Why "Digital Euro Accepted Here" might matter more than you think

Could digital euro become banks' super-app moment?

Why do we need Digital euro? What problem would it solve? These questions have been flying around for several years, ever since European Central Bank first launched its thinking on Europe’s own Central Bank Digital Currency (CBDC) for retail use. I have been reflecting on the same questions ever since.

The most obvious goal for the central bank is to retain the relevance of the existing two-tier banking system and central bank money, and thereby to maintain control over monetary policy and financial stability in European markets. Another goal could be to reduce the use of physical cash and its related side effects, such as the shadow economy and tax evasion. One promise of the digital euro is that it could be a cheap option for merchants to accept payments. Still, the value proposition for consumers remains rather vague.

From that perspective, I have been turning one idea over in my mind for some time.

Digital Euro as a common acceptance brand

In Europe, we have more than 40 local payment schemes that are used locally by locals (in contrast to American schemes, which are used by everyone almost everywhere in the world, or Asian schemes, which are widely used by Asians across the globe). To enable pan-European digital payments, local and regional mobile payment schemes have started to build interoperability with one another. But there is still a problem.

Let us imagine a situation where I, a Finnish consumer and user of the MobilePay app, walk into a shop in Spain that displays the sign: “We accept Bizum”. As a payment geek living inside the payments bubble, I might think: “Aha! Since I use MobilePay, and both Vipps MobilePay and Bizum are part of the European Payments Alliance, I can pay with my MobilePay app here. Smart!”

But consider an average Finnish tourist entering the same shop. What are they likely to think? “What on earth is Bizum? I hope I can pay with my Visa card…”

For both MobilePay and Bizum, as well as similar solutions, the digital euro would be an additional source of funds that complements existing ones: cards and bank accounts. As a result, MobilePay, Bizum and others would be natural choices to act as digital euro wallets, should the digital euro be launched.

Now let us reimagine the same scenario. The Finnish tourist enters the shop in Spain and sees the sign: “We accept digital euro”. The tourist thinks: “Aha, I have digital euros in my MobilePay wallet. I’ll pay with that. Smart!”

What's in it for banks?

Looking at payment volumes from a Finnish or broader Nordic perspective, the highest volumes of consumer payments do not currently flow through local mobile apps such as MobilePay, but through Visa and Mastercard, increasingly made via Apple Pay or Google Pay.

According to BearingPoint’s Payment Behaviour Survey, 42% of Europeans trust banks to be the most reliable distributors of digital euros. This creates an opportunity for banks to provide digital wallets to their customers, not only for holding and using digital euros, but potentially also as channels for other services, such as credit and consumer loans (the need for delayed payment will remain, and the digital euro will not solve that).

Thinking a step further, banks often dream of having a “super app” that customers would open on a daily basis. Most current banking apps do not enjoy that status; few people need to open their banking app every day. Payments, however, are something we make many times each day, and that creates a compelling reason to return.

With a high number of daily users, a wallet could become an attractive platform for others to distribute their services as well. Imagine a future in which, as a bank, you control a platform where your customers store not only their digital euros, but also their debit and credit cards, loyalty cards, digital passports, driving licences, identity cards, travel documents, concert tickets, perhaps even stablecoins and other digital assets, alongside private keys and passwords. In effect, everything of value that we currently keep in our physical wallets and more. At the same time, other companies are knocking on your door to gain access to your platform - and willing to pay for that. With all the data you would accumulate, you could become the king of Open Finance.

In this sense, the digital euro could act as a trigger for something much bigger. That said, it would not be a walk in the park. The same BearingPoint survey shows that 58% of Europeans would trust someone other than banks as a distributor of digital euros, including payment companies, technology firms, central banks and others. Moreover according to the survey, while around one in three Europeans say they would use digital euros regularly, two thirds remain still hesitant or unsure about using them, even if they were available. Competition is fierce, and convincing consumers to switch away from Apple Pay or Google Pay is no easy task. Just ask MobilePay, Bizum and others.

What are your thoughts? Could the digital euro become a catalyst for something new for banks? Would banks be able to create true super apps? And would you use digital euros? 

Author:
Jani Ristimäki
Director, Financial Services
jani.ristimaki@bearingpoint.com