The UK’s digital ID scheme may be gone, but the debate over trusted digital identity, financial inclusion and payments is only just beginning.
The UK government has scrapped its proposed national digital ID scheme.
Andy Burnham’s new government has described the decision as a “reset of priorities”, saying that the time and resources earmarked for the scheme should instead be directed towards immediate pressures such as the cost of living. The announcement follows months of opposition to the plans, including a parliamentary petition that attracted more than three million signatures.
That may be the end of this digital ID scheme, but it is not the end of the digital identity problem.
Nor does it mean that the UK’s wider digital identity infrastructure has disappeared. The statutory framework for trusted digital verification services, including a register of certified providers, remains in place.
People are already asked to prove who they are, what they are entitled to access, and whether they can be trusted to transact online. They are doing it to open bank accounts, complete KYC checks, access public services, pay HMRC, and receive financial support.
So, if the state is stepping back from providing one version of digital identity, who—or what—steps in? And what makes that alternative more trustworthy?
The trust problem is bigger than the technology
The problem was never really whether we could build digital ID. The harder question was whether people trusted what would sit behind it.
The reaction to the UK’s proposed scheme made that abundantly clear. The objection was not necessarily to the idea of doing things digitally. After all, 88% of UK adults already use some form of online or remote banking.
The unease starts when convenience comes bundled with the feeling that someone else has too much control over the data making that convenience possible.
Who holds the data? Who can access it? What can it be used for? What happens if the system is breached? And how much personal information should someone have to surrender to prove a specific fact about themselves?
Payments have spent years making the act of moving money feel almost invisible. But behind that simplicity sits a vast amount of trust and risk management. A customer needs to trust that the person or business on the other side of the transaction is legitimate. A financial institution needs to establish that a customer is who they claim to be. A regulator needs confidence that the system is not being exploited.
Identity sits underneath all of this. Yet the current experience remains remarkably fragmented. Customers and businesses are repeatedly asked to provide the same documents, answer similar questions, and undergo similar checks for different institutions.
That leaves a rather obvious question for the industry: can identity become more portable without becoming more intrusive?
Europe is asking a different question
Under the European Digital Identity Framework, each Member State is required to provide at least one European Digital Identity Wallet by the end of 2026. The European Commission describes the wallet as a way for people to “keep control of your data”, allowing them to prove what needs proving and leave the rest of your identity in your pocket.
The contrast is not simply that the EU is proceeding while the UK has stopped; it is that Europe is trying to tackle the trust problem through a different architecture.
The EU’s model is built around selective disclosure. Someone proving their age, for example, could reveal they meet an age requirement without necessarily revealing their exact date of birth. The wallet’s stated aim is to allow users to share “the exact data the service provider needs, nothing more.”
Could financial services build the next identity layer?
And then there is the slightly awkward possibility that the financial services industry could end up building the identity layer itself.
Banks and financial institutions already verify people and businesses at enormous scale. They conduct checks relating to KYC, AML, counter-terrorist financing, sanctions, and fraud.
The proposition is straightforward enough. If a bank has already established that a customer is who they claim to be, elements of that verification could potentially be reused as a portable, verifiable credential. That could mean customers do not have to start from zero or repeatedly hand over underlying personal information every time another organisation needs to confirm a particular fact.
There is an obvious appeal. Fewer duplicated checks, less unnecessary data sharing, reduced onboarding friction, and potentially fewer opportunities for fraudsters to exploit the cracks between systems.
Identity should make access easier, not create another barrier
At the Payments Innovation Forum AGM, a discussion on public sector payments highlighted an uncomfortable truth: the payment itself is not the outcome.
In August 2024, 23.74 million people were claiming at least one of the 17 DWP benefits covered by the official statistics, including more than 13 million people of State Pension age. By February 2025, 4.4 million people in England and Wales were claiming at least one benefit within the DWP’s incapacity and disability grouping. Meanwhile, Policy in Practice estimates that more than 7 million households may be missing out on around £24 billion in support to which they are entitled.
We can order dinner through Uber Eats or Deliveroo in a few taps, receive real-time updates and have it arrive within roughly 30 to 45 minutes. But for a Personal Independence Payment claim, the average end-to-end process for a new claim can stretch to around 16 weeks.
A digital identity system could make it easier for someone to prove eligibility and access a service. But, if poorly designed, it could just as easily become another gatekeeper for someone without the right device, documentation, digital confidence, or ability to navigate a complex process.
That means the success of digital identity must be measured by what that verification enables them to do – and whether they can access the outcome they need.
The scheme is gone. The questions remain.
Who should provide digital identity? Who should control it? How much information should someone need to share? Can financial institutions play a greater role without creating a new concentration of power? And how do we make systems more secure without making them more difficult to access?
The UK’s digital ID scheme may be gone. But the identity problem—and its implications for the future of payments—is very much still with us.
