Digital euro to cut costs for SMEs and reduce reliance on non-European payment providers, ECB says

The digital euro would help lower payment costs for small businesses burdened by expensive international card schemes and reduce Europe’s reliance on non-European payment providers that currently handle nearly 70 per cent of card transactions, European Central Bank executive board member Piero Cipollone has said.

In an interview with the Cyprus News Agency, Cipollone described the digital euro as a “digital version of cash”, designed to preserve the simplicity and freedom of physical money while extending its use to areas where cash is no longer practical.

Warning of Europe’s growing strategic vulnerability, he stressed the need to act now to build resilient domestic payment infrastructure rather than deepen dependence on external companies.

He added that while the project remains conditional on EU legislation, progress is accelerating, with the European Parliament expected to vote on its position in May. This could pave the way for pilot projects in 2027 and issuance of the digital euro by mid-2029.

The digital euro, Cipollone explained, is intended to replicate the core characteristics of cash while adapting it to a digital economy.

“Today cash cannot be used in many use cases,” he said. “Through the digital euro you will keep the simplicity of cash and yet be able to pay also for those use cases that you cannot cover today, like e-commerce.”

For citizens, he said, the main benefits would be simplicity and choice. A single payment solution would allow people to pay anywhere in Europe and for all use cases, while maintaining “the freedom to pay as you wish”.

For businesses – particularly small and medium-sized enterprises – Cipollone said the digital euro could significantly reduce the cost of accepting digital payments.

He highlighted Cyprus as a country where the benefits could be especially pronounced, given its heavy reliance on international card schemes.

“For small merchants, accepting payments through international card schemes is very expensive,” he said, noting that costs for small businesses can be three to four times higher than for larger merchants.

Under the digital euro, transaction costs would be “largely reduced”, as the ECB would not charge scheme fees. He also said that the presence of a public digital payment option would strengthen competition by improving small merchants’ negotiating power with private payment providers.

Addressing why a public digital currency is needed despite the widespread use of private mobile wallets, Cipollone pointed to the fragmentation of today’s payments market.

The digital euro, he said, would offer a single instrument usable online, at the point of sale and offline.

“There is an additional functionality that is not available today, such as the offline solution, which will allow you to pay even in cases where there is no electricity or connectivity,” he said.

He also framed the project as an issue of strategic autonomy, noting that almost 70 per cent of card-initiated transactions in Europe are processed by non-European companies.

“As citizens we should be concerned about that,” he said, adding that the digital euro would help address this dependency.

Cipollone said progress towards a digital euro is advancing along two tracks: technical preparations by the ECB and the Eurosystem, and the EU legislative process.

The European Commission presented its proposal in June 2023, while in December the Council working party agreed on a position close to the original text. Attention now turns to the European Parliament, which is expected to vote on its position in May.

If negotiations proceed smoothly, legislation could be in place by the end of the year. On that basis, pilot projects are expected to begin in 2027, with issuance targeted for mid-2029.

Responding to concerns that a digital euro could trigger deposit outflows from banks, Cipollone said safeguards have been built into the design from the outset.

The digital euro would not be remunerated, removing incentives to shift funds out of bank deposits. For online payments, users would not need to pre-fund a digital wallet, as a “waterfall” mechanism would draw funds automatically from a bank account at the time of payment. Pre-funding would apply only to offline payments.

In addition, holding limits would cap how much individuals can keep in digital euro form, and only natural persons – not merchants – would be allowed to hold digital euros.

Cipollone said simulations show that even with relatively high holding limits, financial stability would not be threatened. The exact limit, he added, will be set through a robust process involving the ECB, the European Commission and the Council.

Privacy and data protection have been built into the project from the start, Cipollone said, reflecting citizens’ expectations.

For online payments, the ECB would not know who is paying whom, seeing only encrypted codes, while personal data would remain with banks. Offline payments would offer even stronger privacy, with transactions known only to the payer and the payee through a direct device-to-device transfer.

“This is the highest level of privacy that you can get with current technology,” he said.

Exchange rate not a policy target

Asked about the recent strengthening of the euro against the US dollar, Cipollone said the exchange rate does not in itself determine ECB policy.

While movements in the euro are taken into account as part of inflation projections, he stressed that the exchange rate is not a policy target.

He noted that the euro strengthened earlier in the year but has largely remained within a familiar range of around 1.17–1.18 against the dollar, adding that recent movements have brought it back to levels seen in previous months.