"The digital euro will not change anything for EPI"
Will it come or not? If so, what will it look like? Will it replace cash, and what about data protection? The introduction of the digital euro is currently a matter of hot debate, and Germans, in particular, have reservations about it. At this year's Digital Finance Conference in Frankfurt, the digital euro was therefore high on the agenda, along with other digital payment trends such as the European Payments Initiative, abbreviated as EPI – a joint project of European payment service providers and banks aimed at creating a European counterbalance to Visa and Mastercard.
The fact that the digital euro is coming is certain. In October, the ECB Council decided to move the project to the next stage. During this two-year preparation phase, a framework (the "scheme rulebook") will be completed, and questions about potential providers for the technical infrastructure will be answered.
Digital euro not meant to replace cash
What the digital euro will look exactly is not yet clear. However, it is a fact that it is not intended to replace cash. "Cash will not disappear", Bundesbank board member Burkhard Balz emphasized during a panel discussion. The intention is to maintain the "core product cash." Instead, they are simply working on a digital version of it – a project that will have high priority in the coming years.
Burkhard Balz, Deutsche Bundesbank
If, in the end, we do not meet the highest standards for data protection, the digital euro will not take off.
Balz can in parts understand people's mistrust. "If, in the end, we do not meet the highest standards for data protection, the digital euro will not take off," said Balz. There is particularly a need for clarification in Germany, as the results of a survey conducted beforehand show. Out of approximately 8,000 responses received from across Europe, 60% came from Germany. Of those, 60% expressed concerns regarding data protection and privacy.
A question of trust
In contrast to payment service providers like Paypal and Klarna or technology companies like Apple, Google, or Amazon, central banks seem to have at least a small advantage when it comes to trust, as a survey conducted by the consulting firm Bearing Point among 8,114 individuals in Europe shows. According to the survey, 16% would entrust the data of the digital euro to the ECB or central banks. Only 8% would do so with payment service providers, and just 4% with technology companies.
The digital euro still has an image problem, as recently noted by DZ Bank in a research paper, which called for more clarity on remaining issues. At the Digital Finance Conference, Balz admits that central banks need to provide more clarification. "From the central bank's perspective, we should make the same marketing efforts for the digital euro as we did years ago for the introduction of the euro", Balz stated. "We should spend more time reaching people's hearts and minds," payment consultant Atze Faas from the retailer and wholesaler lobby Euro Commerce noted.
Martina Weimert, European Payments Initiative
Time is ticking, and international competitors are advancing rapidly while we in Europe are engaged in theoretical discussions.
EPI also wants to align itself with customer needs. CEO Martina Weimert sees this as the only path to success. "Time is ticking, and international competitors are advancing rapidly while we in Europe are engaged in theoretical discussions", said Weimert. In June, EPI plans to launch its own wallet solution, "Wero". In mid-December, the app passed its practical test when a real-time payment of 10 euros from an account at Sparkasse Elbe-Elster to an account at the French BPCE was successful – according to EPI, this marked a milestone.
EPI calls for cooperation
When asked about the digital euro potentially competing with EPI, Weimert expressed her disappointment at the idea of Europeans initially pitted against each other between the ECB and EPI. She stressed the collective desire for greater sovereignty and independence. "So let's be smart and cooperate instead of competing among Europeans," said Weimert.
She views the digital euro as a currency. Its introduction will not change anything for EPI because the initiative has a different starting point. "We are not a currency but a payment solution that pursues a wallet approach, giving customers the flexibility to deposit various payment methods in our app and use additional services," stated Weimert. The digital euro could be one of these options. In the future, customers could also deposit debit and credit cards.
Vexing Visa and Mastercard
The major trend that EPI is betting on is real-time payments. "Instant payment is growing worldwide. Currently, there are over 70 solution providers," said Weimert. The market is crowded with offerings. For merchants, it's crucial to be able to integrate their loyalty programs. "However, they also seek a cost-effective alternative to Mastercard or Visa that is also capable of multichannel transactions," Weimert noted.
Martina Weimert, European Payments Initiative
Buy-now-pay-later providers like Klarna are pushing customers to take out credit.
If real-time payments were to be offered in retail in the future, EPI also intends to provide instant financing solutions. This would allow customers to purchase a product immediately but pay for it later. "Buy-now-pay-later providers like Klarna push customers towards taking out loans," Weimert criticizes. EPI, however, will not do that, but rather offer BNPL solutions to customers only as an alternative. Ultimately, both the digital euro and EPI seek to build trust with customers above all else.