The European Savings and Retail Banking Group: „The Digital Euro can severly affect our balance sheet activities. Banks cannot be expected to make significant investments without a positive business case.”

4 aprilie 2023

European savings and retail banks have questioned the business case for a digital euro, raising concerns about the unintended consequences for balance sheet deposits and the roll out of competing instant payments products. The subject of the digital euro will be analyzed at Banking 4.0 international conference.

If the Digital Euro will be positioned as a retail payment product, it can become an unfair competitor in an already competitive payments area. So, what’s in it for banks? Banks cannot be expected to make significant investments without a positive business case – says the European Savings and Retail Banking Group (ESBG) in a position paper entitled „A Digital Euro: what does it mean for savings and retail banks?

Highlights from the position paper

The European Savings and Retail Banking Group (ESBG) welcomes the Digital Euro from the viewpoint that having digital money issued by the central bank would provide an anchor of stability for the monetary system. We also believe that the Digital Euro would also strengthen the monetary sovereignty of the euro area.

However, we predict that the introduction of a Digital Euro could also have some major unintended consequences impacting savings and retail banks if not addressed properly. This ESBG Position Paper addresses some of the concerns the members of ESBG have with respect to the possible introduction of a Digital Euro.

We highlight three areas where the introduction of the Digital Euro could have a negative impact on our members. Firstly, the Digital Euro can severly affect our balance sheet activities – the core business for savings and retails banks. Detailed work is still needed to identify a suitable model for distributing, storing and exchanging digital currencies that balances the needs of maintaining the effectiveness of monetary policy transmission mechanisms, customer service and regulatory compliance.

Otherwise, and if the Digital Euro becomes “too successful”, the deposit outflow could reduce the balance sheets of banks and eventually their capabilities to finance the economy – as a result, possibilities for consumer finance, mortgages and SME financing will be reduced and the potential impact on banks’ liquidity positions is very relevant.

Secondly, lots of obligations and requirements will be put on savings and retail banks as envisioned institutions for the distribution of the Digital Euro, whilst a sustainable long-term business model is questionable.

Finally, cashless payments in the euro area are flourishing and are showing healthy growth rates. Under a push from regulators, banks are already heavily investing in payment solutions (notably based on instant
payments) that address the need for European sovereignty in payments. These new solutions under development will need to find their place in the already competitive payments mix – adding yet another competing payment product by positioning the Digital Euro as such is a game changer. At any rate a level playing field needs to be present.

Therefore, although supportive of the Digital Euro, we are of the opinion that many legitimate and reasonable questions still need to be answered and a successful implementation needs to properly address the above concerns. In order to achieve this, we argue for significantly lower maximum caps on holdings.

For the distributors of the Digital Euro, a long-term sustainable business model will be required. And if the Digital Euro will be positioned as a retail payments product, it should not use its privileged position as a public-money funded product by mandatory acceptance requirements that distort the competitive retail payments market.

What’s in it for banks? The need for a business model
To meet its intended public policy objectives, a Digital Euro would need to be adopted and used at sufficient scale, considering that more network effects (scale) of the Digital Euro would have a negative impact on the existing networks (increase of pricing).

The system would require some capital investment, including the costs of the central bank to set up the core system as well as some costs borne by the private sector to interoperate and provide services on top of the core system. These investments would likely be predicated on a level of adoption sufficient to achieve a scale that allows network effects.

A broad CBDC ecosystem would allow more efficient operations and to be offered at a low cost to its users. The wide use also implies user access in all present payment channels where credit transfers, instant payments, p2p transfers, card payments are used today. It will need significant investment by banks, payment service providers, payment initiation service providers, atm operators, public authorities, merchants and e-commerce entities to offer a wide enough availability to attract users.

The investment range can be expected to be very high, but much remains uncertain, as many aspects of the concrete model are still being analysed, and therefore is difficult to make valid assumptions as each solution would require different cost estimations.

Further, a distinction should be made between implementation costs and maintenance costs, which likely will run simultaneously for many years. We estimate costs to be between 1 and 2 billion euro on the Eurosystem’s side and similar total amount on Member State’s side, including National Central Banks and intermediaries. We consider that a large part of the investments would be required on the acceptance acquiring side, especially in countries where the acceptance network is partly controlled by non-bank

From materials shared by the Eurosystem, we understand that for consumers, the prime target clients of savings and retail banks, the foreseen compensation models envisions easy access for Europeans to ‘public good’ features they enjoy with cash, also for digital payments, meaning that the Digital Euro should always be an option for the payer and that it should be free for basic use by private individuals – within these constraints our member banks are expected to operate.

The Eurosystem envisions economic incentives for Payment Service Providers (PSPs) to actively distribute the Digital Euro. However, our understanding so far is that the envisioned compensation for consumer banks is based on transactional income stemming from merchant banks (and hence capped merchant fees) only.
This could possibly not compensate for all the required investments and activities that consumer banks are expected to put in (the Eurosystem mentions as example activities to be offered for free for example:
• Onboarding to Digital Euro, opening and holding of a Digital Euro wallet/account;
• Funding and defunding the Digital Euro wallet/account from the payment account which the person associates it to;
• Provision of a basic instrument to pay with Digital Euro;
• Making and receiving Person-to-Person (P2P) payments;
• Making payments to merchants, businesses, or governments;
• (i.e., POI, including POS, e- commerce, and P2G);
• Receiving payments from governments (G2P);
• Combinations of the above elements such as waterfall (i.e., receiving a payment and defunding) and reverse waterfall (i.e., funding and making a payment).

Apart from the examples mentioned by the Eurosystem above, we also understand that funding and defunding via cash needs to be supported. Lots of questions around these cash scenarios – including the associated costs – still exist.
It follows that banks will need to put in lots of efforts for the introduction of the Digital Euro. Banks cannot be expected to make significant investments without a positive business case; hence, a proper business model is a key requirement.

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Cifra/Declaratia zilei

Anders Olofsson – former Head of Payments Finastra

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Many more interesting quotes in the video below:


In 23 septembrie 2019, BNR a anuntat infiintarea unui Fintech Innovation Hub pentru a sustine inovatia in domeniul serviciilor financiare si de plata. In acest sens, care credeti ca ar trebui sa fie urmatorul pas al bancii centrale?