Now that the investigation phase is over, the digital euroThe name of the European single currency adopted by the European Council at the meeting held in Madrid on 15-16 December 1995. See ECU. More (D€) has entered its preparation phase. While this phase is not yet completed and the ECB is open to extending it or introducing a second preparation phase, the official EurosystemThe Eurosystem comprises the European Central Bank and the national central banks of those countries that have adopted the euro. More publications to dateThe year in which a medal or coin was minted. On a banknote, the date is usually the year in which the issuance of that banknote - not its printing or entering into circulation - was formally authorised. More and the European Commission’s regulatory proposal (D€- R) give an indication of a number of general design tendencies.
Many questions remain unanswered at this stage, and the relevant Eurosystem documents and the Commission’s regulatory proposal contradict each other on certain points. Some issues still remain, especially with regard to the compensation model, liability issues, the offline D€, holding limits and the design of the D€ card. The focus on smartphones as a paymentA transfer of funds which discharges an obligation on the part of a payer vis-à-vis a payee. More device should also be viewed critically.
Although no direct fees will be charged to the D€ account (which is positive for consumers overall), if PSP costs for D€ basic services used by natural persons are not fully covered by inter-PSP revenues or income from special services for D€ accounts, it is likely that this shortfall will be factored in when defining the fees for current accounts (or other banking services).
Whilst users of the online D€ will need D€ accounts, these will not replace current accounts. Having an additional account leads to more complexity as it establishes an additional transaction level between the current account and the D€ account.
For the D€ to be implemented successfully, it will need to be convenient and easy to use. This includes updates, easy transferability of account data to a new smartphone, or the option of using the D€ for Google Pay, Apple Pay or bank-specific wallet payments.
Executing D€ payments does not require D€ to be held in the D€ accounts, as payers can fund their account at the time of payment (“reverseThe back of the banknote or coin. See Obverse. More waterfall”). Since the rules stipulate that D€ balances flow into current accounts if merchants receive payments (“waterfall”), it is likely that any D€ balances held by consumers will serve primarily as store of valueOne of the functions of money or more generally of any asset that can be saved and exchanged at a later time without loss of its purchasing power. See also Precautionary Holdings. More. However, in view of the planned holding limit, these holding balances will be relatively small.
Consumers already have numerous payment options to choose from, especially in e-commerce, i.e. a new product such as the D€ will have to offer significant added value to gain a foothold in the market. However, as things currently stand, the D€ does not appear to offer this significant recognisable added value as a means of payment.
Using the D€ in e-commerce may entail increased risks for consumers. Unlike payment schemes with a chargeback option, D€ transactions constitute a final and irrevocable payment – unless the rules are amended.
Overall, it is not clear what advantages the D€ offers over existing payment schemes in e-commerce in terms of convenience, risk and reach. The same applies to physical POSAbbreviation for “point of sale”. See Point-of-Sale terminal. More, where consumers already have a wide range of payment options at their disposal.
Online D€ payments do not seem to offer any additional benefits when compared with existing payment options.
Offline D€ payments offer more privacy than current electronic payment schemes, however less privacy than cash. Some people may prefer to make cashless payments while still benefiting from a certain level of privacy protection. The offline D€ would offer added value for these customers.
Even though the D€ can offer added value to P2P payments, some countries already have very successful mobile payment schemes in place. Since it is unlikely that two mobile payment schemes could coexist, the D€ would have to replace these schemes.
The Eurosystem’s focus on an app-based payment instrumentDevice, tool, procedure or system used to make a transaction or settle a debt. More on smartphones (or other wearables) may cause the D€ to fail. At present, mobile payments account for less than ten per centFraction of a currency representing the hundredth of the unit of account. More of payments in face-to-face business, and it remains unclear whether smartphones will establish themselves as the dominant payment device in the foreseeable future.
Most merchants will be forced to accept the D€, both in e-commerce and at the physical POS – in other words, they will be legally obliged to ensure D€ acceptance by a certain date.
The part of the D€ system provided by the private sector (PSPs) is to be financed by (capped) merchant service charges. These merchant service charges comprise an inter-PSP fee, mainly for the consumers’ payment service providers. Merchants will also have to bear implementation costs, which could be challenging for smaller merchants in particular.
It remains to be seen whether the D€ will reduce payment transaction-related costs for merchants. Even though the D€ is intended as a low-cost alternative for the market, it cannot be assumed that the most favourable alternative for merchants will prevail on a two-sided market.
As such, merchants will probably (have to) add the D€ to their list of accepted payment schemes, whereas the other side of the market – i.e. customers and their PSPs – will determine its use.
The consumers’ PSPs (or at least the account-keeping financial institutions) will have to offer the D€ as an option. They will also have an interest in offering payment schemes that provide the greatest profit, or at least cover their own costs. As a result, the D€ might replace the payment schemes that are most favourable for retailers; it is also possible that PSPs will be reticent about offering the D€, meaning that little interest is generated among customers. Such an outcome would be detrimental to retailers and ultimately also to consumers.
The cost of fraud will be particularly important when it comes to using the D€ on the internet. If the liability rules are not improved, there may be unpleasant surprises regarding fraud costs, resulting in higher total costs, which will ultimately be passed on to consumers in the form of price increases.
At present, it is entirely unclear what the D€ implications will be for non-financial companies that are not classified as merchants. Definitions and terms contradict each other on the whole.
SEPA Inst will probably replace SCT as normal use case. In other words, the D€ would have to offer further advantages, alongside an immediate value date, in order to be of interest for non-financial companies not classified as merchants.
It is doubtful whether the D€ will be needed to develop new business models (such as machine-to-machine payments). Standardised interfaces are the key factor in this respect. Clearing and settlementThe discharge of an obligation in accordance with the terms of the underlying contract. In e-transfers the settlement may take days, whereas cash settlements are instantaneous and irreversible. More do not necessarily require a D€ and could use existing SEPA payment products or tokenised commercial bank moneyFrom the Latin word moneta, nickname that was given by Romans to the goddess Juno because there was a minting workshop next to her temple. Money is any item that is generally accepted as payment for goods and services and repayment of debts, such as taxes, in a particular region, country or socio-economic context. Its onset dates back to the origins of humanity and its physical representation has taken on very varied forms until the appearance of metal coins. The banknote, a typical representati... More instead.
It is difficult to establish a new payment solution via an open competitive process in a currencyThe money used in a particular country at a particular time, like dollar, yen, euro, etc., consisting of banknotes and coins, that does not require endorsement as a medium of exchange. More area that already has a wide range of payment methods – particularly if there are no obvious “gaps” in the mix of payment instruments. As no such gaps are discernible, the D€ has no unique selling point.
Setting up a subsidised state-backed/public payment system with mandatory acceptance and additional price regulation at several supporting levels will lead to imbalances and potential competitive distortions, the effects of which can only be foreseen to a limited extent. Efficient European payment systems used at national or even cross-border European level may be ousted by the “artificial” new state-backed/public competitor. There is a very real risk that a complex system that offers hardly any added value will weaken competitiveness on the European payment market without significantly influencing the position of international systems.