There's a lot of noise in the private sector about government's involvement in digital identity, with many voices arguing that government should stay the hell out of it, because government is bad at it (more of that in the next post), or because it will eat into the digital identity market's margins. As if you can talk about "trust ecosystems" without the only entity that can establish trust.
The more interesting challenge should be which layers are infrastructure and which are actually a market, but we've spent a decade getting that backwards.
So I did the thing people do now, and argued it out with an LLM. I gave it a libertarian streak and told it not to make my life easy. I have to say it was easier than arguing about identity on LinkedIn -- but that's a low benchmark.
Now imagine a café, some rain, and the belligerent question that would start a rhetorical war in the digital identity space: if the private sector is so good at identity, why does so much of its business model rest on reselling access to government data?
INT. CAFE -- EARLY EVENING
The coffees are gone. Just rain and laptop light.
LockeLM You keep saying identity shouldn't be a product. But there's a whole industry that says otherwise. Billions in revenue.
Paola They solved KYC. That's not the same thing.
LockeLM Distinction without a difference.
Paola It's the whole difference. We spent ten years building a "digital identity market" but the effort was almost completely aimed at making onboarding less painful for banks.
LockeLM People hate onboarding. That's a real problem.
Paola Sure. But a compliance workaround isn't an identity layer. Nobody asked what these credentials could actually do outside of proving people are who they say they are.
LockeLM What should they have thought about?
Paola Selective disclosure. Reusability. Delegation. Proofs the user actually holds. A credential that does more than shove someone through a sign-up flow once and get binned.
LockeLM Or the market built exactly what people would pay for. If selective disclosure mattered, someone would've monetised it.
Paola You can't price an affordance nobody's even realised could exist.
LockeLM Every failed technology says that. "The market wasn't ready for us."
Paola Fair. But we got standards for these credentials five years ago. And I still don't see many people stopping to ask the obvious question: what could I actually do with these?
LockeLM Maybe because the answer was "not much anyone would pay for."
Paola Or because everyone was too busy selling the use case they already had. The standards arrived, and the market just... kept doing KYC. Same checks, fancier plumbing.
LockeLM And what should they have been asking instead?
Paola The boring stuff underneath. Issuance. Verification. Revocation. How do they look in real life. What's public, what's reusable, what's contestable.
LockeLM Oh... "public". You're going to give me another "this is what government does" spiel, aren't you?
Paola It's not a spiel. It's where the data already lives. Passport. Driving licence. Immigration status. The state is the root issuer -- by law, not by choice.
LockeLM Being the root issuer doesn't mean running the wallet, the journeys, the verification layer--
Paola I never said it should. Compete on all of that. Wallets, delegation, fraud analytics, accessibility, agentic services. That's where differentiation lives.
LockeLM Just not on the existence of identity itself.
Paola Kind of right. "Identity" is such a tangled word that the moment government touches it, the market cries overreach. But "identity" is the cumulation of different data points, and government's already in the picture. It has to be.
LockeLM Incumbents would say the market solved most of this without the state building anything.
Paola Did it?
LockeLM Banks. Onboarding providers. KYC vendors. A functioning sector.
Paola Alright -- take the Document Checking Service. Government built it, government ran it. It existed so a provider could check your passport was real. By asking the system that issued the passport.
LockeLM Sensible. Ask the people who make passports.
Paola Completely. Now let's follow the money. Government wants someone verified for a government service, so it pays a private provider, who checks the passport through a government service, against government data, and gets a yes or no back from government.
LockeLM I'm following. But please, stop saying "government" so often.
Paola The state paid a middleman to ask itself a question about its own data. And we called it "the market solving identity."
LockeLM Or it's specialisation. The provider takes the integration, the liability, the user experience. The state shouldn't build a slick front end for every check.
Paola I'd buy that, if anyone said it that way. They don't. The story is "the private sector built digital trust." But the trust came from the passport. The provider was renting access to something it couldn't make and would collapse without.
LockeLM Everyone marks up something they didn't originate. That's a supply chain.
Paola It's a supply chain where the raw material and the customer are all the same entity. And where the quality checks can be ran more safely by that entity as well. That's not a market. That's the state paying rent on its own data.
LockeLM And now it builds a wallet and calls that fair. GOV.UK Wallet competes with products people already sell.
Paola Maybe? I'll be honest: I don't know the details well enough to know what the impact on commercial profits would be.
LockeLM That's a strange thing to defend, then.
Paola I'm not defending the build. I'm defending the principle underneath it. There has to be a free way to prove your credentials to government, over and over, for the people who'll do it most.
LockeLM Free meaning paid for by everyone else.
Paola Free meaning that our taxes support the ability for everyone to access its services: citizenship shouldn't work as a gentlemen's club.
LockeLM The market can serve those people. It says it will.
Paola That's the part I don't believe. Digitising credentials for someone who can't afford the service isn't a business, and market can't be trusted to deliver something -- especially a contracting market hell-bent on growth at all cost.
LockeLM Charity happens.
Paola Not reliably. And not at scale. A commercial provider has every reason to build a beautiful journey for the customer who pays, and none to build one for the person who can't. You don't put essential access on a promise of goodwill.
LockeLM So you build the whole platform to reach the few at the edge.
Paola No. Government handles government data. That's it. Its own credentials, exposed cleanly, free to the people who need them.
LockeLM And the rest?
Paola All yours. If the private sector is as good at identity as it keeps saying, go and become a trusted source of credentials. Issue your own. Nobody's stopping you.
LockeLM That's harder than reselling a passport check.
Paola I know. That's the whole point.
With a debt to Simon Wardley for the Socratic format he posts almost daily, and for Wardley Mapping. Half this argument is just his evolution axis pointed at digital identity: the ecosystem is evolving into discrete capabilities, and some of them will always be beyond the capacity of private entities, so stop arguing, and start figuring out where market can actually compete.