European Digital Identity (EUDI): A Paradigm Shift in Banking Customer Onboarding

“With a few taps on their mobile phone, remote area workers in India can apply for social benefits to be paid directly into their bank account and electronically sign an application for a loan. In Thailand, farmers can receive fertilizer subsidies to a bank account linked to their identification (ID). Singapore citizens and residents can conduct almost any transaction end-to-end online, no matter where they are, from registering a birth to filing taxes and opening a new business. These services are made possible through innovations catalyzed by digital public infrastructure.” – World Bank (2024a).

Why don’t the citizens of the EU have these benefits yet?

The digital transformation of financial services has accelerated significantly in recent years, yet European citizens still lack the seamless digital experiences that have become a commodity in many Asian and developing economies. While India’s Aadhaar system serves 1.3 billion citizens and Singapore’s SingPass enables comprehensive e-government services, Europe is still fragmented in its digital services. Customer onboarding in European financial institutions continues to be characterized by redundant identity verification processes, manual documentation reviews, and complex regulatory requirements that vary by each jurisdiction.

The European Digital Identity (EUDI) framework, established through the eIDAS 2.0 regulation, was approved in 2023 and entered into force in early 2024. The regulation mandates that all EU Member States must make digital identity wallets available to their citizens, residents, and businesses by 2026. This regulation brings a systemic approach to addressing the mentioned challenges through standardized, secure, and user-controlled digital identity verification and aims to finally bring European citizens the digital convenience long enjoyed elsewhere while maintaining the strict privacy and security standards that European regulations demand.

The High Cost of Know Your Customer (KYC) Processes

The current KYC and customer onboarding processes within European financial institutions are a significant financial and operational burden. Recent industry studies highlight the scale of this challenge:

Global KYC compliance spending is estimated to exceed €50 billion annually, with a large share attributed to manual onboarding and verification tasks (Thomson Reuters, 2023).

On average, a single KYC onboarding case costs banks between €100 and €150, with greater costs of more than €1000 for corporate clients, due to labor-intensive processes and fragmented data sources (McKinsey, 2022).

The onboarding process can take up to 34 days for corporate customers, and 24–48 hours with a maximum of 28 days for retail customers, leading to high abandonment rates and lost revenue opportunities.

Because KYC data is not portable across financial institutions or jurisdictions in the EU, the same identity checks are repeated multiple times for the same customer. This lack of interoperability leads to redundant spending, inefficiencies in customer acquisition, and lost economic productivity. According to various industry estimates, the total economic impact of fragmented and repetitive KYC processes is estimated at €12–15 billion annually across the EU economy (based on cumulative compliance costs, opportunity costs from onboarding delays, and customer drop-offs) [(Deloitte, 2023); (European Commission, 2021); (McKinsey, 2022)]

These inefficiencies are compounded by regulatory fragmentation across EU member states, which forces financial institutions to duplicate efforts, maintain local compliance teams, and handle recurring re-verification procedures when customers move across borders. The lack of interoperable digital identity systems also increases the risk of inconsistent identity checks, fraud, and non-compliance penalties.

The EUDI framework directly addresses these shortcomings. By enabling secure, reusable, and standardized identity verification across the EU, it significantly reduces onboarding friction, cuts compliance costs, and accelerates customer acquisition. This presents not only a regulatory and technological evolution but also a major commercial opportunity for European financial institutions.

For enabling EUDI wallet integration within banking onboarding systems, a couple of questions should be answered:

1. What technical and operational modifications are required for financial institutions to implement EUDI-based onboarding?
2. How does EUDI wallet integration impact key performance indicators in customer acquisition processes?
3. What regulatory compliance advantages can be quantified through implementation?

EUDI Technical Framework and Architecture

The EUDI wallet architecture implements a decentralized identity paradigm based on verifiable credentials. The core components include:

Credential Issuance Infrastructure

The technical foundation relies on setting standards to enable interoperability. Newly developed formats and protocols for credential generation, issuance, and verification enable entitles to issue, hold, or verify digital credentials in a tamper-evident format. Government authorities typically serve as trusted issuers for core identity attributes such as:

• Legal name
• Date of birth
• Nationality
• Unique identifier

While credentials can be issued in different formats to support different things like:

• Selective disclosure of information
• Digital or in-person presentations including things like biometrics to enable higher levels of identity assurance
• Varying cryptographic schemes for different levels of security and privacy

The EUDI framework builds on top of existing specifications and standards which have been developed at organizations such as the World Wide Web Consortium (W3C), OpenID Foundation (OIDF), Internet Engineering Task Force (IETF) and International Organization for Standardization (ISO). The framework also recommends specific standards or credential configurations that should underpin each of the credential types listed above.

Storage and Presentation Protocol

Article 8 of the Implementing Regulations specifies the formats for credentials issued via the EUDI Wallet. These include credentials for Person Identification Data (PID), Legal Person Identification Data (LPID), and Electronic Attestations of Attributes (EAA). To ensure interoperability and trust, the regulations reference two internationally recognized credential formats:

W3C Verifiable Credentials Data Model (VC DM): The W3C VC DM standard, developed by the World Wide Web Consortium (W3C), allows the secure issuance, verification, and presentation of digital credentials. It supports various use-cases and applications ranging from identity verification to healthcare. The Implementing Acts identify this model as a standard for electronic attestations of attributes and personal identification data, ensuring privacy-preserving and interoperable functionality within the EUDI Wallet.

ISO/IEC 18013-5 Mobile Driving License (mDL/mDoc): ISO/IEC 18013-5 focuses on mobile driving licenses and mobile documents, offering secure and interoperable methods for representing traditional documents in a digital format. This is important for interoperability, keeping in mind cross-border interactions and verification. This format is also outlined in Article 8 of the Implementing Acts, ensuring compatibility with global standards.

Verification Infrastructure

Financial institutions implement on-boarding systems that, in general:

1. Attribute Request & Identity Data Collection

   The institution requests specific attributes (e.g., name, address, ID number). These are collected using: Online forms or onboarding portals API integrations with external identity verification services Data fields are aligned to standardized identifiers (e.g., ISO 20022, eIDAS levels).

2. Document Verification & Identity Proofing

   The user provides identity documents (passport, ID, etc.). The institution or a third-party provider: Extracts and verifies document data (OCR, chip check) Performs liveness detection, facial match, and biometric checks Optionally uses eID or national registries for high-assurance identity

3. Attestation & AML Compliance Processing

   Collected identity data is checked against: Sanctions lists, PEP databases, and adverse media Risk-based profiling rules (e.g., AMLD6, FATF guidelines) The resulting KYC attestation is: Logged in internal systems (CDD/KYC/AML platforms) Used for customer risk classification Stored for 5+ years for audit and regulatory purposes

With the use of Verifiable Credentials, the process could be simplified in the following way:

1. One-Time Credential Issuance A trusted institution (e.g., a bank or government body) performs KYC once Issues a Verifiable Credential stored in the user’s EUDI Wallet

2. Controlled Sharing & Reuse User shares only necessary data with new institutions New FIs verify credentials instantly using digital signatures KYC is reusable across borders, sectors, and institutions

Banking Onboarding Implementation

Technical Integration Requirements

Banking systems must implement several technical modifications to leverage EUDI wallets in onboarding workflows:

1. API Integration: Development of endpoints that issue standardized presentation requests for EUDI wallet communication
2. Verification: Implementation of credential verification logic including certificate chain validation
3. Trust Registry Connection: Integration with EU-wide trust infrastructure to validate issuer certificates
4. Data Mapping Layer: Translation between EUDI credential schemas and internal customer data models

Process Re-engineering

Onboarding process re-engineering involves:

1. Workflow Modification: Redesign of digital and physical onboarding journeys to incorporate EUDI verification
2. Staff Training: Development of operational procedures for customer service and compliance representatives
3. Compliance Documentation: Update of Know Your Customer (KYC) procedures in regulatory documentation and updates in a regulatory framework

Efficiency Metrics

Analysis of potential benefits of EUDI implementations in European banking institutions demonstrates significant efficiency improvements:

Security and Fraud Prevention

Security enhancements can be observed across several dimensions:

1. Identity Fraud Detection: EUDI implementations can significantly reduce synthetic identity fraud attempts
2. Document Forgery Elimination: Cryptographically-verified credentials eliminate document forgery vulnerabilities
3. Biometric Binding: Stronger binding between biometric verification and credential presentation reduces impersonation attacks

Regulatory Compliance

Regulatory advantages include:

1. AML Compliance: Automated attribute verification satisfies AML directive requirements for identity verification. With the new AMLD6, a harmonization of KYC and AML rules across the territory of the EU is promoted. This opens the space for one, unified way for financial institutions to onboard customers across the EU, and for KYC data re-sharing.
2. Audit Trail Enhancement: Cryptographic proofs provide stronger non-repudiation evidence and can potentially aid when reporting suspicious activities to regulators.
3. Data Minimization: Selective disclosure supports GDPR compliance by limiting data collection, and creates a minimal footprint of personal data kept and processed by financial institutions.

Conclusion

The commercial use of newly designed EUDI framework will bring a paradigm shift in banking customer onboarding, by providing cryptographically verifiable, user-controlled identity credentials. The projected are substantial efficiency gains, security improvements, and regulatory compliance benefits. As adoption increases across the European Union, financial institutions that implement EUDI-compatible onboarding processes will likely gain competitive advantages through improved customer experience and reduced operational costs.

While implementation challenges exist, particularly around technical integration, the structured approach, as previously outlined, provides a solution for financial institutions to successfully leverage EUDI wallets in their onboarding processes.

References

1. European Commission. (2023). eIDAS 2.0 Regulation: Establishing a Framework for a European Digital Identity. Official Journal of the European Union.

2. International Organization for Standardization. (2021). ISO/IEC 18013-5:2021 Personal identification — ISO-compliant driving license — Part 5: Mobile driving license (mDL) application.

3. European Banking Authority. (2024). Guidelines on Remote Customer Onboarding Solutions. EBA/GL/2024/13.

4. Sedlmeir, J., Smethurst, R., Rieger, A., & Fridgen, G. (2023). Digital Identities and Verifiable Credentials. Business & Information Systems Engineering, 65(2), 189-203.

5. World Economic Forum. (2022). Digital Identity: On the Threshold of a Digital Identity Revolution.