The E-Euro and the E-Card

[chrisild]

As from mid-2021, an "e-euro" could be tested in various European regions. If all goes well in that initial phase of six months, this digital currency could be introduced in 2022. This is a Business Insider story (in German) about the plan; the ECB has some background info about the "digital euro" in English here. This is quite an ambitious schedule, but it is driven by the fact that such digital currencies are "pushed" in other parts of the world too.

Talking about global competition, there are also plans to launch a European payment card and wallet. Currently most debit cards in the EU are "national" in that they work well in one member state but not necessarily elsewhere. That in, in everyday life, not a major issue – after all we can use Visa (US), Mastercard (US), PayPal (US) ...

The European Payments Initiative (EPI) would like to launch another option. Supported (or even pushed) by the European Central Bank, several European banks and third-party acquirers aim at processing about two thirds of payments in Europe by 2025. See here and there for example. Another very ambitious project. A lot depends on what the answers to questions such as "Do we need this?" or "Who is going to pay for this?" will be.

Christian

[FosseWay]

Currently most debit cards in the EU are "national" in that they work well in one member state but not necessarily elsewhere.

I didn't know that. Every debit card I've ever had since the 1990s (UK and, in the last 10 years, Swedish) has worked elsewhere in Europe (by which I mean geographical Europe, not just the EU, including for example in Belarus). Perhaps the UK and Sweden are unusual in this. I don't have a credit card; if you pay them off in full every month, I don't see what the advantage is, and it's just one more PIN to remember, given that you get a debit card by default with a current account.

[chrisild]

Wanted to put that carefully, hence this "not necessarily". These days many debit cards combine multiple services: My two debit cards are called "girocard", but one also has the "V Pay" (soon to be Visa Debit) function while the other one has "maestro" built in.

This way the cards do work in several European (plus a few other) countries. If they were just girocards, nothing else, that would be fine for Germany (where almost everybody has one) but of limited use elsewhere. So it makes sense to think about card options that work internationally but do not involve processing payment data outside the EU. Whether this EPI will ultimately be successful or soon die like similar initiatives before, will be seen.

Credit cards can be useful when you do international travel (yeah, tough these days ), need a rental car, want to book a hotel room ... Don't laugh but I have two, in addition to the two debit cards. Even though I do not spend that much money this way, the combo is just convenient. Another thing that I like about credit cards: When I pay with a giro card (debit), the money is immediately taken off my bank account. Of course I can contact my bank and say, hey, this is not correct etc., but with a credit card I can do all that before the c/c company has my monthly bill ready.

There still are quite a few differences between payment systems in different European countries. Just think of Swish – we do not have anything like that in Germany. Yes, it is possible to make instant payments which take just a few seconds, but I still need the recipient's IBAN (bank account #), and even worse, many banks charge extra for that service: 50 ct or even more per transaction. Booh.

Christian

[chrisild]

The "e-euro" may come a little closer. Forget about the timeline mentioned before, but the European Commission just made a proposal regarding the "digital euro". However, it also wants to make sure that we can still use cash.

As mentioned before, "Europe" does not have any EU-wide payment system. Sure, we are allowed or even strongly encouraged to use one of the existing US card systems ... and that's it. On top of that we have country specific systems, but there is that gap between the two.

Guess that is why the EC proposal goes far beyond a digital currency that would be used by few major players only. On one hand that affects the business models of commercial banks; on the other hand, those banks have shown inertia for years when it comes to developing common payment systems.

Now the proposal may still be modified or "killed" by the Council (i.e. member states) later, especially if there is enough pressure from lobbyists. But at least we now have a path outlined so to say. For more details click the link below.

Press release 28 June 2023
Single Currency Package: new proposals to support the use of cash and to propose a framework for a digital euro

* A legislative proposal on the legal tender of euro cash to safeguard the role of cash, ensure it is widely accepted as a means of payment and remains easily accessible for people and businesses across the euro area.

* A legislative proposal establishing the legal framework for a possible digital euro as a complement to euro banknotes and coins. It would ensure that people and businesses have an additional choice – on top of current private options – that allows them to pay digitally with a widely accepted, cheap, secure and resilient form of public money in the euro area (complementing the private solutions that exist today). While today's proposal – once adopted by the European Parliament and Council – would establish the legal framework for the digital euro, it will ultimately be for the European Central Bank to decide if and when to issue the digital euro.

[Figleaf]

The two proposals are subtly but importantly different.

The first is just banging the heads of Visa and Mastercard together until they understand the concept of a currency union. I expect that this is an issue only in Balkan countries.

The second is about a central bank digital currency (CBDC). This would be an important competitor for Visa and Mastercard and the beginning of an answer to the dangerous one-sided dependence on US companies for debit card payments.

Peter