Today, the European Central Bank released a report on new digital payment methods as part of its preparation for the potential issuance of a central bank digital currency (CBDC), the digital euro. ECB Director Fabio Panetta also shared some clues about the central bank’s current thinking on the digital euro.
The central bank announced a two-year CBDC research project in July 2021. Today’s report was based on focus group interviews with over 2,000 members of the general public and a much smaller number of tech-savvy attendees, merchants, and the underbanked.
A key thing to remember is that any new payment method must offer “compelling advantages” over current options. This was reinforced by the discovery that few members of the general public or the tech-savvy group have researched new payment methods recently.
Users also want a single solution rather than carrying multiple cards. Convenience trumps everything. Functionality, especially ease of use, security, reliability and speed are more important than the person providing the payment solution. However, banks were preferred over bigtech providers.
It is perhaps unsurprising that most participants dislike the difference between risk-free central bank money and commercial bank money. Many have expressed a desire to hold on to physical cash, often out of concern for others, such as the elderly.
Privacy and current thinking of the ECB
When it comes to privacy, many respondents said they don’t consider the topic when making payments. However, many wanted to be able to adjust the privacy option for particular payment situations.
When the ECB conducted its own public consultation at the end of 2020, the desire for privacy protection for a digital euro was a major finding. The ECB’s Fabio Panetta declined anonymity due to the need for anti-money laundering processing. He said digital euro transaction data should not be visible to the Eurosystem or any central entity. But he called it “beyond what is strictly necessary to perform his duties”. The basic level of confidentiality will be the equivalent of what exists with private digital solutions.
However, the ECB is studying certain exceptions with increased confidentiality, such as for offline use in stores for payments up to €200. Panetta compared this to a €200 bill. There would be an upper limit on balances and private offline payment amounts to balance risk.
Use case priorities
Panetta also clarified the ECB’s thinking on use cases for the digital euro. He noted that physical in-store payments amounted to 40 billion transactions in 2019. “So far they have been dominated by non-European vendors and technologies,” he said. This is a point that the ECB has mentioned several times. When the ECB created its Markets Advisory Group, the absence of Mastercard, Visa and PayPal was notable.
Therefore, current use case priorities are e-commerce payments, physical store payments, and person-to-person payments. Transactions between individuals and governments will also be considered. We note that B2B payments are missing from this list. Although arguably, SEPA does it quite well.
The ECB plans to step up its discussions with stakeholders and hold further focus groups later this year to get feedback on more detailed user experience plans.