Saying goodbye to digital “Groundhog Day”: EUDI Wallet, Verifiable Credentials and the future of KYC

This scenario will likely sound familiar: you download a new app, perhaps a neobank or a carsharing service, and suddenly you hit the dreaded registration completion screen. You’re asked to take out your ID. You look for good lighting. You take a photo of the front. It says there’s glare. You try again. Now the back. Now a selfie moving your head in circles or bringing the phone closer to your face as if you were trying to hypnotise it.

I like to think we all have endless patience, but the reality is that, even in the 21st century, this process can be quite complex from a user perspective. It’s the eternal digital ‘Groundhog Day’, isn’t it? We spend our lives proving who we are, over and over again, to dozens of different organisations. And worse still, we end up leaving our personal data scattered across servers around the world.

So, get comfortable and let me explain how the digital identity of the future is being built.

‘Know Your Customer’ (KYC) isn’t dead — it’s evolving

Let’s be realistic: although it is often seen as a tedious obstacle, KYC (Know Your Customer) was not designed to undermine the user experience, nor as an excuse for companies to indiscriminately collect our personal data.

Its origins lie in critical regulations aimed at, for example, preventing fraud and money laundering. Companies need to know who is on the other side of the screen.

But the way we carry out KYC has evolved in fits and starts:

• Manual phase: In the past, you would go to your local bank branch with your physical ID. The employee would photocopy it, file it away, and that was it.
• Digital phase 1.0: With the arrival of the internet, we started uploading scanned PDFs or photos taken with our first smartphones. A slow, asynchronous process that was very easy to falsify.
• Digital phase 2.0 (current): Biometrics, video calls and automated facial recognition. More secure, yes, but with a fundamental issue: data silos.

To understand the current problem, I like to use a very geeky analogy. Do you remember the Horcruxes in Harry Potter? Lord Voldemort split his soul into fragments and hid them everywhere. Well, today we do exactly the same with our identity. We have one fragment in an e-commerce platform, another in our bank, another in a gym app, and another with our telecom provider.

This creates huge ‘honeypots’, highly attractive targets for cybercriminals. If a hacker breaches a centralised database, they can walk away with millions of identities.

And this is where the magic of decentralisation and Self-Sovereign Identity come into play.

KYC is not dead: it is evolving towards a more secure and efficient digital identity.

Verifiable Credentials: the missing piece

If Self-Sovereign Identity is the philosophical concept (the idea that you, and only you, should control your data), Verifiable Credentials (VCs) are the specific technology that makes it possible.

To explain it without getting too technical, and going back to Harry Potter analogies, imagine a Verifiable Credential as a cryptographically sealed magical letter. Just as the Hogwarts wax seal guaranteed the letter came from Dumbledore and hadn’t been tampered with, cryptography ensures that your digital credential is authentic.

The VC ecosystem works brilliantly thanks to a ‘Trust Triangle’, involving three key actors:

• Issuer: A trusted entity that certifies something about you. It could be the police (issuing your ID), a university (issuing your degree), or your employer (issuing your staff card). The issuer creates, signs and delivers the credential.
• Holder: You, the user. You receive the credential and store it in your digital wallet on your mobile device. You decide how to use it.
• Verifier: The entity that needs to verify your identity, such as a bank or a car rental platform.

Verifiable Credentials are the technology that turns self-sovereign identity into reality.

Where is the paradigm shift? In the traditional model, if you want to rent a car, the rental company (Verifier) typically checks a central database or asks you to upload a document they must validate.

With VCs, the Verifier does not need to contact the Issuer. You (the Holder) present the credential. Thanks to underlying mathematics (cryptography, hashing and digital signatures), the company can instantly verify, with full certainty, that the credential was issued by a trusted authority and has not been altered.

And here comes my favourite part: Zero-Knowledge Proofs (Zero-Knowledge Proof). Imagine you want to enter a nightclub. The bouncer asks for your ID to verify you are over 18. By handing over your physical ID, you reveal far more than necessary: your full name, address, parents’ names and that terrible photo from years ago. That’s a massive overexposure of data.

With a Verifiable Credential, you can prove you are over 18 without revealing your exact date of birth or any other data. Your wallet simply responds: “Yes, the condition is met.” It’s brilliant, enables Privacy by Design, and completely changes the rules of the game.

EUDI Wallet: a digital passport in your pocket

However, no matter how good the technology is, without a legal framework and common standard, it won’t scale. This is where Europe is taking the lead with the eIDAS2.0 regulation and the EUDI Wallet (European Digital Identity Wallet).

Until now, electronic identification systems valid in one country often created significant operational friction when used in another. For businesses, this meant a complex legal and technical challenge to ensure compliance across jurisdictions.

—The EUDI Wallet aims to solve this. The European Commission has established that each Member State must provide citizens with a free, secure and EU-recognised digital identity wallet.

What does this mean for citizens? Soon, you will have an official app on your phone containing your European Digital Identity. And it will be yours. This wallet will store not only your ID, but also multiple Verifiable Credentials, such as:

Your driving licence. Your health card. Your university degrees. Your birth certificates.

eIDAS2 requires public services and organisations to accept the EUDI Wallet as a valid identification method. It is a unified digital passport. No more uploading PDFs and hoping someone validates them at the other end. The EUDI Wallet will simplify compliance across Europe, enabling a true Digital Single Market built on trust and legal certainty.

The EUDI Wallet is set to become a common digital passport across Europe.

Why is this a game-changer for businesses?

At this point, business or compliance leaders may be wondering: “This is great for users, but how does it impact my bottom line?”.

This is where Reusable KYC becomes critical. Today, organisations face two major bottlenecks:

1. Acquisition costs and drop-off: many users abandon onboarding due to intrusive, friction-heavy processes, leading to distrust and digital fatigue.
2. Operational validation costs: each onboarding requires verification from scratch, implying continuous resource investment. Reusable KYC makes this far more efficient.

In this model, once a user completes a high-assurance verification, it becomes a Verifiable Credential stored on their device.

For businesses, reusable KYC means less friction, lower costs and higher conversion.

Future registrations become seamless: instead of uploading documents, users simply interact with their wallet. Through biometric authentication, data is shared securely and instantly, ensuring data integrity and unprecedented operational efficiency.

The impact can be seen in benefits such as:

• Instant conversion: from 5 minutes to 5 seconds. Drop-off rates plummet.
• Cost reduction: no need for OCR or manual checks. Companies receive cryptographically signed, reliable data.

■ It is the holy grail of digital business: improving user experience while reducing compliance costs.

Our digital lives in five years

I like to imagine what our daily lives will look like in just a few years thanks to the standardisation of Verifiable Credentials and the EUDI Wallet.

Imagine travelling across Europe. You arrive at your hotel late at night. Instead of queueing at reception, you scan a QR code. Your wallet sends a verified identity credential, and your room unlocks instantly.

Digital identity will shift from being a barrier to becoming a seamless and secure bridge.

Imagine opening an investment account or applying for a loan without uploading documents, simply sharing a credential issued by your tax authority or bank.

At Telefónica Tech, we are already working with these technologies because digitalisation must go hand in hand with trust, privacy and user empowerment. KYC will no longer be a barrier, but a seamless, transparent and highly secure bridge connecting people with the services they need.

The digital ‘Groundhog Day’ is over. Welcome to the era of a truly user-owned Digital Identity.