EPC Moves to Standardise Digital Identity Wallet Authentication for Payments

The European Payments Council is developing a common framework to govern how payment service providers accept EU Digital Identity Wallets for strong customer authentication, as Europe prepares for large-scale deployment of digital identity across financial services.

EPC Moves to Standardise Digital Identity Wallet Use

The initiative, known as SCARLET — Strong Customer Authentication Acceptance Rulebook and Liability Framework for EUDIW Transactions — is intended to prevent fragmented implementations emerging across the EU and European Economic Area.

That challenge is substantial. The EPC expects more than 3,000 payment service providers and at least 27 digital identity wallet providers to operate across the region.

EU Digital Identity Wallets are designed to allow citizens and residents to identify themselves digitally and share verified information. In payments, they will provide an alternative way for customers to authenticate when accessing an account or initiating an electronic transaction.

Interoperability Becomes the Central Challenge

The EPC’s concern is that without a common framework, individual banks, PSPs and wallet providers could develop different approaches to authentication, liability and technical integration.

SCARLET is intended to create one common set of rules.

The framework will define scheme participants, eligibility requirements, contractual rights and obligations, as well as common operational rules and technical specifications.

It will build on work already undertaken by the European Commission through the EU Digital Identity Architecture and Reference Framework, related technical standards and large-scale pilot programmes.

PSD2 First, Payment Services Regulation Next

The first version, SCARLET 1.0, will focus on wallet acceptance under the existing PSD2 regime and associated strong customer authentication requirements.

A subsequent version, SCARLET 1.1, will extend the framework to the forthcoming Payment Services Regulation, with the EPC aiming to preserve earlier investment by PSPs as the regulatory environment changes.

The first rulebook is expected in December 2027, following an open consultation in summer that year.

Implementation will then include development, testing, onboarding and certification before the framework enters into effect.

Digital Identity Moves Into the Payments Stack

The significance for payments providers goes beyond compliance.

If digital identity wallets become a widely accepted authentication method, they could reshape how customers prove who they are when accessing bank accounts, authorising payments or interacting with regulated financial services.

But interoperability and liability will determine whether that promise translates into practical adoption.

The EPC is therefore attempting to solve the governance problem before fragmented technical models become entrenched.

Europe’s digital identity programme will only work at scale if wallets can interact consistently with thousands of payment providers. SCARLET is an attempt to make that interoperability part of the payments rulebook rather than an afterthought.