In our deep-dive discussion on the Business Models of the EU Digital ID wallet, expert Joran Frik from Deloitte outlined a range of business model approaches and potential fee structures that could shape the future of decentralized digital identity.
In this blog, we focus on two critical areas from his presentation: the broad archetypes of business modelsand the nuances of fee structures.
Let's dive in.
Three Broad Business Model Archetypes
Joran identifies three primary archetypes that are emerging in the digital identity space:
- Self-Supporting Offering: This model envisions the digital identity wallet as a stand-alone product capable of sustaining itself financially. Similar to credit card systems that earn revenue through interchange fees, wallet providers under this model would generate revenue directly from transactions. Each time a user’s verified identity is utilized, a small fee is collected, gradually building a self-sustaining ecosystem.
- Internal Sponsorship: In this approach, private organizations incorporate the digital identity wallet as an integral part of a broader service offering. Although the wallet itself might not be profitable on its own, it acts as a critical enabler for the organization’s primary products or services. Much like gaming consoles are sold at competitive prices to drive subscriptions and content sales, the wallet here serves as the vehicle through which added-value services are delivered.
- External Funding or Subsidies: Here, the wallet’s availability and use are financially supported by external sources such as government grants or other forms of public funding. This model is particularly relevant in scenarios where ensuring widespread access to secure digital identity is a public policy objective. By subsidizing the cost, the wallet becomes free or low-cost for the end user, while still allowing for sustainable operations.
Possible Fee Structures in Detail
Diving deeper into how these business models might work financially, several fee structures emerge:
- Verifier Pays Issuer: This is the most straightforward and commonly discussed model. Under this arrangement, the service provider (or verifier) compensates the issuer of the identity credentials each time a verification occurs. This payment covers the costs associated with establishing and maintaining the high-assurance identity verification process, making it an attractive model for both parties.
Dock Labs launched a privacy-preserving take on the verifier-pays-issuer model, designed to make credential verification sustainable without compromising user privacy. - Issuer Pays or Holder Pays: Although less favored in regulated environments such as the EUDI framework, there are scenarios where either the issuer might cover part of the cost or the user (holder) might pay for additional services. These models typically appear in niche cases where extra value is provided—for example, premium verification services or expedited credential issuance—but they are generally seen as less sustainable in a broad public rollout.
- Hybrid or Transaction-Based Models: Future models may combine elements of the above, where a mixture of fees from verifiers, issuers, and even end users supports the ecosystem. These hybrid models might also incorporate dynamic pricing based on the specific attributes being verified (for example, high-trust versus low-trust attributes), ensuring that fees reflect the true value and cost of the underlying verification process.
Conclusion
In conclusion, while multiple business models and fee structures are on the table, Joran Frik emphasizes that the "verifier pays issuer" model remains the most probable and logical framework for the digital identity ecosystem.
This model effectively aligns the incentives of service providers, who benefit from reduced friction in customer onboarding and increased security, with those of issuers, who can recoup their investment in establishing and maintaining high-assurance identity verification.
As the market evolves, this model is expected to provide the backbone for a scalable, interoperable, and user-friendly digital identity solution—ensuring that secure, reliable identity verification becomes a fundamental component of our digital interactions.
