Customer paying via contactless payment with his mobile phone

How banks can prepare for the digital euro using four hypotheses

The introduction of a digital euro is expected to have profound effects on Europe’s financial landscape, in a whole range of areas.

In brief
  • The retail central bank digital currency would affect how people pay for goods and services, and the role of banks and other payments companies.
  • Although its introduction is not expected until at least 2028, banks should start preparing now.
  • Considering four key hypotheses can help guide thinking and strategy at an early stage and allow a holistic approach.

The European Central Bank (ECB) is developing extensive plans to introduce a digital euro, a central bank digital currency that could be issued as soon as 2028.

Even though the ECB is keen to emphasize its ongoing commitment to cash, the proposed digital euro would have a huge impact on the European financial services sector and how people can pay for goods and services.

The ECB points to three main benefits of a digital euro. First, it would strengthen Europe by supporting monetary sovereignty, and by making the payments landscape more resilient to non-European payment providers. Second, it says that it would enable financial inclusion and create a joint European payment system for all EU citizens. Finally, it says it would be cost-free for end users with beneficial features, such as cash-like privacy.

However, banks need to prepare carefully, to ensure that their systems meet the ECB’s requirements and integrate with the digital euro platform, and to develop effective strategies to address challenges in implementation and make the most of potential opportunities.

The pathway to introduction

At the moment, plans for a digital euro are in the preparation phase, which aims to lay the foundations for a potential implementation and includes finalizing its rulebook and selecting providers that could develop the necessary infrastructure. This phase also involves testing approaches to check they meet requirements.

A final decision on introducing the digital euro, and the form it will take, is not expected until 2025 or 2026. This would then be followed by an implementation phase expected to take about two years, hence the expectation of a launch in 2028.

Payments - Digital euro - The pathway to introduction chart

What the digital euro will mean for banks

Although the parameters of the digital euro are still being determined, the Eurosystem, the monetary authority of the eurozone that includes the ECB, has set out six key features for it:

  1. Digital cash: It could be used for all digital payments, just as cash is used for physical payments. This includes paying in shops, restaurants and other businesses, as well as making online purchases and sending money to friends and family.

  2. Universal acceptance: It would be accepted throughout the euro area by all shops and merchants accepting digital payments.

  3. Free of charge: As a public good, it would be free to use in the euro area, like physical cash.

  4. Available offline: It should be usable without an internet connection.

  5. Secure and private: It would offer cash-like privacy, with the central bank unable to identify users based on their payments.

  6. Guaranteed value: A digital euro will always be worth the same as a €1 coin.


For banks, the introduction of the digital euro presents several implications. The ECB plans to deploy it using a hybrid distribution model, in which authorized banks and payment service providers will play a central role. Since it will be legal tender, banks will be required to integrate with the digital euro infrastructure, serving as gatekeepers for the new platform.


End users will likely access the digital euro through their existing banking and payment applications, although the Eurosystem also plans to release a dedicated app to broaden accessibility, especially for the unbanked population.


The digital euro is intended to be free for end users, but it will likely involve capped merchant and interchange fees for transaction processing.


There will, however, be a limit on the amount of digital euros that each EU citizen can hold, potentially set at €3,000, although this figure will be finalized during the preparation phase. It is also proposed that merchants will have a zero holding limit, though they will be able to hold the currency they receive until the end of the trading day. This means they will be able to accept payments, but not use the digital euro for their own payments.


Lastly, although data protection and user privacy are key requirements, they will have to be reconciled with existing anti-fraud, anti-money laundering, and counter-terrorist financing regulations. While the Eurosystem aims to ensure a high degree of privacy, the regulatory environment may prevent complete anonymity, though transactions below a certain threshold may get enhanced privacy protections.

How banks can use four hypotheses to prepare

Although the roll-out of the digital euro is not expected until 2028, banks can and should start preparing now. In particular, they need to think about how it will impact not just their operations, but also their business models and commercial strategy.

Having considered the implications of the digital euro and drawing on our experience of working with banks across the continent, we put forward four hypotheses that management teams may want to consider. Together these provide a broad framework for initial discussion.

Hypothesis 1: The digital euro increases the need for banks to develop a holistic payments strategy

The complexity of the payments landscape has increased dramatically in recent years. Technological innovations, such as digitalization, standardization and tokenization, have driven change. Regulatory requirements have evolved, and continue to do so, while competition has increased, and especially with fintechs and paytechs entering the market.

At the same time, universal banks have built up complex payments’ structures. These can include diverse and sometimes country-specific products, complex IT systems, and geographically dispersed expertise regarding products and infrastructure. As a result, decision-making can be inefficient, and there may be shortages of resources and underinvestment. This can be a particular problem for multi-country, cross-functional projects affecting numerous parts of a bank. Different change initiatives can even end up competing for the same internal resources.

Given these legacy issues and the fast-changing environment, developing a robust and holistic payments strategy can help banks position competitively for the longer term. This can include assessing payment offerings and competencies, defining and prioritizing products and services, and allocating revenue and cost items. As well as determining future directions, such a strategy can also establish necessary preparatory measures and requirements for skills, resources and governance structures.

Hypothesis 2: The digital euro presents a major opportunity for banks to redefine the role of their apps and their positioning to customers

The digital euro offers banks a significant opportunity to transform how their apps serve customers, who currently use mobile banking apps primarily to access information, such as account balances, and details of deposits and withdrawals.

Furthermore, while some institutions offer dedicated payment apps, perhaps as part of a multi-app strategy, or to participate in cross-border payments initiatives, these often lack the high-quality, cross-channel user experience required for success. This has led to low levels of adoption by customers and merchants.

In addition, technical constraints imposed by smartphone manufacturers limit banks’ abilities to offer a standardized user experience across smartphone operating systems, causing them to lag behind competitors in the digital payment landscape.

The digital euro, however, would rapidly gain momentum given legal tender status, zero cost to end users and expected media interest. Banks should capitalize on this to increase app usage and foster customer loyalty. By offering a comprehensive app-based payment solution across all forms of money, they could reposition themselves effectively, and confidently compete with the expected app from the Eurosystem, as well as those from other companies.

Management teams need to start by analyzing any existing limitations and clearly defining their vision for the customer interface, as not all functions can be seamlessly integrated into banking apps given different organizations’ requirements and starting points. They should then develop strategies to integrate the digital euro, ensure integration across services, and make services simple and user-friendly.

Hypothesis 3: The digital euro can be a catalyst for innovative value-added services that generate revenue, differentiate offerings and increase loyalty

The introduction of the digital euro and standardized implementation criteria for basic services are expected to accelerate the convergence of bank accounts and payment services. At the same time, the digital euro is likely to increase pressure on banks’ profitability given the investments required, declining revenues from existing payment methods, the necessity for additional liquidity management, and limited additional income opportunities.

In response, banks should innovate by introducing new value-added services or expanding existing ones. This can help differentiate them from competitors, foster customer loyalty, cross-sell products, and unlock new revenue streams. Indeed, the European Commission’s legislative proposal highlights that banking income can potentially come from innovative value-adding services related to the digital euro, such as conditional payments.

The significance of innovative value-added services has surged in recent years alongside the increasing digitalization of payment transactions. For example, retailers are increasingly willing to pay for services that improve checkout conversion rates or mitigate fraud risk.

Banks’ management teams should assess the feasibility and prospects for different value-added services and develop a strategic roadmap for the future that reflects their available resources and customer demographics. Strategic partnerships and acquisitions might be explored to address internal gaps in offerings and use external expertise and proven solutions.

Managers also need to recognize that value-added services impose differing demands on a bank’s financial, technological, and human resources. For instance, while cashback services may appear straightforward, they entail high financial burden and require substantial transaction growth or cross-selling to be economically viable. On the other hand, buy now, pay later services, despite their technological requirements, offer direct new revenue opportunities.

Whichever services are developed, ease of onboarding and user-friendliness will be vital in attracting users. In addition, collaboration and distribution partnerships should be considered to enhance service quality and ensure widespread adoption.

Hypothesis 4: The introduction of the digital euro necessitates a scenario-based preliminary study to assess implementation costs, and bank-specific opportunities and risks

To gain early insights into the implementation costs associated with introducing the digital euro and assess the potential for additional earnings, banks should conduct a scenario-based preliminary study immediately.

As well as informing planning and investment, it can also help guide discussions with the ECB about support and implementation requirements. While using a scenario approach is particularly useful given that the ECB’s vision is not yet fully defined, especially regarding infrastructure and user experience.

The preliminary study for the digital euro should begin with a candid assessment of current capabilities alongside a clear definition of the bank’s ambition level and risk profile. A key consideration is whether the bank aims to invest for growth or merely seeks to meet regulatory requirements at a low cost.

With regard to earnings potential, particular attention must be paid to factors like customer acceptance, the level of competition between banks, the role of the Eurosystem app, and the compensation model for basic and value-added services. Banks focusing early on optimizing onboarding processes, value-added services, cross-selling potential, and pricing models can gain a competitive edge.

For implementation costs, factors such as the reusability of existing customer interfaces, compatibility with existing payment infrastructure and data protection requirements must be considered.

Banks should not limit their planning exclusively to in-house solutions and should also explore the value of synergies through partnerships and cooperation with other banks and third-party service providers.

The findings of an effective preliminary study will allow banks to actively shape the ECB’s preparation phase, have full transparency on financial implications, involve key resources and partners early on, safeguard potential first-mover advantages and ensure cost-effective implementation.


The digital euro looks set to effect major change, not only in terms of how people pay for goods and services, but also in how banks and other financial services companies deliver products and services. It could further intensify competition in the sector, and banks need to develop strategies to address challenges, and make the most of the opportunities that will be presented, not least from its expected momentum that.

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