Tensions in Wallet Provider Business Models - From an Ecosystem Perspective [Intermediate]

Great, thank you Alejandro and thank you all for joining this session. It's always the question as a speaker whether it's my session or the next that you're all interested in, but I'm assuming it's going to be this one. I'll start off with an introduction and then we've got 20 minutes to discuss business models and what the tensions are in business models. My name is Henk Marsman.

I'm an IAM consultant by day and a PhD researcher by night, so I'm wearing two hats and the hat that I'm using today is that I have on at Delft University where I do research into the business model options for digital wallet providers.

And last year I also had a session on it and I think it's really important to address this question and why, because the EIDIS regulation is set up with a number of values in mind, including autonomy and access, privacy and protection of the European citizen, so that they can use their digital identity in many use cases without a concern that they're being tracked or traced or influenced or manipulated. And when speaking to providers of these products, digital wallets, the general consensus is that they feel the values that the EIDIS regulation wants to propagate. They want to contribute to it.

It makes sense. We also share sometimes a common feeling of, we need to make the world a tiny bit better in the area where we can have influence, but a number of these wallet providers are commercial organizations, so they're happy to jump in, but they also need to find a viable business model in order to do so. And that's the question that I'm figuring out in my research, so in academia the word that is used for that are the tensions, so tensions can be a dilemma, can also be paradoxical or dialectical even.

So in this presentation what I want to go through with you is to go through these tensions that come out of the regulation and then start a discussion on what a viable business model under these tensions could be. The challenge I have there is that I'm trained as a consultant, so I want to give you solutions, but in academia you're trained to create problems, so you can do your research. So I have a presentation that's not finished, so next year we'll build on it and the year after that we'll build on it, so I don't have the optimal business model.

It might not even be there because the world is very dynamic, becoming increasingly dynamic. So as I mentioned, this is my research. If you're interested, the link and the post is there. Digital wallet providers in academia are labeled data intermediaries. The revenue model in your business model is deemed a value capture mechanism and they operate in decentralized data ecosystems, so in that context they need to figure out how do I make money.

As I said, I'm going to spend some time on what the problem or the challenges of EI is, where these tensions are in business model design and how to move forward. The first is very obvious and I think everybody is aware that for natural persons the EUDI wallet that every member state should have, I think by end of this year, should be free of charge. So that means in terms of business model thinking that you have your first challenge, your first tension, you cannot send a bill to the user for the use of this wallet.

The second is that you also cannot use the metadata that is often used in digital environments, so a lot of big tech companies know where you are, what you do, and based on that they make a whole lot of money in advertising models, in tracking and tracing models, in providing you specific offerings, selling and reselling the data. So EIDA said very nice if you give this wallet but basically you don't know where it's used, how often it's used, for what functionality it will be used, you're even user agnostic.

So the option of sending a bill for your services to a relying party becomes challenging, to an issuing party becomes challenging, because you don't know how often it's used there. You can try a lump sum approach but then you don't know if a specific party had 10 verifications and the other had 100 and how you're going to figure out what the balance is there. And then you have the redistribution to wallet providers, how you're going to figure that out.

So that means there are no subscription fees or pay-per-use models or even direct monetization, especially to the end user, so note the business wallet is a whole different domain and there are no data different revenues. And this is the point then where I say but wait there's more. It's also very difficult to differentiate yourself, so when you're in business you can also say yeah but my wallet is more shiny, it's faster, it's more secure, more proof.

Well because everything is open source and the regulation said you should be really easy for the user to move between wallets, that becomes really difficult to say why this wallet, because the next wallet is just as transparent, using the same standards. What is the difference between those products? You cannot really use that to shape your business model on it. The other option is that well let's make a partnership, let's focus on a specific group of relying parties or we're going to be the EUDI wallet of choice on Google devices or Apple devices.

It is also difficult because the same fluidity is introduced there by the regulation. And coming from the value perspective of this regulation that makes sense because we want to give the users the freedom of choice, we don't want to capture them because we see with other big tech companies what happens if you get captured. So that makes it difficult and also the use is voluntary.

So even if I'm a wallet provider and I have a really cool fancy offering for a relying party but also for a device operator, the user can really easily shift but also say I don't want to use this option for relying parties. It's explicitly mentioned that if you need to do a strong customer authentication the wallet is one option but if the user prefers to come up to the front office desk and give you their passport you should still allow for that. So business models that use elements of lock-in, capturing a critical mass are also very difficult.

And then another option would be and we put an AI agent on top. Sorry, I flew in yesterday and I heard that there's a lot of AI already being shared so you should know by now everything about AI. Really practical proven use cases and stuff. So what if I have this wallet and I build services on top or I combine it with other services? Well the difficulty there is that the regulation makes that difficult as well because you cannot combine data from the various services and you need to split functionality and also logic.

So this is the painful point and then as a researcher I'm done because I've shown my problem space. These are all the problems we have with the articles that are referenced to it and these problems are made even more painful by the last two because it's very costly to make a proper EUDI wallet and you need to get it certified and you have to maintain that certification and you are also liable for certain damages if the wallet is not properly done but also if it's not used properly. So there are a lot of increased risks as well.

So mapping that on kind of a conceptual model I'm assuming knowledge on EUDI in the room so if you don't know IPRP come to me afterwards but this is kind of the model that I have in my mind. You have a data producer or an issuing party that can store the data in the wallet operated by the end user running on a device and in the end that is all useless unless you find a proper use for it so you need a service provider that is giving you something that you want.

Buy something online, file for an allowance, request a permit from your municipality to cut down a tree in front of your house or expand your home etc. And these are kind of the positions where these tensions play a role. So you see that what EI does and the EUDI ecosystem does is that from the value perspective it defines an ecosystem and the good thing is that it defines an ecosystem where these values are protected.

So it makes sense if you want to give the user autonomy if you want to give them freedom of choice but on the other hand we also see that these requirements make it difficult for a specific actor to join that ecosystem. So a standalone digital wallet provider with a commercial business model is really struggling to find a way in it. Now is that so bad? I'm gonna get to that in a later one. I first want to see like thinking about this and from the reading that I've done I think there are four aspects that can help us discuss this challenge.

These are the ecosystem aspect, the value aspect and I made it a who and a how because the first slide that I had on the first tension not being able to charge the user immediately triggers those two. So who else can I charge and should I charge them or are there other benefits to be gained here?

So on the ecosystem it's I think important to take a perspective that you understand that this ecosystem will develop even though it's strongly regulated and the ecosystem takes a specific position also in the global digital arena I would say on how to properly deal with the data and personal data but that will develop so we're not done yet. Yeah I'm talking to digital wallet providers I also heard that since we're not even done now with the latest implementing acts they're still struggling to find out where the next goal post is going to move to.

It's also from a global perspective interesting because the I assume you kind of know the Brussels effect that some things defined in Brussels on a user base of 460 million users have an what a bad effect throughout the globe so that could also be the case here and countries outside of the EU are very interested in what is happening here.

Of course they're also very interested if we can make it work or not but they're also figuring out to see okay so we know the big tech model can we find something that counters that or that can live next to it and for a ecosystem participant especially in decentralized data ecosystems and they are really different from platform ecosystems. In platform ecosystems you have one key actor who kind of has the ring that rules them all has a lot of control also reaps most of the benefit in that ecosystem but in data ecosystems and decentralized ecosystems there's not a strong key actor in the middle.

There can be heavy regulation but every actor for itself decides to join or not and together you create a value proposition. This ecosystem of EUDI from my perspective does one thing and that is give you a really good way to identify online and share data. In itself that doesn't do anything as I said until you find a service provider where you can use it. So that means there are other ecosystems like an automotive ecosystem or a housing ecosystem that that where we can use this tool from.

So there's still an ongoing discussion on will these ecosystems interweave with each other or do I get this wallet from the EUDI ecosystem can I use it elsewhere and if I use it elsewhere what other wallets will I find there that I have to compete with. Also what other data sharing methods do I have to compete with because the data sharing is not new.

We just have to convince relying parties that it's better to use a wallet than the email with a copy of your passport and it is better but relying parties will again also take a business perspective and think about why should I change if there is no legal requirement so if I'm not forced because I don't need secure client authentication why will it shift into this direction.

Then a value perspective of course my first conversations were about making money and I'm a consultant so I talk a lot with companies about benefits that in the end result in a cost reduction or a profit increase but there are also indirect benefits and especially on the latter one the intangible benefits I highlighted the positioning and innovation because what I think is very interesting in this perspective is not necessarily the direct benefits but the knowledge that you gain from joining such an EUDI ecosystem to figure out what is going on there and the innovation possibilities that it gives as well.

Then on the who the end user I already mentioned but there are many other parties that you can consider in your business model as a potential source of your revenue or basically where you can send the bill to and the how and so these are basic economic business model types. The interesting thing and discussion that I also hope that we can have briefly now or later at the end of this presentation is to see what other benefits and models we can think of that could be of interest for these water providers.

So with that my call to action is threefold one is on working together and I think that's been mentioned earlier in this conference as well to figure out how can we make this work share examples and best practices so I'm engaged in a couple of pilots I see people from educational area in the room they are working on pilots there are the consortia and the large-scale pilots it's really valuable to share insights there and the transparency on how the what I call the individual participants evaluation impacts the overall ecosystem.

So the main risk that we have is that we end up in an ecosystem with a very small amount of these key players that provide wallets and that means that the chances are of either a monopoly increase or the chances that these wallets cannot find enough use cases and purposes to really be a good alternative to other wallets that are out there for non-qualified attributes.

And these are the things I think we still are figuring out so again I don't have the answer but I think in the end the whole conversation about identity and how we do it it's about a wallet because that's the really tangible thing we see but the underlying conversation should be on values and how we kind of want to shape society together.

Those are really big words so I can't figure it out you individually can't figure it out yet but we all go into a different spot so I so my belief is that if everybody can push a little bit into the right direction things eventually will move because here we have I think 80 percent of the experts worldwide although they are experts that like to go to conferences the real work is done by experts that you often don't see here they're building the stuff in teams and working on it the interaction is really key where we get new ideas but also new lessons from practice and share that together and in that digitization is not neutral so I want to end with that quote by Kranzberg technology is not good or bad but it's also never neutral so we need to keep that in mind as well so with that I'm on time thank you for your attention