Innovate Finance has responded to the Cabinet Office's consultation on the new national digital ID system. While firmly supporting the economic and security benefits of a trusted digital identity framework, we caution the government against overreaching into a mature private market.

Using taxpayer funds to replicate verification and wallet services that the private Digital Verification Service (DVS) already delivers is inefficient.  The private sector has invested heavily based on the premise that the government would set the rules while the market delivered the solutions. Shifting this boundary creates market uncertainty and threatens to stall tech investment.  Additionally, there is well-documented public apprehension toward centralised, state-held data. Millions of users already rely on private-sector services because they are separate from the state and consent-driven. Instead, government should allow government-issued credentials, such as digital driving licences, to be used within accredited commercial wallets.

When delivered through a collaborative and federated approach, digital IDs can drive substantial innovation. Use cases include:

• Revolutionising KYC Portability: Allowing individuals to securely verify their identity once and share it across institutions drastically reduces administrative friction for both consumers and firms.
• Strengthening Secure Payments: Integrating trusted digital identities can help to seamlessly secure transactions and boost Pay by Bank solutions, preventing payment abandonment at checkout.
• Combating Financial Crime: A ubiquitous digital identity system is the strongest tool available to verify individuals and drastically reduce synthetic identity fraud, money mule networks, and Authorised Push Payment (APP) fraud.
• Enabler to AI: As autonomous AI agents begin managing personal finances, digital ID will an important enabler to establish Know Your Agent (KYA) frameworks and for users to authorise agent-initiated payments safely.