Brandsit

Tag: Euro

  • The digital euro: Who will ultimately fund the ECB’s ambitions?

    The digital euro: Who will ultimately fund the ECB’s ambitions?

    The European Central Bank is valuing the continent’s digital sovereignty at billions of euros, putting the viability of the banking sector on the line in a clash with US payments giants. While Frankfurt promotes the project as a necessary modernisation, the financial sector faces a dilemma as to how to fund the infrastructure worth billions without alienating customers with new fees.

    Piero Cipollone of the ECB’s Executive Board estimated that commercial banks will need to invest between €4 billion and €6 billion over the next four years, which represents around 3% of their annual IT spending. The ECB itself will spend €1.3 billion to start, followed by €300 million a year to maintain the system. Although the regulator claims that these costs are ‘manageable’, in reality they represent a massive capital drain from traditional investment in innovation to a top-down imposed infrastructure.

    The business model of the digital euro is based on the promise of cheaper payments for merchants, which is expected to hit the dominance of Visa and Mastercard. The ECB plans to introduce statutory limits on transaction fees, which are expected to be lower than market standards. For retailers, this is good news, but for banks it means having to operate on much lower margins while bearing the cost of maintaining free digital wallets for citizens.

    The biggest question mark, however, is the cost pass-through mechanism. Although the ECB will not charge network fees, banks will be forced to look for profitability elsewhere. The history of financial regulation teaches that when interchange revenues fall or operating costs rise, financial institutions often compensate with higher account fees or other banking services. As a result, the ‘free’ digital euro may indirectly burden the wallets of the very consumers it is supposed to protect.

    The success of the project planned for 2029 depends on whether the ECB manages to impose its vision without triggering a silent revolt from the private sector. If banks find that the fee caps imposed prevent a return on their investments, the digital euro could become another dead financial instrument for which European taxpayers and bank customers will pay.

  • ECB warns: digital euro could trigger €700bn outflow from banks

    ECB warns: digital euro could trigger €700bn outflow from banks

    The European Central Bank is accelerating its work on the digital euro – a project to make Europe independent of the dominance of US payment systems and prepare the Union for a cashless future. However, the ECB’s latest simulation shows that the road to digital sovereignty can lead through dangerous curves, especially for the classical banking sector.

    According to a study commissioned by European lawmakers, in an extreme financial panic scenario, up to €699 billion – or 8.2% of retail deposits – could flow out of commercial banks into the digital euro, guaranteed directly by the ECB. This would not be a simple digital migration of funds, but a massive ‘run on safety’, potentially triggered by a crisis of confidence.

    A group of smaller lenders, particularly those heavily reliant on retail customer deposits, would be hardest hit. In the simulation, 13 out of more than 2,000 banks would fall below the required liquidity levels.

    The key fuse is to be the limits on holding digital euros. The ECB has tested ceilings ranging from €500 to €3,000 per person – and it is the amount of this limit that determines the scale of the risk. A limit of €3,000, while attractive to users, would, according to the analysis, reduce the average return on capital of banks by 30 basis points. Lower thresholds, on the other hand, would significantly reduce deposit outflows, but would make the new currency less competitive with cash and fintechs.

    In a ‘business as usual’ scenario, i.e. without panic, the outflow of funds into the digital euro would be around €100 billion – a level that the banking sector could absorb, especially with a continued move away from cash.

    So there is a paradox hovering over the project: the digital euro is supposed to increase confidence in the European financial system, but it could also undermine the foundation of the model based on deposits in commercial banks. “You can only make the digital euro attractive if you are prepared to hurt the banks a little bit,” said MEP Fabio De Masi.

    EU finance ministers have already adopted an implementation roadmap, leaving it to themselves to decide on the final shape of the project. The ultimate question, then, is not ‘if’ but ‘under what conditions’ the digital euro will become part of Europeans’ wallets. The European currency project, this time in the app era, could re-evaluate the relationship between citizens, banks and the state – perhaps more powerfully than the adoption of the euro itself 20 years ago.

  • The digital euro is getting closer. ECB bets on AI from Portuguese startup Feedzai

    The digital euro is getting closer. ECB bets on AI from Portuguese startup Feedzai

    The European Central Bank has taken a key step towards the realisation of the digital euro by selecting Portuguese startup Feedzai as the main provider of an AI-based fraud detection system.

    Under the framework agreement, Feedzai, together with PwC, is to develop a transaction risk model for the digital euro – analysing deviations from the normal pattern of customer behaviour, payment history and interactions. This system is to support payment service providers in deciding whether to approve remittances in digital wallets.

    The contract is for four years with an option to extend to 15 years. The initial value stands at €79.1m, with a maximum budget limit of €237.3m. In the same framework contract process, the ECB awarded contracts for other key components of the digital euro – from offline solutions to data exchange mechanisms – with values ranging from €27.6 million to €220.7 million.

    It is worth noting that the framework agreements do not provide for disbursements until the project actually starts, allowing the ECB the flexibility to adjust the scope in light of legislative changes. The start of the de facto phase depends on the adoption of the Digital Euro Regulation by the EU institutions – a decision expected in mid-2026. The digital euro is scheduled to take off in 2029.

    Feedzai, a Coimbra-based company, already operates $8 trillion worth of payment systems annually for clients such as Portugal’s Novobanco and Abu Dhabi’s Wio Bank. At the same time, it has announced a $75 million funding round, bringing it to a valuation of $2 billion.

    This move by the ECB is part of a broader political and technological project: building European sovereignty in digital payments and reducing dependence on US-based payment systems. – While the project remains highly dependent on the regulatory and implementation framework, the choice of Feedzai itself reflects the Eurozone’s ambition to make the digital euro not only a means of payment, but also the central security infrastructure for a new generation of payments.

  • European banks join forces. Euro-stablecoin is being created to challenge US dominance

    European banks join forces. Euro-stablecoin is being created to challenge US dominance

    A consortium of nine leading European banks, including giants such as ING and UniCredit, has announced the creation of a new, Amsterdam-based company. Its goal is one: to bring euro-linked stablecoin to market.

    This is a bold and strategic move to respond directly to the growing hegemony of US companies in the digital currency and payments sector.

    The data leaves no illusions. While the global stablecoin market is valued at nearly $300 billion, the value of euro-based tokens is only around $620 million. This overwhelming disparity shows how digital finance is dominated by assets linked to the US dollar.

    The European banks’ initiative is intended to be a viable alternative and a step towards strategic autonomy for Europe in the payments space. The aim is to create a token that will enable fast, cheap and secure settlements within the European financial ecosystem, reducing reliance on solutions from overseas. The new stablecoin is expected to be launched in the second half of next year.

    The project is born in an interesting regulatory environment. The European Central Bank (ECB) has long expressed scepticism towards privately-issued stablecoins, citing potential risks to financial stability and monetary policy. ECB President Christine Lagarde has repeatedly called for rapid implementation of regulation and promoted the idea of the digital euro as a safer, public alternative.

    On the other hand, commercial banks are concerned that the digital euro could lead to an outflow of customer deposits directly to the ECB. In this context, their own private stablecoin could be seen not only as competition for US tokens, but also as an attempt to present their own solution to the market before the central bank does.

    The pressure is mounting on Europe. As Deutsche Bank analysts point out, the world is facing a monetary dilemma: implement stablecoin-based solutions or risk being left behind. Emerging economies in particular are increasingly looking to dollar tokens as an alternative to local currencies.

    However, it is worth remembering that simply launching a token does not guarantee success. An example is the euro-based stablecoin launched by French bank Societe Generale in 2023, whose market capitalisation remains relatively low.

    However, the new consortium, which also includes KBC, Danske Bank and Raiffeisen Bank International, among others, has a much larger reach, which could be the key to widespread adoption and a real shift in the balance of power in the global digital asset market.

  • Digital euro closer, but on politicians’ terms. Finance ministers gain control

    Digital euro closer, but on politicians’ terms. Finance ministers gain control

    The European Union has taken a key step towards the creation of the digital euro, breaking a political deadlock that was slowing down the project. At a meeting in Copenhagen, Member State finance ministers agreed with the European Central Bank (ECB) on a roadmap for the project, while securing decisive influence over key aspects of the project.

    From the outset, the digital euro project was positioned as a strategic response to the dominance of US payment systems such as Visa and Mastercard. It is intended by the ECB to be a tool to strengthen Europe’s financial sovereignty and counterbalance the global expansion of stablecoins linked to the dollar.

    However, the initiative was met with resistance from some lawmakers and the banking sector. Concerns were raised about potential ‘runs on banks’, where citizens would exchange their deposits en masse for the ECB’s digital currency. There were also doubts about user privacy and the high cost of implementing the new infrastructure.

    Friday’s agreement is an attempt to resolve these issues. Finance ministers were guaranteed a key say on two fundamental issues: the final decision on the issuance of the digital euro and the setting of a limit on the ownership of this currency by a single citizen. The latter is intended to directly mitigate the risk of capital outflows from commercial banks.

    With this compromise, the project is gaining new momentum. The European Council plans to finalise its position by the end of this year. The ECB hopes that the relevant legislation will be adopted by June next year.

    Even under this optimistic scenario, the technical implementation and launch of the digital euro will take another two and a half to three years. This means that Europeans will not use the new form of payment until 2027-2028 at the earliest.

    The launch of a common, EU-wide system is seen not only as a technological innovation, but above all as a political statement of Europe’s ability to build and maintain its own cross-border financial infrastructure.