Major UK lenders including Barclays and Lloyds are developing a plan allowing customers to use digital identification tools directly within their banking apps.
The initiative also involves HSBC, Nationwide, NatWest and Santander, with the group working alongside industry body UK Finance to develop the new system.
Under the proposed framework, users’ personal information would be shared with a third party to enable customers to complete transactions securely and efficiently.
UK Finance confirmed the project has completed a “proof-of-concept” stage, with a live pilot in a real-world environment now scheduled for the coming months.
The body stressed the initiative is entirely separate from the government’s own digital identification programme and will be limited to private sector and retail use cases.
UK Finance managing director of payments and innovation Jana Mackintosh framed the move as helping make transactions “safer, quicker and more convenient” for consumers.
The service will be voluntary, with UK Finance stating that customers will be “remaining in control of what data is shared and when” throughout the process.
The announcement arrives against a backdrop of surging fraud losses, which rose by nearly a fifth in the past year as criminals increasingly leveraged artificial intelligence to manipulate victims.
More than £500m was stolen in 2025, with UK Finance warning that new technology has created a “lower barrier for entry” for criminals seeking to defraud the public.
Authorised push payment scams, where fraudsters trick users into voluntarily transferring money into their accounts, accounted for over 30 per cent of total fraud losses during the period.
Only two thirds of those affected were able to recover some funds, with total reimbursements from banks reaching £354.3m across the year.
UK Finance said the new digital ID tool would help tackle fraud by using verified credentials to reduce scams, fake accounts and synthetic identities targeting customers.
The body also argued the system would improve efficiency for businesses by helping organisations verify customers more reliably, ultimately driving down operational costs.
The announcement comes as several major lenders have faced significant criticism from both customers and ministers over repeated technology outages causing disruption to banking services.
Lloyds Banking Group faced particular scrutiny earlier this year after customers opened their mobile apps to discover rogue transactions that did not belong to them, followed by another app outage just three weeks ago.
A Treasury Committee report published last March found that nine of the UK’s biggest banks and building societies experienced outages totalling over 803 hours, equivalent to 33 days, over two years.
Barclays recorded the most outages at 33, though its total downtime of 93 hours was shorter than several rivals, while HSBC logged 32 incidents but nearly double the hours at 176.