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.
Reporting from The Mirror and MSN placed the decision firmly within that growing backlash, with concerns around privacy, personal data, cost, and the potential reach of a government-issued ID system.
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.
For payments and financial services, that is where things get interesting.
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. We could. 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.
There is no comparable mass rebellion against their banking app. 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?
People want fewer passwords, forms, and instances of having to prove the same thing to five different organisations. They want to access services quickly and manage their finances online.
But they are less enthusiastic about the idea of one system holding an enormous amount of information about them.
That is the awkward bit: people want the convenience of digital identity without necessarily wanting a giant data-filing cabinet of their lives.
That should sound familiar to the payments industry.
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.
The irony is that the checks designed to make financial services safer can also make the experience feel like Groundhog Day: prove who you are, upload the document, answer the questions, and do it all again somewhere else.
That leaves a rather obvious question for the industry: can identity become more portable without becoming more intrusive?
Europe is asking a different question
The UK’s decision is particularly interesting because it comes as the EU continues to develop its own digital identity infrastructure.
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.”
That is a deceptively simple idea, but it could change the shape of digital identity: prove what needs proving and leave the rest of your identity in your pocket.
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.
So, David Birch’s recent argument deserves attention. Writing about the future of digital identity, Birch asks what happens when governments do not build the identity infrastructure many people expected them to. His answer is provocative: perhaps banks and financial institutions should play a much greater role.
As Birch puts it: “It’s time for the banks to get hold of digital identity and use verifiable credentials to sort this out.”
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.
But “let the banks handle identity” is hardly the end of the conversation. It might just move it somewhere else.
Identity should make access easier, not create another barrier
There is another part of this debate that is easy to lose amongst all the talk of credentials, wallets, and verifications… the person actually trying to use the service.
At the Payments Innovation Forum AGM, a discussion on public sector payments highlighted an uncomfortable truth: the payment itself is not the outcome.
That point matters because the people interacting with public services are not a single, uniform group.
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.
These are not abstract numbers. They represent millions of people trying to navigate systems at precisely the moments when time, money, and headspace are often in short supply.
The PIF discussion highlighted just how stark that mismatch can be. 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.
If we can design a digital experience that tells us where our dinner is every step of the way, why can accessing essential financial support still feel like finding your way through a maze?
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.
The UK has scrapped one proposed approach to digital identity.
Europe is moving ahead with another.
Financial institutions already possess much of the data, infrastructure, and expertise required to verify identity at scale.
Which leaves us with some fairly sizeable questions.
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?
These queries sit at the intersection of payments, financial crime, fraud, data, public services, and financial inclusion. As members of The Payments Association’s Financial Inclusion Working Group, this is an area we’re particularly interested in: because making financial services safer and more efficient only really works if people can access them in the first place.
It’s a conversation we’ll be following closely at The Payments Association’s Financial Crime 360, too, where we expect identity, financial crime, and inclusion to be closely intertwined.
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.
