Does the digital euro have a future?

The ECB first began its investigation into the digital euro around 2 years’ ago now. Its third report, as part of the initial investigative phase, was published at the end of April.  As key stakeholders in the payment ecosystem, we at Worldline have our own dedicated taskforce on this topic and are very invested in its proposals on issues such as the technical implementation and scope, regulatory frameworks and of course compensation models.

However, aside from  these issues, there is of course the critical aspect of potential use cases and uptake. After all, what is the point if no one uses it! And this is indeed a concern of the European Parliament. A recently published report “Digital Euro: When in doubt, abstain (but be prepared)”, reflects the concern that “market success is a key risk factor…”

In its most recent report, the ECB foresees two alternatives on how consumers will use digital euros. One is as a stand-alone app. Alternatively, the digital euros can simply be stored in existing apps, such as a banking app. In both cases, the end user will need to open a digital euro account, which will need to have some kind of funding and defunding mechanism. Whilst this will, of course, need to done securely and with all the necessary KYC mechanisms in place, it must also be as frictionless as possible for the user to encourage adoption. And let’s not forget, from the consumer perspective, current non-cash alternatives, like my contactless card, work perfectly well, without the need to fund and defund.  And then there is the question on how will the payment be made? The ECB suggests both NFC contactless and QR-codes for in-store payments. 

If we return back to the question of adoption; what will persuade me – as a consumer – to change my embedded behaviour, from tapping my contactless, phone or watch with a card to doing the same with digital euro.  As an end consumer, what is the perceived difference?

The ECB also published the findings of a commissioned study using focus groups to assess various cohorts views on potential digital wallet features. The study shows that person-to-person money transfers – available throughout the euro area – are considered an essential feature for a digital wallet. Offline payments, which are currently not widely available, are deemed a useful feature when, for example, someone has limited connectivity. Participants also valued budget management tools and conditional payments, including payment on delivery and pay-per-use. As a consumer, do I really want a separate wallet which does much the same as my existing banking app? 

As we at Worldline are privileged to have been selected by the ECB to work on a prototype of a front-end user interface, I was particularly keen to hear what the expert panellists had to say during a first day session at this year’s EBAday  event.  During the session “What is the outlook for CBDCs in Europe?”, the five person panel, representing Nexi, Deutsche Bank, JP Morgan, the ECB and Quant, discussed a range of issues both on the wholesale and retail side. But on the topic of the outlook for retail CBDCs in Europe, it seems the jury is still out on timelines, uses cases and importantly user adoption, despite the fact that there many POCs and pilots covering a range of uses cases, many of which were given as examples during the discussion.

It seems that despite the consensus and conviction that, in the words of the ECB representative “the time to act is now”, and that Europe is primed for CBDCs, there are many challenges. The user experience has to be as good as existing methods. Privacy concerns must be addressed; even if the ECB is not interesting in knowing the details of the purchase, intermediaries have to do AML checks and, as one panellists rightly pointed out, we therefore need clarity on what data needs to be used in such cases. And of course, there is the issue of the end user adoption and there was  acknowledgement that there is clearly a lot of work to be done to educate on the concept and benefits of CBDCs.

So to the core of my opening question “Does the digital euro have a future?”

In our increasingly digital world, where the use of cash is reducing, how can we pay in Europe with central bank issued money? The ECB maintains that consumers should have the option of a digital version of cash. It will conclude its next phase, but how many phases will come thereafter? So the timeline of some kind of adoption for retail use cases is still open to debate. There was no real consensus among the panellists, no crystal ball and still much to do to find the right use cases and a lot of learning and educating left to do.