Digital IDs could help tackle payment fraud, and the EPC doesn’t want friction to scupper that possibility.
The European Payments Council (EPC) has launched SCARLET, a new initiative to prevent digital identity standards from fragmenting across Europe.
SCARLET stands for Strong Customer Authentication Acceptance Rulebook and Liability Framework for EUDIW Transactions. The initiative sets rules so banks and payment providers can accept the EU Digital Identity Wallet consistently when verifying a customer’s identity.
The initiative comes ahead of new obligations under the EU’s Digital Identity Framework Regulation (eIDAS 2.0), which requires PSPs to accept EU Digital Identity Wallets for strong customer authentication (SCA) when customers choose to use them.
The wallets will allow people across the EU to prove their identity and share information, including when accessing payment accounts or making payments.
SCARLET will cover three areas, which include the rules for participating organisations, how they operate, and the technical requirements needed to make different wallets and payment systems work together.
The EPC will initially focus on SCARLET 1.0, which will set out how payment service providers can accept wallets under the existing Payment Services Directive 2 (PSD2) and the European Banking Authority’s current rules for SCA.
Providers can expect the first rulebook in December 2027, following an open consultation planned for summer 2027. An implementation period will then allow participants to complete development, testing, onboarding and certification.
A future version, SCARLET 1.1, will extend the framework to the forthcoming Payment Services Regulation (PSR), helping providers meet new requirements from 2028/29 onwards.
Why the EPC says Standardisation matters
More than 3,000 payment service providers and over 27 EU digital identity wallet providers are expected to operate across the EU and European Economic Area, according to the EPC.
It believes failing to establish common rules could fragment the market, creating interoperability issues and adding costs for providers.
Giorgio Andreoli, Director General of the EPC, said the number of organisations involved would make it challenging to ensure wallets and payment providers can interact consistently across Europe.
“Through SCARLET, the EPC aims to bring market participants and public authorities together around a common set of contractual, business and technical interoperability rules, with a clear allocation of responsibility,” Andreoli said.
“Our objective is to support innovation while avoiding fragmented implementations that would add complexity and costs for payment service providers, wallet providers and European citizens.”
Can digital IDs help tackle payment fraud?
Europe is leading in the adoption of digital identity wallets, with the UK and Australia also developing their own approaches.
While the technology lets people store and share verified information digitally, its payment potential has been a huge motivation. Digital IDs could bolster customer verification and make it harder for fraudsters to use stolen or falsified documents to open accounts or access financial services.
The EU’s incoming anti-money laundering regulation is expected to drive an ‘eIDAS first’ approach to customer verification, placing even more emphasis on digital identity wallets.
Antony Jordan, Head of Payments and KYC at sports betting operator ODDSET, previously told Payment Expert traditional document checks using images, PDFs and third-party providers are becoming outdated as businesses prepare for wallet-based verification.
However, the industry has repeatedly noted adoption will depend on how easily digital IDs integrate with existing payment services.
