  
  • An open ecosystem means numerous verifiers with different contract requirements.
  • Contracting or trust lists might replace traditional one-to-one contracts.
• Unlinkability Challenge
  
  • Verifiers may want “pay-per-use” models or dynamic pricing; however, they cannot easily inform the issuer that an attribute was consumed if usage is private by design.

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Three Broad Business Model Archetypes

1. Self-Supporting Wallet Offering
   
   • The wallet charges an interchange-like fee (akin to credit cards) on each transaction, sustaining itself independently.
2. Internal Sponsorship
   
   • A private entity integrates the wallet as part of a broader service ecosystem (e.g., a device or platform), recouping costs indirectly.
   • Example: A gaming console sold at break-even, making profit from subscription or digital content.
3. External Funding / Subsidies
   
   • Government or other external sponsors pay the costs to make the wallet free for end users (and possibly verifiers), ensuring broad availability.

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Key Success Factors for an EUDI Wallet Ecosystem

• Large-Scale Adoption
  
  • Must achieve critical mass of both issuers and verifiers.
• Clarity on Liability and Trust Frameworks
  
  • Each participant (issuer, verifier, wallet provider) needs a well-defined scope of responsibility.
  • High trust use cases require clear legal recourse and accountability if data is misused.
• Interoperability and Standardization
  
  • The Architecture Reference Framework from the EU Commission is pivotal to ensure consistent formats and cross-border acceptance.
• User-Centric Experience
  
  • A frictionless user flow encourages daily usage, not just compliance-driven usage (e.g., KYC in banking).

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High-Trust vs. Low-Trust Attributes

• High-Trust Use Cases
  
  • Banking, Healthcare, International Travel, etc.
  • Infrequent usage but typically higher willingness to pay for verified credentials.
• Substantial or Lower-Trust Use Cases
  
  • Concert tickets, loyalty programs, daily commuting passes.
  • Higher frequency and volume, but smaller fees per transaction.
• Combining Both
  
  • To maximize wallet usage, it may need to accommodate both high and lower-trust credentials in one environment.

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State of Certification for EUDI Wallets

• Mandatory Certification
  
  • Any EUDI-labeled wallet must pass a thorough EU (and/or national) certification.
• National Certification First
  
  • In the short term, many wallets must be certified in each Member State, increasing overhead.
• Potentially Fewer Wallets
  
  • Given complex certification and high costs, only a handful of official wallets may emerge.

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Possible Fee Structures in Detail

• Verifier Pays Issuer
  
  • Most common and logical: the service provider pays for the benefit of receiving verified data.
• Issuer Pays (to Make Data Available)
  
  • Occasional scenario (e.g., government sponsor or a private entity wanting more usage of its credentials).
• Holder Pays Issuer
  
  • Not favored under EUDI for essential identity functions, but might appear in specialized contexts (e.g., premium credentials, expedited services).

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Challenges in Implementation

• Unlinkability vs. Commercial Viability
  
  • Payment or usage-based fees require some mechanism to measure consumption without compromising user privacy.
• Need for a “Clearing House” or Aggregator
  
  • Solutions analogous to card payment networks could track transaction volumes, ensuring proper remuneration while maintaining partial anonymity.
• Legal and Policy Ambiguity
  
  • Final decisions on how strictly to interpret unlinkability (or exceptions) remain unresolved at the EU level.

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Broader Market Dynamics Beyond EUDI

• Parallel Wallet Ecosystems
  
  • Big tech wallets (Apple, Google, etc.) may operate outside EUDI or partially align with it.
• Enterprise Identity Use Cases
  
  • Decentralized identity principles can also address B2B scenarios, such as verifying contractors, employees, suppliers.
  • Potentially big cost savings in remote onboarding, workforce mobility, and cross-border operations.
• Global Interoperability
  
  • Governments and private sectors worldwide (e.g., US, Japan, Australia) are watching and may adopt or adapt EU standards.

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Possible Future Models and Market Shifts

• Hybrid Pricing Approaches
  
  • Combination of “verifier pays,” “issuer pays,” or “wallet subscription” can coexist.
• Integration with Existing Licenses
  
  • Large software vendors (e.g., Microsoft) might bundle decentralized identity into enterprise tool suites rather than sell it separately.
• Open Ecosystems and Interoperability
  
  • Over time, closed ecosystems may interconnect through common standards, forging a “network of networks.”
• Increased Competition
  
  • Incumbent identity solution providers may face new specialized start-ups offering agile, niche wallet services.

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Q&A Highlights

• Which Sectors Will Lead Ecosystem Formation?
  
  • Financial Services, Healthcare, Travel have strong regulatory needs (and budgets) for identity solutions.
  • Organizations with large consumer networks (e.g., banks, payment providers) are well-positioned to “convene” ecosystems.
• Potential for Private Ecosystems
  
  • Private sector consortia can already build wallet solutions and do not have to wait for final EUDI rules.
  • Use of closed ecosystems (with known participants) vs. open ecosystems (with standard-based acceptance) can evolve over time.
• Pricing and Governance
  
  • No single authority on setting prices for credentials; likely a mix of market competition and standards-based frameworks.
  • In private ecosystems, the leading organization often determines or negotiates fees.
• Value to End Users
  
  • Immediate user benefit: reduced friction in registration or onboarding, privacy by design, and assured trust in credentials.
  • Longer term: potential for user monetization of data or micro-payments, although that is complex.
• Unlinkability vs. Payment
  
  • A core paradox: how do issuers get paid for usage if the system conceals usage events?
  • Potential solutions include advanced cryptography (zero-knowledge proofs), clearing houses, or partial trust-list solutions.
• Digital Signatures
  
  • E-signatures must be free for personal use under EUDI.
  • Larger impact for B2B transactions or legal entity wallets (representation rights, signing authority).
• Workforce Identity
  
  • High interest in applying these principles to workforce IAM, especially for remote onboarding and multi-company contracting.
  • Could streamline background checks and staff authentication inside large organizations.

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Recommendations and Best Practices

• Focus on Concrete Use Cases
  
  • Rather than “boiling the ocean,” stakeholders should pick specific, high-impact scenarios (e.g., travel ID, bank onboarding).
• Drive Issuer Participation
  
  • A thriving ecosystem requires robust issuance of credentials, so building incentives for attribute providers is crucial.
• Embrace Incremental Ecosystem Building
  
  • Start with closed or smaller consortia to validate the model, then expand to open frameworks as trust matures.
• Maintain User-Centric Privacy
  
  • Align commercial needs (fees, usage metrics) with data minimization, unlinkability, and GDPR compliance.

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