Digital wallets key to securing trust in the crypto world

With Q1 2025 wrapping up at the end of March, global digital identity trends continue to emerge. The latest to weigh in is Paypers’ Global Payments and Fintech Trends Report 2025, which looks at new digital ID technologies and developments in the financial sector in the context of widespread changes in the geopolitical landscape.

“In 2025, the financial services and payments world finds itself at a crossroads, shaped by shifts in geopolitics, economic uncertainty, and unpredictable, rapid technological advancements,” writes Vlad Macovei, senior editor at The Paypers. “Political instabilities and economic pressures create an environment where financial institutions must navigate increased volatility and potential trade wars.”

The report’s section on digital identity is authored by Steve Pannifer, managing director of Consult Hyperion, who cuts to the chase on the state of fraud and identity in 2025: “One thing that is severely lacking in the digital world today is trust. How can you tell if a message, email, website or app can be trusted? Most people rely on familiarity, hoping that things that worked previously will continue to be ok. That’s a pretty weak basis for trust.”

Pannifer says it should not be so, noting that it’s been 30 years since the development of cryptographic digital signatures that use secret keys protected in secure hardware like a smart card or a phone.

“Unfortunately,” he says, “the incentives have not aligned to enable the integration and adoption of this technology.”

Question of data value hinges on broad perception of digital trust as public good

Yet. Digital identity wallets and their associated regulations are now a driving force for change in how we communicate and identify ourselves online. Pannifer predicts “wallets will become ever more important in our digital interactions. Today, some payment credentials are hosted in wallets; tomorrow, cryptocurrencies, CBDCs, asset tokenization, and digital identity will all need secure wallets to hold those all-important secret keys.”

The ideal solution has yet to appear. Pannifer notes that self-sovereign identity (SSI) models can place too much responsibility on the user in managing wallets and keys, and that certain custodial wallets have suffered data breaches. “Adoption of wallets will depend on wallet users being happy that they are protected, secure, and have recourse when things go wrong.”

In a section on commercial alignment, Panifer notes the complexity of placing a value on data, and on “determining the proportion of any value that should be given to the distribution channel, i.e. the wallet.” He points to the eIDAS regulation in the EU and mobile driver’s licences (mDL) in the U.S. as public sector initiatives that may be able to side-step the issue – “as the public sector sees creating digital trust in the digital world as a societal good.”

‘Clear data agreements, assurances on data valuation’ to define EU LSP success

“Creating trust in the digital world” is not a very politically exciting proposal, but digital transformation comes with major social and economic upsides. Henk Marsman, principal consultant for SonicBee, explores the impact of the EU Digital Identity Wallet (EUDI Wallet) and the eIDAS requirement for every member state to make a wallet available to citizens and businesses by the end of 2026.

“While the wallet itself is the eye-catcher,” Marsman says, “the actual change and impact will come from the data exchange and identification that is made possible.” The four EUDI Wallet Large-Scale Pilots (LSPs) are testing cross-border use cases for bank account openings, mDLs, eGovernment services, online SIM card registration, qualified eSignature and ePrescription. Meanwhile, member nations like Germany, Italy and the Netherlands are piloting their own eIDAS-compliant national wallet offerings.

“The results of national pilots are expected to reveal that, once the technology enables data sharing, the real question is how the valuation of the data occurs, and how to trust it as a receiving party,” Marsman says. What will define success is “clear data agreements, assurances on data valuation, and working through sectoral frameworks for assurance.”

And, of course, practical use cases. Banks will need to adjust, Marsman says, as payments move to wallets and new potential fraud vectors emerge. “Banks should be involved in the pilots that are ongoing or started on the European and national levels. Malicious actors (fraudsters) will immediately look for the weaknesses in exchanges of data using an EU DIW, and banks are one line of defence that should be prepared to catch fraud before it is completed.”

Collaboration key in developing wallets, digital payments ecosystem

The Mobey Forum has also released a report on navigating the future of payments with account-based digital wallets. Its key findings focus on the primary drivers of adoption, and the main challenges facing the wallet ecosystem.

On adoption, technological advancements such as high-speed mobile connectivity, QR codes and instant payments will help by enhancing wallet functionality. Demand for convenience is also a driver, as are wallet loyalty programs and digital IDs. Regulations and financial inclusion efforts create a “favorable environment for growth.”

Interoperability remains a key challenge: if wallets are to work, they must work across digital and national boundaries. There are still concerns about security, fraud and cyber threats.

However, there is also a push to innovate, as tech giants enter the payments space, forcing the hand of traditional financial institutions. Combining payments with value-added services, tokenization and digital identity is how the true potential of wallets can be unlocked.

“Account-based wallets are expected to integrate AI and blockchain to enhance personalization, security, and efficiency,” says a summary of the report. “Collaboration among financial institutions, tech providers, and regulators will be critical in building a resilient digital payments ecosystem. For stakeholders, the imperative is clear: embrace innovation, foster collaboration, and focus on delivering meaningful value to all participants.”

Phishing continues to sink hooks into Germany: BioCatch

A new report from BioCatch explores digital banking fraud trends in Germany, which lost €267 billion to cybercrime in 2024. The culprit is phishing; Germany had the second-most phishing attacks in the world last year, and 14 percent of the planet’s phishing emails originated there. “Bucking the general trend across Europe,” says the report, “phishing continues to be the main fraud problem in Germany.”

In a release, BioCatch Germany Consultant Mathias Schollmeyer says “we’ve observed this relentless onslaught of phishing attacks result in a loss of trust in the internet. Data shows more Germans now see AI as a risk (32 percent) than recognize it as an opportunity (21 percent).”

The report outlines the implications of the forthcoming Payment Services Directive 3 (PSD3) and the SEPA Instant Payments Regulation, which it says represents “a pivotal moment for German banks and payment service providers.”

“Setting a strategic plan that focuses on addressing fraud risk, in parallel to compliance with PSD3 and the IPR, will likely prove to be a key differentiator when it comes to the performance of PSPs.”

Cheap Palau digital residency being used as crypto law loophole

If you have ever asked yourself, where is all that fraud coming from, there is now at least one answer: Palau. 404 Media reports that U.S. traders are paying the roughly US$250 required to obtain Palau’s digital residency as a way to skirt restrictions on cryptocurrency exchanges and withdrawals.

The Palau digital residency operates on the Solana blockchain and is provided by RNS.ID. It is open to citizens of 138 countries, including the U.S.

According to the 404 piece, the digital ID is “so ripe for abuse that major cryptocurrency exchanges such as Binance and Kraken have already banned use of the ID from their platforms.” The author, Joseph Cox, was easily able to pay for the residency and pass the ID’s biometric authentication to subvert KYC measures and get around U.S. crypto laws.

Palau’s digital residency program has deep links with the cryptocurrency community; Ethereum creator Vitalik Buterin is a Palau digital resident, and 404 reports that the ID “appears somewhat popular with cryptocurrency traders, with reams of cryptocurrency-focused YouTubers making guides on how to get the ID and the benefits.”

New wallet, card products leverage advanced encryption for future-proofing

Several new wallets and blockchain-based identity products have entered the data storage and security arena, with an eye to preparing for the post-quantum computing era.

A press release says Wats Wallet has released its advanced Triple-Layer BIT-256 encryption, “a cutting-edge security technology designed to protect digital assets against cyber threats and future quantum computing risks.” The model encrypts data across three distinct layers, using a SHA-256 (Secure Hash Algorithm) to create a secure hash, then undergoing two further rounds of (unspecified) encryption.

Abel Czupor, an advisor at Wats Wallet, says “cracking this encryption would be like winning the lottery 10¹¹⁴ times in a row. It’s a level of security that simply cannot be compromised with today’s technology.” He notes that “quantum computing advancements will challenge many encryption techniques,” but says the triple-layer BIT-256 encryption “remains resilient, securing digital assets even in the quantum era.” Wats Wallet is aimed at banks and fintech companies, healthcare providers and government agencies.

A release from Serenity says it is preparing to launch its sAxess biometric-powered DeDaSP blockchain security key card, which is supported by Idemia Secure Transactions, at an “exclusive launch event in Dubai.”

Serenity’s patent-pending biometric-powered DeDaSP blockchain card utilizes fingerprint authentication for data access. It integrates with Idemia Secure Transactions’ B.CHAIN hardware wallet, and is designed to provide “self-custody, data survivability and recovery.”

Identomat has formed strategic alliances with Credit Agricole, BitXchange and Coinet. A release says the partnership with Credit Agricole, one of Europe’s leading banking groups, will enable Identomat to streamline identity verification processes for banking and financial services.  The partnership with BitXchange, a dynamic cryptocurrency exchange, to deploy KYC/AML solutions that help mitigate fraud and maintain regulatory alignment. And the partnership Coinet, a Georgian cryptocurrency exchange platform, aims to streamline user onboarding and strengthen compliance processes by leveraging advanced identity verification.

Article Topics

BioCatch  |  Consult Hyperion  |  cryptocurrency  |  digital trust  |  digital wallet  |  Idemia Smart Identity  |  Identomat  |  mDL (mobile driver's license)  |  Mobey Forum  |  SonicBee