EPI and the digital euro

Strengthening the European payment industry

With the bank-sponsored European Payment Initiative (EPI) and the digital euro announced by the European Central Bank (ECB), there are two interesting approaches to strengthening European payments. What is behind these two initiatives? How far have they progressed in the meantime? Are they in competition or do they complement each other? Find answers to these and other questions by Kurt Schmid, Marketing and Innovation Director Secure Digital Payments at Netcetera, and Dr. Raoul Herborg, Business Lead Digital Currencies at Giesecke+Devrient.

The EU Commission and the European Central Bank want to support competitive digital payment solutions developed in Europe with a pan-European reach. So far, the providers of digital payment solutions with global significance are, on the one hand, American corporations, such as Mastercard, Visa, Google, Apple, or Amazon, and, on the other hand, large Chinese companies, such as Alipay. In addition, the Chinese central bank is working on a digital version of its currency. The European institutions want to counter this with independent solutions. This seems important to them in order to strengthen Europe's economic and financial sovereignty in the long term.

EPI: Uniform solution for all payment applications

One motivation for the EPI is to set up something for payment traffic similar to what was achieved with Airbus for the aviation industry: a solution based on the cooperation of important European banks and payment providers.

EPI's goal is to create a unified payment solution managed and operated within Europe that also integrates local solutions such as girocard or Cartes Bancaires into an overall system for better scalability. The building blocks are to include a payment card and a digital wallet. All types of transactions in stores, e-commerce, cash withdrawals and payments between individuals (P2P) should be enabled. Clearing and settlement are to be based on instant payments (SEPA Credit Transfer Inst, SCT Inst).

For both merchants and consumers, the new payment solution should be simple, universally usable and cost-effective. Additional services are also conceivable that go beyond the pure payment function.

Digital euro: complement to cash

All initiatives for the development of digital central bank money go under the heading "Central Bank Digital Currency" (CBDC).

In principle, the digital euro is intended to function in the same way as cash: Accessible to all consumers and businesses. Another parallel to cash: It is planned to be issued by the European Central Bank together with the national central banks and its value is to be guaranteed. One goal is to use it to support the digitalization of the European economy.

Dr. Raoul Herborg

"The digital euro is explicitly not about creating something like the cryptocurrency Bitcoin."

The president of the European Central Bank, Christine Lagarde, expects that the digital euro could launch in about four years. A decision on how to proceed is still expected to be made in mid-2021. However, the ECB does not want the digital euro to replace bills and coins, but to create an additional payment option.

At the moment, there are still a number of issues to be clarified. One challenge, for example, is to strike a balance between data protection and transparency. Digital payments are generally traceable. But the digital euro should also allow payments where data is protected.

There is already more clarity on other points. For example, the focus is to be on payments. Unlike cash, the digital euro will not serve as a store of value.

It will be usable on various devices, with smartphones being the main option. However, smart cards, smart watches and intelligent key fobs are also possible.

Offline payments are also planned. This means that the digital euro could function regardless of whether an online connection is possible or available.

Ultimately, the digital euro should be distributed to consumers and businesses by existing banks and financial service providers – at least that is the most likely scenario. Otherwise, central banks would have to set up and maintain a separate account for each interested party.

Kurt Schmid

"EPI and the digital euro can complement each other well. It is now up to the players in Europe to work together and join forces to strengthen the sovereignty of European payments."

Different strengths

When comparing EPI and the digital euro from the consumer's point of view, the different strengths of the two approaches become clear.

  • With EPI, for example, it is possible to track who paid what amount to whom and when. This is not possible with private payments using cash or the digital euro.
  • EPI's solution can also be used as a guarantee for reservations – as credit cards have been in the past. This also does not work with the digital euro.
  • Payments that are made completely offline are not planned with EPI, but are supposed to be possible with the digital euro.
  • While there are no limits with EPI, there will probably be amount caps for storage and individual transactions with the digital euro.

From a technical and organizational perspective, EPI will address a number of things that are still lacking with the digital euro. These include, for example, standards and certification mechanisms, processing and other infrastructures, and a business model. From this point of view, the digital euro could tie in with EPI and thus save both money for investments and time for development work.

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