eIDAS 2.0 and Digital Identity: A Revolution in KYC Processes?

eIDAS 2.0 (Electronic Identification And trust Services) is the new regulation on electronic identification adopted by the European Parliament and the Council of the European Union. It aims to strengthen security and user trust in digital interactions within the EU and to create a digital environment that is both fluid and reliable.

In this article, we explain everything you need to know about this new regulation and its impact on KYC / KYB activities:

  • What changes does eIDAS 2.0 bring?
  • How will digital identity be implemented?
  • What are the implications for KYC / KYB processes?

At a time when processes are becoming increasingly digital, but also when fraud and cybercrime are exploding, the notions of digital identity and digital trust are more topical than ever. Remote KYC (or KYB) activities are booming, and many companies have developed tools and services enabling customers to transmit their certified identity data through secure access.

In this context, the eIDAS 2.0 regulation is currently being implemented to standardize these processes and technical standards at the European level.

What Changes Does eIDAS 2.0 Bring?

With the eIDAS 2.0 European digital identity, it will now be possible to have a unique and recognized means of identification within the European Union. And this won’t just apply to identity documents, but to all attributes (such as nationality, age or marital status) used to authenticate a person in a long-distance relationship.

The European Commission’s objective is to provide at least 80% of citizens the opportunity of using a digital identity to access public and private services in EU countries by 2030. A study by Juniper Research reveals that the number of digital identity use cases worldwide will exceed 4.1 billion by 2027, compared with 2.3 billion in 2023, representing an 82% increase in four years.

How Will Digital Identity Be Implemented?

  • European citizens will receive a “wallet” from recognized and certified organizations, through a mobile application containing not only their identity documents but also their identity attributes such as driving licenses, diplomas, qualifications and skills certifications, etc.
  • Wallet data will be created and updated by certified electronic attestation providers, who will be able to collect and check attributes from national registers (public services, tax offices, etc.).
  • To access their wallet, users will first need to create a secure unique identifier (via their civil status register, or other).
  • They can then authenticate themselves via an MFA (Multi-Factor Authentication) process using their smartphone and another device to confirm their identity.

What Are the Implications for KYC/KYB Processes?

Know Your Customer processes will always require identity control, whether physical or digital. But the transition to eIDAS 2.0 will simplify several processes:

  • Customer data collection processes will change significantly, as companies will now have access to the wallets of their customers (individuals or legal entities) throughout the European Union.
  • It will no longer be a question of launching mass contact and reminder operations, which are costly and often detrimental to the customer experience, but rather of accessing the necessary information in the customer’s wallet.
  • The verification process will also be streamlined, with shortened timelines and a better managed risk, as the wallet information has already been certified.

The implementation of European digital identification via the eIDAS 2.0 regulation will profoundly change onboarding and service subscriptions at the European level, making them smoother and faster.

However, these changes will not happen overnight. Indeed, the adoption of a wallet will not be imposed on European citizens by the eIDAS 2.0 regulation. They can choose whether or not to equip themselves, based on their trust placed in this system and the technological resources at their disposal.

We can also anticipate the arrival of new players working in attribute collection and verification, document certification, or proof of delivery. The market looks set for strong growth over the next 10 years, and the scope of wallet applications is set to expand to all personal administrative and legal document

Does this mean, however, that it will no longer be necessary to invest in technological and human resources to ensure KYC processes? Nothing is less certain! As money laundering and terrorism financing techniques become increasingly sophisticated, it’s important to adjust to these changes. How do you deal with a forged or usurped wallet? How do you handle the transition period, during which traditional and digitized KYC processes will coexist? Particularly as only the European zone is concerned, it will be necessary to consider devices launched on other markets.

In this context, companies specializing in KYC appear more than ever as a relevant solution to benefit from the latest technologies (OCR, AI, robotization), fraud detection experts, with the capacity to adapt to ever-changing regulatory developments. Cost control (especially during the transitional period) and risk management in the face of digitalized customer journeys will remain key advantages in competitive markets.

Learn more about how we help clients combat financial crime and mitigate risk exposure.

Contact Concentrix

Let’s Connect