The Digital Euro versus Consumer Payments – an unnecessary controversy

Introduction

The digital euro is drawing nearer: since 1 November 2025, the Eurosystem has been in the next phase of the project, the aim of which is to prepare Europe for the launch of the digital euro by 2029. The adoption of a legal framework is expected by the end of 2026.

For merchants, businesses, service providers, public authorities and associations, as well as their PSPs, the question is therefore not whether, but how the new infrastructure will be integrated into existing payment ecosystems – and what added value a digital euro can offer compared to established payment methods.

This article highlights the key aspects from the perspective of merchants and PSPs: costs, customer engagement, regulation, technology, competition and practical implementation issues.

Market and project status: Where does the digital euro stand?

As a digital complement to cash, the digital euro is intended to offer citizens a reliable, easy-to-use payment option. At the same time, the ECB aims to strengthen Europe’s independence in the field of payments. Yet this is precisely where resistance is emerging: European payment service providers in particular, led by the European Payment Initiative (EPI), are pushing for close cooperation between the ECB and the banks in establishing an independent pan-European payment solution. Retail associations such as the HDE support the project in principle, but emphasise that costs, data protection and ease of integration are key success factors¹.

From 2027, the ECB will launch a pilot programme marking the transition from theoretical considerations to practical validation, as the digital euro will then be tested under realistic conditions for the first time. The application phase for payment service providers to participate in the pilot will run until mid-May 2026. In this context, core functions will be tested, the user experience examined and the interaction between payment service providers, merchants and the Eurosystem’s infrastructure reviewed.

The trial has been deliberately kept lean and involves only 10 to 30 selected payment service providers, a limited number of merchants and several thousand Eurosystem staff who will act as end customers. Over a period of around twelve months, key usage scenarios such as peer-to-peer payments, offline transactions via NFC, and payments in brick-and-mortar shops and in e-commerce and m-commerce will be tested.

For payment service providers, this phase entails a considerable operational burden: they must establish and certify technical connections to the Digital Euro Service Platform (DESP), support users and merchants, and provide structured feedback to the Eurosystem. The insights gained will be directly incorporated into the potential future design of a market launch, which is being considered from 2029 at the earliest.

Europe’s digital sovereignty

In Europe, digital sovereignty has long since ceased to be an abstract political buzzword; it is now a tangible economic policy issue – particularly in the field of payments. What this refers to is Europe’s ability to control key digital infrastructures itself, to shape the legal framework around them, and to operate them independently of third countries. This debate is of immediate relevance to the retail sector, as payment transactions constitute critical infrastructure for day-to-day business and are not interchangeable IT components².

Europe’s structural dependence in payment transactions

The status quo is clear: around six out of ten cashless payments in Europe are processed via infrastructures controlled by non-European providers – primarily Visa, Mastercard and PayPal. In 13 out of 21 eurozone countries, there is still no national, independently deployable alternative for card payments, such as Germany’s Girocard.³

What was long regarded as a sign of efficient globalisation is increasingly being seen as a strategic vulnerability. Geopolitical tensions, extraterritorial sanctions and political influence have shown that payment systems are not merely a market, but infrastructure relevant to power politics.

For merchants, this dependence means that costs, regulations and technical development often lie outside the scope of European law and regulatory frameworks.

Why digital sovereignty specifically affects the retail sector

From a merchant’s perspective, digital sovereignty is not an end in itself. It determines:

• the predictability of acceptance costs,
• bargaining power vis-à-vis payment providers,
• resilience in the event of disruptions or political intervention and
• access to their own payment and transaction data.

The more payment flows are concentrated across a few global platforms, the less competition there is – with direct consequences for fee structures and the pace of innovation. Merchant associations across Europe have therefore been calling for years for greater competition and more European alternatives in the payments sector.⁴

Two European approaches: the market and the state

At national level, payment systems have become established in various countries. It is only through the cooperation between Wero (EPI) and the EuroPA Payment Alliance – in which major national payment services such as Bancomat (IT), bizum (ES), Twint (CH), blik (PL) and Vipps (Nordics) are involved – that there is once again a private-sector-led initiative for a pan-European payment system.⁵

Thus, two independent initiatives are emerging in Europe, each approaching the issue from a different angle but both aiming for greater autonomy in payment transactions and data minimisation in accordance with European legislation.

The digital euro from a retail perspective: aspiration and reality

The retail sector takes a nuanced view of the potential introduction of the digital euro. On the one hand, it promises a state-guaranteed, Europe-wide standardised payment option with what are expected to be lower acceptance costs, particularly when compared to credit card payments. On the other hand, the digital euro is not a payment method that has emerged from the market economy, but a regulatory project with a planned obligation for merchants to accept it.

For the retail sector, digital sovereignty means one thing above all: freedom of choice and competition. It is not a single system that creates sovereignty, but a pluralistic payments market in which European solutions represent realistic alternatives. In this context, the digital euro can play a complementary role – alongside SEPA Instant, Wero and existing systems – provided it offers tangible added value. The decisive factor for the adoption of the digital euro will therefore not be political symbolism, but its practical performance: costs, integration, stability and customer experience. Only if the digital euro proves itself in these areas will it become a genuine building block of European digital sovereignty for merchants.

The distinction between digital currency and payment methods

In order to understand the digital euro in a realistic context, a clear distinction must be made between form of money and payment methods. The digital euro is central bank digital currency (CBDC), i.e. money issued by the ECB in digital form. It is therefore a new form of money, but not a payment method.

The European payments market is characterised by a multitude of established payment methods – ranging from global card systems such as Visa and Mastercard, through wallet solutions such as PayPal, to national methods such as girocard, Cartes Bancaires, bizum, iDEAL, blik, Bankomat, vipps or twint. Wero has recently emerged as a pan-European method. What they all have in common is that they only become effective through a concrete acceptance infrastructure: cards, smartphones or wearables on the customer side interact with terminals, POS systems or digital payment pages on the merchant side. This infrastructure connects acceptance points, payment service providers and banks into a functioning payment ecosystem.

In the case of the digital euro, the ECB plans to first establish a similar infrastructure, which would compete with solutions that have emerged through market forces. However, retailers and banks are expected to be obliged to accept it. Criticism is therefore coming not only from banks but also from retail-related circles, as setting up this additional infrastructure requires resources.

EPI CEO Martina Weimert also publicly warned of a crowding-out effect at the expense of private-sector European solutions and that the digital euro could weaken existing innovation dynamics⁷.

There is also concern that non-European wallet providers will simply integrate the digital euro into their ecosystems, thereby further expanding their market power. Looking at the European Parliament’s current draft legislation, this would indeed be possible, and American Big Tech firms could offer digital euro wallets to their customers just as German retail banks do – an outcome that would run counter to the ECB’s actual intention.

Comparison: Digital Euro vs. existing retail payment methods

Compared to existing retail payment methods such as cards, wallets, mobile payments or SEPA Instant, the digital euro is characterised in particular by a potentially altered cost and role model from the perspective of retailers and payment service providers.

Whilst today’s payment instruments regularly incur transaction-based fees for merchants – usually comprising a percentage of turnover and a fixed charge – retailers expect the digital euro to bring significantly lower and more transparent acceptance costs. In an interview for the report Digital Euro Unlocked by msg for banking and Infineon, Ulrich Binnebößel of the German Retail Association (HDE) calls for virtually free acceptance and simple fee structures, ideally in the form of a fixed price per transaction rather than turnover-based commissions. Although the ECB envisages that payments with the digital euro will be free of charge for end users, the fee model at the level of payment service providers has not yet been finalised and remains politically contentious. The current legislative proposal allows for both an inter-PSP fee and a merchant fee, though these must not exceed the levels of existing systems.

In contrast, merchant associations such as Ecommerce Europe and the Merchant Payments Coalition are calling for a further simplified model: for online payments, they propose a uniform merchant fee of 0.1% capped at four cents, whilst offline payments using the digital euro should remain completely free of charge.

Alongside the issue of costs, customer relations and data usage play a central role. Whilst digital payments today are heavily influenced by private platforms and ecosystems of non-European providers, the digital euro is intended to be functionally closer to cash, enable data-efficient payments and not be used for commercial profiling. For retailers and payment service providers, this means, on the one hand, lower compliance costs due to less customer data, but on the other hand, it also means limited opportunities for loyalty programmes, so that additional value-added services may be necessary.

Opportunities for merchants

Compared with established payment services, the digital euro offers significant potential for merchants in terms of lower and more predictable merchant fees. In particular, a pricing model that is more transaction-based and less turnover-dependent could reduce costs and make it easier to compare different payment methods.

As a publicly operated payment infrastructure, the digital euro can be designed for high availability and resilience. For merchants, this would be particularly relevant if it reduces dependence on individual proprietary networks and improves fallback options in the event of a disruption.

Similar to existing payment services, and depending on the design of the front-ends and integration by PSPs, the digital euro can support modern POS concepts, such as self-checkout, mobile checkouts, cashierless store models or even agentic payment. A prerequisite for acceptance by end customers is seamless implementation in checkouts and terminals, as well as a checkout experience that is at least on a par with established methods.

Challenges and outstanding issues

❗PSPs’ business model

The fact that end users are not charged shifts the revenue issue to the intermediation layer. It remains to be seen through which mechanisms PSPs will recoup their provision, integration and operating costs (for example, via inter-PSP fees, merchant fees or compensation models) and how this will affect pricing, competition and incentives for active distribution.

❗Consumer acceptance

Demand will be shaped less by the “digital euro” as a form of money and more by the user experience in wallets, at checkout and in everyday life. Consumers are more likely to adopt the new forms of payment if the digital euro can be integrated into existing payment habits without a break in the user experience and offers a clear, communicable added value (for example, ease of use, high availability, data-efficient payments) .

Different user segments react differently: younger target groups expect seamless, mobile journeys; more sceptical groups focus on security, control and clarity. On the merchant side, reluctance may arise if conversion costs (POS/terminal/processes) and operational complexity outweigh the expected benefits.

❗ Regulatory complexity for merchants

For merchants, several regulatory projects and market initiatives (including PSD3/PSR, the Instant Payments Regulation and the digital euro) are coming to a head in quick succession. This results in parallel adaptation requirements across processes, compliance, technology and service provider management. It will be crucial whether PSPs and acquirers provide consistent integration paths, clear responsibilities and streamlined enablement for this, so that the digital euro is not perceived as an additional layer of complexity.

Strategic recommendations for merchants & PSPs

For merchants

1. Check terminal and back-office compatibility at an early stage:
2. Merchants should clarify at an early stage what adjustments to terminals, POS systems, back-office processes and reporting are required for payments using the digital euro, so that rollouts can be carried out later without time pressure.
3. Compare fee models: A structured comparison of the expected fee models is advisable (current cards/wallets vs. digital euro) to reliably quantify the effects on margins, payment mix and pricing logic.
4. Highlight communication and privacy benefits:
5. In customer communications, the digital euro – provided its design allows for it – can be positioned as a data-minimal payment option (for example: payments without tracking), without making unrealistic data protection promises.
6. Rethink loyalty systems:
7. As payment data is likely to be less usable for value-added services, loyalty and incentive schemes should be geared more towards purchase/interaction data, account-based identifiers or proprietary customer accounts, and prepared technically accordingly.

For PSPs

1. Designing CBDC front-end services:
2. PSPs should develop market-ready front-end components at an early stage (wallet functions, card/app experience, APIs for merchants and platforms) and design them in such a way that they can be integrated into existing checkout journeys.
3. Preparing D€ funding/defunding solutions:
4. Robust processes for funding/defunding (deposits and withdrawals between scriptural money and the digital euro) are of central importance, including fraud prevention, limits and operational support processes.
5. Expand real-time capability:
6. From a regulatory and technical perspective, the real-time capability that is already required (Instant Payments Regulation) should be used as an enabler to design architecture, monitoring and operational processes to be CBDC-ready.
7. Develop acceptance cost models for merchants:
8. On the merchant side, clear, competitive acceptance cost models and streamlined enablement (documentation, certifications, rollout support) are needed to reduce integration barriers.
9. Keep integration with EPI/Wero open:
10. Strategically, it is advisable to keep integration paths to A2A initiatives such as EPI/Wero open, so as not to lose interoperability, reach and scalability in parallel silos.

Conclusion

A digital euro will not transform retail payments in the short term. However, it can boost competition, reduce dependencies and make the payments system more European and resilient. For merchants, this could mean greater freedom of choice and – depending on the fee model – lower acceptance costs.

PSPs face implementation challenges, but will gain scope for new front-end and value-added services. It is crucial that the digital euro and private-sector A2A initiatives work together: Europe must join forces – through standards, interoperability and clear roles.

Ultimately, it is the added value in everyday life that counts. The digital euro will only become established if it offers tangible benefits to customers and retailers in terms of cost, simplicity, availability, reliability and data protection.