eIDAS 2.0: Turning Compliance into Competitive Advantage in European Finance

With mandatory adoption looming, early-moving financial institutions can turn eIDAS 2.0 regulations into a lever for innovation and differentiation, rather than treating it as a burden.

From opening a bank account to securing a mortgage or making a cross-border payment, an individual’s digital identity drives trust across European financial services. Yet the landscape has long been fragmented, with each country relying on its own schemes and standards. For banks, insurers and fintechs, that has meant higher compliance costs, friction for customers, and missed opportunities.

The European Union’s eIDAS 2.0 regulation marks a turning point. For the first time, a harmonised, citizen-centric approach to digital identity will reshape how financial services operate across borders.

Why eIDAS 2.0 Matters

The original eIDAS framework, launched in 2014, focused on public services. Financial institutions had little guidance and built their own solutions. eIDAS 2.0 changes this with the European Digital Identity (EUDI) wallet, a secure approach that allows citizens and digital providers to use verified credentials to enable seamless, secure, and user-centric access to services.

Large-scale pilot projects across the EU show the potential: combining payments and identity in the wallet has cut fraud significantly. For financial providers, the implications stretch well beyond compliance to customer experience and risk management.

A Shift to Decentralised Identity

Instead of sensitive data sitting on provider servers, decentralised identity puts credentials in the hands of users, through their digital wallets. They share only what is needed, backed by cryptographic proofs. This model delivers faster onboarding, strengthened fraud prevention, and identity portability within and across EU borders. It also means the same verified credential works in-person, online, and even offline.

The momentum is building. The global decentralised identity market, valued at just over $1 billion in 2023, is forecast to grow at over 70% annually through the next decade.

For the industry, the opportunities are clear:

• Onboarding in minutes rather than days.

• Reduced fraud and increased trust through wallet-based verified credentials.

• Strengthened privacy controls placed in the hands of consumers.

A Win for Consumers

For consumers, the benefits are equally strong: privacy by design, a simpler way to access services, and user-centred data portability. The model enables financial service providers to put their consumers at the centre of service design, delivery, and personalisation. By putting individuals in full control of their digital identity and personal data, identity will become an enabler instead of a hurdle. Interactions will feel smoother and we can expect to see a significant increase in trust and privacy.

Fighting Fraud

While an obvious benefit, this user-first model is not just about convenience and privacy; it is also a critical defence against today’s most sophisticated cyber threats, especially those fueled by generative and adversarial AI.

Hackers are getting increasingly sophisticated at using deepfakes and AI to target, compromise, and exploit credentials stored on provider servers. Both the eIDAS 2.0 and EUDI wallet regulation enables providers to mitigate these risks and secure both customer data and mission-critical infrastructure.

Crucially, financial institutions can leverage identity verification technologies to mitigate deepfake attacks, and identity impersonation across the end-to-end customer journey, when the risk warrants it the most. By strengthening assurance levels and putting control in the hands of their customers, financial institutions can find new ways of sustaining trust and loyalty. 

Early Movers

Compliance with the eIDAS 2.0 and EUDI regulations is mandatory, but turning this into a competitive advantage is optional. Early adopters have already begun to establish themselves as leaders in delivering a seamless, digital-first experience by directly addressing many of the common pain points consumers feel when engaging with financial institutions.

For those that fail to keep pace, the distinction will be clear. While non-compliance is the primary risk, this goes hand in hand with significant operational, commercial and security disadvantages. 

For the financial institutions that continue to rely on less secure, less standardised authentication, authorisation, and identity verification methods, they will remain more susceptible to identity theft and other security risks, leading to higher fraud losses. Additionally, customers will ultimately be driven away by complex and slow processes, seeking the simple, seamless digital services they demand.

Both eIDAS 2.0 and the EUDI wallet are more than a digital store of verified credentials or a scheme for cross-border data portability. They redefine how trust, data, and value interact in finance. These regulations create an opportunity for financial institutions to accelerate privacy-by-design, fraud prevention, and hyper-personalisation. The emergent leaders will be those who recognise this opportunity beyond the forthcoming compliance deadlines, and use it to differentiate from their competitors to unlock customer value.