The European Central Bank is preparing for its new digital version of the euro to take the payments market by storm — even though much of the public is unsure it wants anything to do with it.
Internal ECB documents show the bank wants the digital euro system to be able to handle more than 50 billion transactions a year from the get-go, central bank officials told POLITICO.
Such massive capacity suggests that ECB expects the digital currency to transform the retail payments market, pressuring a key revenue stream for current payment providers: If run at maximum capacity, the digital euro could snatch more than a third of the transactions currently done by payment cards.
According to a presentation to the ECB’s governing council by the bank’s digital euro team last month, it needs a system that can handle 50.5 billion transactions annually, two officials said. While that is neither a target nor a forecast, it’s still a striking statement of confidence in the project’s potential.
For context, payment cards were used in 84.6 billion transactions worth a total of €3.2 trillion across the eurozone last year, with card issuers and associated services providers taking a commission on most of them. Assuming annual growth of 10 percent as cash continues to lose ground, there could be close to 125 billion card transactions in 2028 — the year currently seen as the earliest possible launch date for the digital currency. At full capacity, the digital euro would thus have a market share of around 40 percent.
A large part of payment fees currently goes to companies such as Visa and Mastercard and other fintech firms located outside Europe. The ECB wants the digital euro not just to stop such leakage, but to end Europe’s technological reliance on the infrastructure of U.S. payment giants more broadly, fearful of the shifting geopolitical environment. A whopping two-thirds of card transactions in the euro area are currently settled through international payment schemes and more than half of EU countries rely entirely on non-European solutions.
The ECB has never publicly shared any estimates of what market share it expects the digital euro to take, but has always stressed that it has no plans to crowd out private-sector alternatives. The numbers in the presentation suggest the private sector may feel very squeezed.
The ECB declined to comment.
Taking over, or no takers?
If the planning for broad and rapid adoption is accurate, consumers may see lower prices and Europe may bolster its strategic autonomy — but the region’s payments providers may see less reason to cheer. Industry bodies such as Payments Europe have warned the digital euro could wreck card-based revenue models, especially if its basic services are offered for free. Widespread use of the digital euro in transactions also suggests that consumers will opt to hold them in electronic wallets, draining deposits from the banking system. Bankers say that could limit the amount they have available to lend to households and business.
“The impact on savings and retail banks of the digital euro taking a big chunk of card transactions will depend on the holding limits the ECB imposes, and [on] the underlying business model of the digital currency,” said Diederik Bruggink, senior director of payments, digital finance and innovation at the European Savings and Retail Banking Group. The higher the holding limits allowed for the digital euro and the lower the fees for payments between service providers, the worse it will be for banks, he explained.
According to European Banking Authority estimates, fees and commissions account for around 30 percent of net operating income at the continent’s banks, and payment-related fees account for more than a quarter of that.
The ECB has argued that the digital euro could offer fresh business opportunities for domestic service providers that are finding it increasingly difficult to compete with international card schemes and mobile payment solutions. Not only can banks serve as wallet providers and create other add-on services, but by embedding digital euro services, banks can retain customers who might otherwise migrate to Big Tech wallets, it argues.
The question is whether the public can bring itself to care. After a slow start, recent surveys show awareness and interest may be taking off. A survey by consultants BearingPoint in February showed one-third of respondents across the eurozone would be willing to use the digital euro, a share that seems likely to rise with generational change. But a survey by Payments Europe showed that 56 percent of consumers today are unsure whether they ever would.
While no decision on launching a central bank digital currency can be taken without legislation from the European Parliament, the project’s technical development continues to gather momentum. In the same presentation, the digital euro team argued that, should all legislative hurdles be cleared, the ECB governing council should approve close to €1.5 billion to bring the project to life.
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