The digital euro is the payment solution of the future that will let you store money directly on your smartphone

Rainer Olt, Head of the Eesti Pank Payment and Settlement Systems Department

We want the digital euro to be a single payment solution that can be used throughout the euro area from Võhma (a small town in Estonia) to Venice. We also see the digital euro as an important backup solution for Estonia in case the payment services of the banks should be interrupted for any reason. We are working hard at Eesti Pank to make the digital euro support Estonia’s crisis readiness.

A long-term goal at Eesti Pank is to prepare the Estonian payment environment for the introduction of new pan-European payment solutions. One of these is the digital euro. We believe it is important that people making purchases and merchants selling goods and services should have at least one more digital payment solution available alongside cash and card payments that is not dependent on the current card payment infrastructure.

The preparatory project of the digital euro is ongoing, and the latest interim report was recently released. In-depth user surveys are under way, as are discussions with consumers, merchants and banks through professional associations across Europe. This means that it will be possible to start building the system and solution for the digital euro as soon as the political conditions are in place. The legal framework that is being created in parallel will establish the political mandate for the creation of digital cash as a public service that will increase European autonomy and the  resilience of digital payments, as it can be stored in a smartphone or payment card and used even when there is no connection to the payment services of the banks.

Data from the Estonian Traders Association show that cash is used for 30% of purchases in Estonia and the remaining 70% are paid for with a card. Making card payments relies though on systems that are based outside Europe, primarily in the USA. Bank cards and instant payments from bank accounts are used almost equally for paying for online purchases. There is not currently any pan-European payment solution that is based on European infrastructure and that would allow the fees for the global card schemes to be negotiated downwards. The digital euro would provide it and also benefit merchants by creating pressure to lower the fees for accepting card payments. At Eesti Pank we are keeping particular focus on crisis readiness in the preparations for the digital euro. Work is being done at the European Union on the regulation for the digital euro and the rulebook for digital euro payment solutions to see that they would not prevent the digital euro being used if there was an interruption to payment or cash circulation services, so that the digital euro could be used as a backup solution if the banks needed more time to restore their payment services to normal operation after an interruption.

We have agreed with the other central banks of the euro area that the strategic goal is that new pan-European payment solutions will need to be usable with instant payments between bank accounts and in future with the digital euro, as this will guarantee that those solutions can be used for paying for goods and services in the same way across the whole euro area.

How would the digital euro fit in the current payment market?

• The digital euro will be legal tender (as banknotes and coins today) that gives people confidence that they can make digital payments in the same way across the whole euro area. They will no longer need to worry whether shops will accept the debit or credit cards they are carrying, or which smartphone app like Apple Pay or PayPal can be used for making a given payment. It will be obligatory for merchants who already accept different digital payments to accept the digital euro. The digital euro services will be made available by the banks of customers and merchants use today, or by a new payment service provider chosen by the client, similarly how people now get cash through their bank.
• It will be free for people to use the digital euro. It will also be good news for merchants as the service fees are expected to be e more competitive and lower than the current fees for card payments, and the principles for this will be made clear in the European Union legislation. A solution that charges lower fees for accepting payments will also be an option for merchants who currently find it too expensive to accept digital payments.
• Payments with the digital euro will not come with any payment scheme fees or payment processing fees for the banks. The costs will be borne by Eurosystem, which is the central banks of the euro area including Eesti Pank, which will provide the infrastructure for the public service. It is also planned that the Eurosystem will bear the costs of creating  a payment app for the digital euro that will work on smartphones and that the banks will be able to link  their customers’ bank accounts to it, as currently is the case   with card payments and Apple Pay for example.
• The digital euro will increase competition in payment services. Merchants will be able to choose a service provider from across the whole of the euro area that offers good conditions for accepting the digital euro, as the service will function everywhere in the same way. Estonian banks and payment service providers would equally be able to expand their services for accepting the digital euro and their digital banking services far beyond the borders of Estonia.
• The payment terminals in shops and online stores that accept the digital euro would be like a public infrastructure that could also be used for private sector payment solutions. This would mean that the Bizum instant payment solution from Spain or Wero from France could in future be used for payments everywhere that the digital euro is accepted, even in small villages in Estonia.
• The digital euro could be an alternative rail alongside card payments for making payments. Digital euros can be saved up to a predefined maximum limit on smartphones or on a payment card, and used for making payments between people and in points of sale when there is no internet connection, just like cash. This will give greater resilience of operation even if, say, the services of commercial banks were to be damaged by cyber-attacks. The stand-alone digital euro wallet will work even without the IT systems of the commercial banks or the infrastructure of international card schemes.
• The digital euro will protect the privacy of users. When digital euros are saved in smartphones and used offline without an internet connection, the payments will be just as private as those made in cash. Information about an offline payment will be saved  only to the smartphone of the user and will not be visible to their bank. Even under normal circumstances payments in digital euros will be more private than those made by card or usual bank transfer, as the information on the digital payment with an online connection will be seen only by the banks of the payer and the payee, unlike currently where the information is also visible to the operators of the card system or instant payments system.

Eesti Pank is working hard together with the Ministry of Finance to create the legislation needed in Europe for the digital euro and to put the rulebook for digital euro payments in place. We are focusing particularly on making the digital euro work as a backup solution even when banking services have been interrupted and the banks need time to restore their services. The European Central Bank is testing various options for the offline digital euro, and at Eesti Pank we are contributing to having a digital currency in the euro area that is secure and reliable even in a crisis.