The digital ID opportunity in the UK

How digital identity is reshaping the payments landscape

In today's connected economy, secure digital verification and identity management are becoming essential foundations for businesses and governments. Digital identity—the process of digitally verifying and authenticating a person’s identity—is rapidly emerging as a key enabler of innovation, efficiency, and security.

For the payments industry, digital ID offers substantial opportunities, promising to reduce fraud, streamline onboarding and compliance processes, improve user experience, and unlock new data-enabled capabilities. From age verification in e-commerce to secure instant payments and Know Your Customer (KYC) compliance, digital identity is the missing link in a truly seamless payments journey. Instant, secure account opening, frictionless online purchases and real-time fraud prevention are just a few use cases of how digital ID can transform the payments landscape.

Ellie Hewitt

Director, Payments Consulting

KPMG in the UK

mail
call

But what is digital identity? Digital identity refers to the ability to verify and authenticate an individual’s unique attributes electronically, often in real time and with high assurance. Unlike verifiable credentials, which are specific attestations of information issued and held within a trusted identity framework (such as a digital driving licence, proof of age, address or professional qualifications), digital identity represents the broader system that manages identity verification across platforms.

At the 2025 Digital Innovation Summit, hosted by UK Finance and supported by KPMG, this sentiment was echoed by industry leaders. KPMG’s Peter Harmston hosted a panel on the future of payments, and asked which innovation initiative they would invest £1,000 of their own money in—out of options including Open Finance, Central Bank Digital Currencies, and a new retail payments infrastructure—digital ID was chosen by over 55% of respondents. This signals two insights: first, that digital identity is a foundational enabler of many other innovation priorities within payments; and second, that the UK has lagged behind in establishing the trusted infrastructure needed to support a secure, scalable digital identity ecosystem.

Building momentum: regulatory foundations and government support

The good news is that the UK government has taken key steps to address this gap. The Department for Science, Innovation and Technology (DSIT) has developed a Digital Identity and Attributes Trust framework, setting standards for how identity providers and relying parties should operate. A growing trust registry is already in place, enabling verified organisations to provide secure identity services within a recognised framework. Already, this has significant membership and is being utilised across various use cases.

The Data (Use and Access) Bill recently passed through Parliament, marking a pivotal moment for digital ID in the UK. This legislation establishes a statutory footing for trusted and secure personal digital ID, aiming to enable a digital verification ecosystem built on public and private collaboration, fostering efficient services, boosting productivity, enhancing the security of UK citizens and businesses, and significantly reducing fraud. This will ultimately power a smart data economy. The government’s Financial Services Growth and Competitiveness Strategy expects the development of digital verification services to “boost the economy by £4.3 billion by 2034, with the financial sector likely to be one of the biggest beneficiaries."

This legislative support is crucial for building confidence and accelerating digital ID adoption across the payments sector. It provides financial institutions with the legal certainty and operational guidance to embed digital identity into regulated processes, like AML and KYC, while empowering innovation in customer-facing services.

Transformative use cases for payments

The potential applications of digital ID within the payments ecosystem are vast and varied, however three priority areas stand out:

Combating payments fraud

With rising authorised push payment (APP) fraud and identity theft, digital ID provides a mechanism to validate identities of payers and payees in real time at the point of transaction. Verified credentials, such as bank-held identity data or biometric authentication, can be leveraged to flag suspicious transactions and help mitigate account takeovers. Research by OneID suggests that bank-based digital identity could prevent up to 50% of APP fraud cases if implemented across the UK market.
Streamlining customer onboarding and KYC

Current onboarding and KYC processes are often manual, expensive, and create friction for customers. Digital ID allows individuals to re-use verified identity across financial institutions, enabling instant, secure, and compliant identity verification, leading to significantly faster onboarding, reduced operational costs, and an improved customer experience.
Age verification

In sectors like e-commerce, gaming, and payments for age-restricted products, digital ID enables real-time, privacy-preserving proof of age without requiring excessive personal data sharing.

Beyond these immediate priorities, combining digital ID and Open Banking offers more opportunities, enabling seamless, permission-based services through the secure exchange of verified identity and financial data – such as personalised financial services, proactive fraud alerts based on behavioural patterns, or automatic creditworthiness checks.

International perspectives

The development of digital ID is not unique to the UK. International case studies provide insights into different models and their successes.

Government-run national ID schemes

In India, the Aadhaar system has become the world’s largest biometric ID programme, with over 1.3 billion people enrolled. It provides a unique 12-digit identification number to every resident, used for digital KYC, subsidy payments, account opening, and biometric authentication at point of sale. Its success lies in its ubiquity, biometric integration, and government backing — Aadhar has been instrumental in driving financial inclusion and accelerating the significant adoption of digital, account to account payments via the UPI infrastructure.
Collaborative bank-driven ID schemes

The BankID system in the Nordics exemplifies successful collaboration by banks to provide a secure, widely accepted digital identity solution. It is used by over 90% of Sweden’s adult population and facilitates more than 6 billion transactions annually. It serves as the default means for digital payments, accessing banking or government services, and e-commerce, demonstrating the effectiveness of a private-sector-led, interoperable model rooted in trust and regulation.
Proprietary solutions

Companies like OneID and Raidiam are developing innovative digital identity platforms offering secure and convenient verification services, often leveraging existing trusted relationships with banks or other institutions.

As identity providers and use cases grow, interoperability becomes critical. Without common standards and mutual recognition between systems, the ecosystem risks fragmentation—undermining trust, user experience, and efficiency.

Interoperability ensures that digital IDs can be trusted, accepted, and reused across sectors, providers, and jurisdictions. It enables businesses and consumers to move fluidly between services, prevents vendor lock-in, and supports scalability. KPMG believes this should be a central design principle in the UK’s digital ID ecosystem, supported by standardised APIs, governance models, and regulatory alignment.

Nonetheless, as with any payments or data initiative, public trust is paramount and concerns around privacy, data protection, and user control must be managed. Success hinges on transparent, well-governed solutions designed with privacy by default—giving users control over how and when their data is used. The UK's regulatory framework is designed to foster a trusted ecosystem that addresses these concerns through strong governance, technical safeguards and privacy by design.

A defining moment for the UK payments industry

The UK now has the regulatory mandate, market appetite, and technical capabilities to unlock the potential of digital ID within payments. With the Data (Use and Access) Act in force, and trust frameworks maturing, financial institutions are well-placed to lead the charge. The payments industry has significant opportunity to enhance trust, fight fraud, drive operational efficiency and deliver seamless customer experiences.

KPMG can support you to understand the impact and opportunity presented by Digital ID for your organisation.

Please don’t hesitate to contact us to find out more.