This week, the regulator signed agreements with three European organizations - ECPC, Nexo standards, and the Berlin Group - to apply their open technical standards for processing payments under the digital euro, according to an ECB press release. By doing so, the regulator is trying to create a unified European alternative to the current payment standards in the eurozone, which are largely determined by international card systems such as Visa and Mastercard.

The path to freedom

Each of the three organizations with which the ECB has signed an agreement closes its own part of the payment chain:

o             ECPC's CPACE provides contactless tap-to-pay payments using NFC technology between a device and a terminal;

o             Nexo standards connects the systems of retail enterprises with the backend of payment providers and acquirers, including for ATMs;

•             Berlin Group is responsible for payments by alias: for example, by phone number, as well as for checking the balance and accepting payments through the apps of sellers.

The standards are already being implemented in a number of European countries, with the German Girocard and the French Carte Bancaire adopting the ECPC protocols.

Essentially, this means that the digital euro will be implemented based on European standards rather than those of American payment players, according to the Financial Times. If the digital euro becomes a legal means of payment, private payment companies will need to implement these technological standards in their card readers and other infrastructure. This will pave the way for the widespread use of the digital euro in the 21 countries of the Eurozone.

What is the current state of the EU's payment market?

Europe's dependence on the US payment infrastructure has been a long-standing issue for the EU. Christine Lagarde, the head of the European Central Bank, has previously called for the urgent creation of an EU-based payment system. According to Lagarde, it is necessary to strengthen control over the EU's digital payment system and reduce its reliance on foreign platforms such as Visa, Mastercard, PayPal, and Alipay.

"When you make a payment, whether it's through an online store, a card, or a phone, you always rely on non-European infrastructure," Lagarde said. "Visa, Mastercard, PayPal, Alipay - where do they come from? Either from the United States or from China. The entire payment infrastructure is not European.” According to Lagarde, although these companies operate in accordance with European regulations, Brussels should still “make sure that there is a European alternative.” “Just in case,” she added. “You never know what might happen.”

Currently, two-thirds of card payments in the Eurozone are processed by international schemes that are largely controlled by American companies, according to the FT. However, many European countries do not have their own local alternatives. The current standards for card payments in Europe are largely determined by EMVCo, a consortium based in California. It is overseen by six non-European payment schemes: American Express, Discover, JCB, Mastercard, UnionPay, and Visa, according to the FT.

One of the key differences between the European approach and the current model is the cost. The standards set by EMVCo involve charging fees for their use. The European alternative, as emphasized by the ECB, will be free for users.

"Free access, cost minimization, and coordination are particularly important, as Europe currently lacks a universally accessible open standard supported by all payment terminals, and the region relies heavily on proprietary standards owned by international card schemes and global digital wallets," the ECB said in a press release. "The use of widely adopted European standards will simplify the acceptance of the digital euro and provide a unified user experience across the Eurozone, while also enabling European payment schemes to expand their geographical reach and diversify their use cases. With this approach, for example, a national card scheme will be able to enter the POS environment outside its own country without the need for technical updates to the terminals."

A step forward?

The ECB's decision is one of the key steps towards the implementation of the digital euro, according to the Financial Times. However, the project itself has not yet been finalized, as European lawmakers are still discussing the necessary legislation before a crucial vote in the European Parliament this summer.

The European Commission and EU governments support the ECB's plan for the digital euro, but the idea is controversial in the European Parliament, as the newspaper points out. The largest European banks, as well as payment providers, are also skeptical. They argue that the digital euro will provide little additional benefit to the market, but it could undermine private initiatives such as Wero, which is also trying to compete with Visa and Mastercard.

If the European Parliament supports the initiative this summer, the law will then go through the approval process with the EU member states. The final approval of the document is expected by the end of the year or early 2027.

Reference

In the ECB, payment standards are defined as a common technical language for all transaction participants: PSPs, acquirers, merchants, and financial institutions.

o ECPC is a European cooperative established in 2020 by six national payment operators. It develops and supports the CPACE standard for contactless NFC payments, which is open and free for all market participants, both on the issuance and acquiring sides.

o Nexo standards is a non-profit association based in Brussels. It is engaged in the standardization of protocols between POS terminals, terminal management systems, and the backend of acquirers and PSPs.

• Berlin Group is a pan-European initiative for interbank compatibility. It is widely known for its API standards for open banking under PSD2, which have been implemented in approximately 80% of the European market.