UK Mandates Digital ID for Right to Work Checks, Sparking Fintech Innovation Concerns

The UK government has announced plans for a new digital ID scheme that will become mandatory for Right to Work checks by the end of the current Parliament, a move designed to combat illegal working while simplifying citizens’ access to vital government services.

The scheme, which will be available to all UK citizens and legal residents, aims to streamline applications for services such as driving licences, childcare and welfare by creating a single, verifiable digital identity held on a user’s phone. This initiative builds on existing digital platforms like the NHS App and the planned GOV.UK digital wallet.

The government’s primary stated goal is to curb illegal migration by making it significantly harder for individuals without legal status to find employment. It is intended to simplify compliance for employers, crack down on forged documents and provide better data to the Home Office for enforcement.

Prime Minister Keir Starmer explained the dual focus of the plan. “Digital ID is an enormous opportunity for the UK. It will make it tougher to work illegally in this country, making our borders more secure. And it will also offer ordinary citizens countless benefits, like being able to prove your identity to access key services swiftly – rather than hunting around for an old utility bill.”

The announcement has been met with a mix of cautious optimism and significant concern from the UK’s fintech and regtech sectors, particularly around the potential for the government’s approach to stifle innovation.

Trust concerns

Janine Hirt, CEO of industry body Innovate Finance and RegTech UK, voiced concerns that a mandated government ID could crowd out private sector solutions.

“Government support for digital identity is welcome but the initial announcement raises concerns about innovation that need to be addressed swiftly,” she said.

“It is also vital that the roll-out of Digital ID supports a competitive market, underpinned by a trust framework, not via a monopoly or costly State solution. If it becomes the de facto identity scheme or is delivered in a way that hands market power to a few large corporates, it will kill the UK’s innovation opportunity and undermine trust.”

Reducing friction

Others in the industry question the scheme’s effectiveness as a standalone tool for tackling issues like fraud and illegal work.

“Digital ID is not a silver bullet for illegal work, informal economies, or fraud,” commented Jonathan Frost, director of global advisory for EMEA at BioCatch, a company which prevents financial crime by recognising patterns in human behaviour.

“Just look at EU countries like France, Germany and Belgium, which already have national ID schemes, yet still face significant challenges in these areas.

“Its more immediate value may lie in reducing friction in financial services and state entitlements rather than directly cutting fraud.”

‘Exciting possibilities for combatting fraud’

From a payments perspective, the potential benefits for merchants are clear, though not without challenges.

Kristaps Zips, UK CEO at European financial technology provider payabl., noted that merchants are keen to adopt technologies that can reduce fraud and improve the customer experience.

“Our latest research shows that four out of five merchants (81%) would welcome digital IDs as a means of reducing fraud for their business and creating a smoother checkout experience for customers,” Zips explained.

“But there are still concerns, with two-thirds (68 per cent) unsure whether customers are ready to embrace the use digital IDs in this way, and a similar proportion (67 per cent) worrying about the risk of increased cart abandonment if not implemented effectively.”

Foundation for trust and innovation

Adding a more optimistic note, Anna Wallace, CEO of the Centre for Finance, Innovation and Technology (CFIT), highlights the Digital ID’s potential to drive innovation and trust if government and industry work together on scalable models.

“The implementation of Digital ID in the UK could unleash a wave of innovation across a wide range of use cases. And the adoption of digital verification technologies for individuals can help pave the way for Digital Company ID, which will benefit businesses by improving the access to and security of online transactions,” she said.

“But to have the best chance of the technology being widely adopted, we need close collaboration between the private and public sectors to develop Digital ID models that are commercially viable and truly scaleable.

“Whether it’s streamlining housing applications, cutting fraud for SMEs or supporting vulnerable individuals, Digital ID is essential for establishing trust, enabling secure data-sharing and unlocking the full potential of the next generation of Smart Data schemes. This is how we make some of life’s more onerous processes simpler, fairer and more secure. It’s an opportunity for the UK to take a leadership position in a real growth area of the global digital economy.”

Next steps

The government has confirmed it will launch a public consultation later this year to gather views on the service’s delivery. In designing the scheme, officials stated that inclusion will be a core principle, with outreach and face-to-face support planned for those unable to use a smartphone.

The system is being designed with security at its core, using on-device storage, encryption, and authentication technology. If a device is lost or stolen, the digital credentials can be immediately revoked and reissued, offering a potential security improvement over physical documents.

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