At the Merchant Payments Ecosystem 2024 conference in Berlin, Evelien Witlox from the European Central Bank (ECB) presented a keynote on the possibilities of a digital euro.
In the presentation, Witlox outlined the benefits of a digital euro that will complement cash in Europe, detailing that it would strengthen strategic autonomy by reducing dependence on non-European payment providers and offer another form of trusted and secure transactions for people in Europe.
Witlox stated that the digital euro is being designed to operate online and offline, and will include privacy and resilience features to prevent fraud and secure transactions.
“We will build something that is fit for the future and is state of the art. It will focus on efficient payments, and on three use cases for peer-to-peer and in-store payments, as well as for e-commerce payments which will be accessible for euro area consumers. The digital euro will make sure that merchants can trust that if a consumer wants to buy something and pay, they can, and with ensured high conversion rates. The digital euro offers instant settlement, so the moment the transaction is done, the digital euro will have moved from the payer to the payee. That's an instant receipt of the funds.”
On the future of the digital euro, Witlox stated that project teams interacted with market holders, the European Retail Payments Board, civil organisations, and central banks during the investigation phase to design the digital currency. The digital euro has been in the preparation phase since November 2023 and is being developed alongside regulation. The next phase will likely begin in 2025.
What will the digital euro accomplish?
Speaking on a panel, discussing the potential of the digital euro, were Evelien Witlox of ECB, David Birch from CHYP, Michael Salmony of ETPPA, and Fredrik Rydbeck of Sveriges Rksbank, moderated by founder of Payments Solved, Nilixa Devlukia.
Salmony started the discussion by stating that he sees numerous benefits to implementing an EU CBDC, such as having a pan-European payments scheme: It costs less, is instant, and reversible. However, he voiced concern about whether there is a need for a state-driven solution while there are other private initiatives that are emerging. He also noted that what he is interested in when it comes to CBDC is the use of APIs and how fintech will be able to initiate payments and use the data.
Rydbeck spoke from the point of view of a central bank, saying that introducing risk is the last thing that they want:
“You can launch a product in different ways, though central banks in general have not launched consumer products in the same magnitude as, for example, the digital euro project. What we have seen so far with as a business is that a plan is made and followed, but some launches that we've seen early on have been rushed, and you can tell that there is something off in terms of a product market fit.” He continued that while fintechs and startups have the ability to launch products, try, fail fast, and change it, central banks do not have that luxury and that is a major challenge.
Birch corroborated on Salmony’s point on competition, and further added that there are definitely benefits to the political aspects of domestic sovereignty, but there are economic and social concerns around inclusion and sustainability that need to be addressed as the digital euro is prepared.
Birch said that central banks need a deeper understanding of digital currency to be able to effectively roll in out in a way that consumers know how it works and how they can use it.
“Essentially all of the pilots and trials that have been done to date are largely worthless because we don't really know what we want the digital currency to do. I can confidently predict that your team is never going to implement a digital euro using the same technology as the sand dollar. I think in order to get the engagement needed from society, we are well away from liberal understanding. If you get digital currency in place, people will ask if you are going to inject microchips into us. What do you think the 5G controversy told us? So the level of public debate is nowhere near the quality of input needed to make these decisions.”
Witlox stated that there should be a phased approach to launch the digital euro to ensure that the market is ready and give people time to understand its features.
Going back to the conversation of competition, Salmony commented on what he finds most exciting about CBDC, which is the concept of offline payments and what that implies:
“I think transferring money from my phone to another across Europe, independent of where we are banking is a really exciting scenario, which immediately everybody understands and the competition in the market so far hasn't solved. This is an opportunity to introduce and tokenise monies, so a modern form of money. I think that is a really intriguing variant of the CDBC. Yet, there is a question of whether that leads to the sovereignty - if I tap my Apple phone onto your Android phone, are we totally independent when we do that? Will we actually go to a tokenised version because at the moment, it doesn't look like that. Also, the battlefields of European payments are littered with the corpses of failed digital wallets, so I hope this one will make it because this is something we could really use.”
Birch agreed with Salmony, saying that working offline is a new and exciting product.
Finally, the conversation turned to digital identity and how there needs to be a digital identity infrastructure in place to avoid theft and fraud as the digital euro rolls out. Rydbecks agreed with this point and added that the success of payments relies on a smooth and secure authentication.
Salmony iterated that identity should have been the starting point. There is a massive issue with identity theft and payments fraud in the digital payments and e-commerce space, because digital identity is being focused on too late, and having an authenticated form of identity is only now in process of being determined.