Introduction to the Digital Euro
The Digital Euro is a digital currency that will be available for everyone, everywhere and for free. It can be used anywhere in the Euro area, to purchase groceries and buy products online for example. Commercial digital currencies can be risky for consumers because of rate fluctuations, privacy risks etc. Backed by the European Central Bank (ECB), the Digital Euro offers advantages over other digital currencies, such as better security, reduced risk of extreme fluctuations and a strengthened EU’s monetary sovereignty and economic resilience. The Digital Euro will be regulated by the ECB in collaboration with commercial banks and other stakeholders. (Find more information on https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html)
Challenges and opportunities
The Digital Euro will be facilitated by the ECB, but commercial banks will play an important role in the financial system. Commercial banks will enable people to acquire the Digital Euro from the ECB, process payments and ensure privacy. Currently, commercial banks are determining their stance towards the Digital Euro and try to steer its development by influencing the EU. Regardless of their stance, commercial banks will remain pivotal in the financial system in this ‘new’ era. This poses both challenges and opportunities, as it may lead to the creation of new commercial services, while also impacting operations.
The arrival of the Digital Euro changes the financial industry significantly, as it could lead to dropping transactions costs within the system, highly efficient compliancy processes (e.g. fraud detection), loss of interest income and a variety of new commercial services (e.g. conditional payment services).
Joost Loves, Partner, BearingPoint
Impact on commercial banks
The introduction of the Digital Euro will impact customer behavior and interaction, compliance, risk management and business models of banks. They will need to adapt to new regulations and responsibilities, for example related to privacy and cybersecurity. To adapt to and keep up with these changes traditional banks are required to change accordingly. The arrival of the Digital Euro changes the financial industry significantly, as it could lead to dropping transactions costs within the system, highly efficient compliancy processes (e.g. fraud detection), loss of interest income and a variety of new commercial services (e.g. conditional payment services). According to experts these changes must happen anyway, whether driven by the Digital Euro or other digital currencies introduced by big tech companies.
The impact will affect financial institutions in many ways, for example:
- Commercial banks need to find new ways for funding
- Processes need to be redesigned
- Technology needs to be developed to meet requirements
- Data capabilities need to be built up
- Retail banking has many opportunities to develop new services and propositions to commercialize the Digital Euro
- Compliance related departments, like fraud detection, could detect fraud by using the single source of truth of the Digital Euro database which can create a lot of efficiency in processes
Creating a future-proof organization prepared for the Digital Euro era
Regardless of what the Digital Euro will eventually look like, we believe that financial organizations should prepare themselves now and seize the opportunity to establish a first-mover advantage by acting early and taking proactive steps. As the impact is high and organizations needs to adapt to this new era, there is a need to develop the current operating model. An improved operating model can result in efficiency gains, new services and products, and in the end in more value for customers and society. By starting the transformation early on, banks can optimally prepare for the changes to come, set clear goals and organize for success.
As BearingPoint, we support organizations in designing their organization successfully. As big changes require time and effort, it is important to start sooner rather than later. Our approach (Organizational Design Toolkit) helps organizations in designing, implementing and maintaining an effective organizational structures. By doing so, we help organizations focus on organizational drivers and capabilities that are required for an organization to have a viable business model in the future. By understanding the impact of Digital Euro on the financial industry, we can help organizations to organize for success.
Following our Transformation Bridge framework, multiple elements need to be considered when setting-up and running a transformation program for changes like the Digital Euro.
Some examples:
- Transformation programs start with a case for change, which highlights the need for change and the associated benefits
- This drives the transformation vision & strategy process that acts as a guide during the transition
- A holistic end-state design defines the end goal of the transformation and informs stakeholders on what the destination looks like
- As not all transformations can be reached in one go and can benefit from an incremental approach, the transformation roadmap shows a step-by-step approach on how the end-state will be reached
- While entering a new phase, it is important to assess the required capabilities in the end-state. Capability mapping starts with a gap analysis in which the current state is compared to the desired state (BearingPoint Fit for Purpose Methodology)
- Lastly, in designing the organization the department & teams, positions & roles, the right size, and the government structure need to be defined together with the organization, before getting to the implementation of the design.
Do you want to know more?
We have supported multiple companies with redesigning their organization and preparing them for the required and/or desired change. Want to know more about how we support companies that consider organizational redesign and how we can help them in successfully achieving this? Feel free to reach out!
This article was created in collaboration with various experts from the sector.