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Digital Euro: Main benefits comprise plunging payment costs and increased security

The European Union is considering building its own digital payment infrastructure – the digital euro. The most significant benefits for businesses include decreased payment costs, innovation, and increased payment security.

The European Central Bank (ECB) recently took a concrete step toward introducing its own digital currency, the digital euro, by calling vendors to build services around it with a total budget of 1.1 billion euros.

The latest developments in the global markets provide a sound backdrop to the initiative. While the only public money in the EU remains cash, private providers have gradually taken over the market with innovative digital payment offerings. In fact, the rising number of convenient and user-friendly payment options has already led consumers to prefer digital payments over cash. 

Private funds have enabled leaps and bounds in payment innovation, but they have their downsides. As a public currency, the digital euro would hold multiple benefits. To ensure that a free-to-use, trustworthy, and accessible currency remains available to all amidst rapid digitalization, many believe that the EU should establish the first global publicly governed digital currency under its central bank.

The most prominent benefits backing the adoption of the digital euro are:

  • Increased security for European payments
  • Cost reductions
  • Regulation and stability
  • Accessibility and financial inclusion

Digital euro would increase European payment security

One of the most prominent benefits of the digital euro would be reversing Europe’s current dependence on global players. 

American-based card giants – Visa, Mastercard, and Amex – have long dominated the payment transaction market. The supremacy has become a vulnerability for other nations, especially amidst changes and volatilities in U.S. politics. Global instabilities and wars have further amplified the need for a secure and resilient European alternative to international payment channels. 

A new currency would provide competition and lower transaction fees

According to The Finnish Commerce Federation (Kaupan liitto), the implementation of the digital euro would introduce much-needed competition into the transaction market, eventually leading to lower consumer prices. 

“The prerequisites for the digital currency are good, as the central bank has announced that the new payment method will be free to use”, says Simo Hiilamo, Director of Public Policy and Advocacy for the Finnish Commerce Federation. Offering very low pricing would accelerate business adoption of the digital euro, especially because of the of existing card payment options’ ambiguous and rising prices. “In addition, digital euro service providers, such as banks, have no credit risk when the value of the consumer’s digital euro wallet is on the central bank’s balance sheet.” 

The digital euro’s effect on future payment prices could be significant. The Bank of Finland issued a report stating that in 2020, the commerce sector paid a whopping 121.4 million euros for card payments alone.

“With the recent increases in inflation, the partially percentage-based pricing of card payments has generated credit card companies additional profits. Consumers will eventually have to cover these in the form of ballooning prices,” Hiilamo concludes.

Regulation would strengthen privacy, accessibility, and financial inclusion of digital payments

The digital euro would bring about needed regulation for the virtual currency market. Suggested EU regulation proposes that similarly to cash, the digital euro would have legal tender status inside the EU.

Legal tender status would make digital euro mandatory for individuals, businesses, and institutions to accept as a payment method – making it safe to use and steady in value.

Regulation crafted for the digital euro would also ensure a high level of privacy for its users. The proposed regulation encourages the design of the new currency to minimize the amount of personal data processed by service providers or the central bank itself. Furthermore, the digital euro regulation leans into existing EU policies regarding financial inclusion and accessibility – it enforces accessible design that takes disabilities and limited digital skills into account. 

Finally, digital euro regulation mandates that all credit institutions with account services have to have basic digital euro services available for existing and new clients. For citizens who don’t already have or do not wish to open a digital euro account, the currency must be made available through distribution by public entities.

Will the pros outweigh the cons of the digital euro?

The full impact of a possible digital euro on businesses and consumers in Europe remains to be seen, as it will depend on the extent of adoption, regulatory measures, and the ability of the ecosystem to adapt to the new digital financial landscape.

Despite its potential upsides, the digital euro is currently under critical analysis in several European countries. Read more about the criticisms and risks of the digital euro, or dive into the planned functionality of the digital euro to learn more about what the currency would be like.

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Finnish Commerce Federation: Digital euro needed to reduce cost of retail payments