The European Central Bank has taken a further step towards making the digital euro usable in everyday payments, signing agreements with three European standard-setting bodies to support future payment processing.
The agreements with European Card Payment Cooperation, nexo standards and the Berlin Group will see the organisations’ existing technical standards applied across different parts of the payments chain, from contactless transactions to merchant acceptance and account-based payments.
According to the ECB, the agreements will allow existing open standards to be reused for digital euro online payments. This means payment service providers, merchants, acquirers and technology suppliers would have a common technical base if the digital euro is introduced.
The digital euro still depends on EU legislation, with the final regulation yet to be adopted. The agreements, however, give the market a clearer indication of how the ECB wants the payment infrastructure around the digital euro to work.
Acceptance will be one of the main tests for the project. A digital euro would need to work across the euro area in shops, apps and online payment flows. That will require common standards, so that payment systems can connect without each provider having to build separate technical arrangements.
Building the payment rails
The ECB says the selected standards cover several payment functions. CPACE, developed by European Card Payment Cooperation, supports contactless ‘tap-to-pay’ payments using near-field communication. nexo standards connect merchant systems with the back-end systems used by payment service providers and acquirers. Berlin Group standards support functions such as alias-based payments, balance checks and reconciliation.
By using existing standards, the ECB aims to lower adoption costs and encourage early coordination between market participants. That could matter for banks, processors, payment schemes and merchants, all of which would need to invest in systems before digital euro payments could be offered at scale.
The focus on standards also shows how the ECB’s approach differs from some other digital currency projects. While some central banks have tested central bank digital currencies through live pilots or specific use cases, the ECB is placing emphasis on the technical framework that would allow a digital euro to work across existing payment systems if the project moves ahead.
Piero Cipollone, ECB executive board member and chair of the High-Level Task Force on a digital euro, said the partnership showed the central bank’s commitment to ensuring the digital euro works with existing European standards that the private sector can also use.
Cipollone described the open standards as “a European free alternative to current proprietary standards” that would make it easier for new European providers to enter the market.
The ECB said free access, lower costs and coordination are important because Europe does not currently have a universally available open standard supported across payment terminals. It also said the region depends heavily on proprietary standards owned by international card schemes and global digital wallets.
Using widely adopted European standards would simplify digital euro acceptance and help create a more consistent user experience across the euro area, according to the ECB. It suggests this could also allow European payment schemes to expand geographically and support more use cases.
One example given by the ECB is a national card scheme expanding into point-of-sale environments outside its home market without requiring technical upgrades to payment terminals.
Waiting for legislation
The benefits of the digital euro standard could emerge before the digital euro itself is issued. Once EU co-legislators adopt the digital euro regulation, the central bank says market participants would have more certainty for future investment.
Standard-setting organisations welcomed the agreements as a step towards wider interoperability. Ana Grade, CEO of ECPC, said the use of CPACE in the digital euro project would “further enhance the standard’s visibility and market presence”.
Jean-Philippe Joliveau, chairman of the board of nexo standards, pointed to the role of common standards in payment acceptance, while Markus Schierack, managing director of SRC, which acts as the Berlin Group’s secretariat and editorial lead, said open standards were “the foundation of a competitive and interoperable European payments market”.
The standards were selected with market participants represented in the Rulebook Development Group. The ECB said they also support the aims of the Eurosystem payments strategy.
Further standards could be added in the future, subject to approval by the ECB’s Governing Council.