The digital euro as a basis for innovation in the economy

The digitalisation of economy and society is advancing at a rapid pace. The Internet of Things (IoT) in particular promises revolutionary business models in which European industry can position itself as a global market leader. The term IoT refers to the increasing interconnectedness of machines and devices. This involves equipping devices with a digital identity so that they can communicate with each other and autonomously execute processes without human intervention. This trend will become more and more relevant in the future.

In order to realise the full potential of digitalisation of the industry, the entire process, including payment transactions, must be optimised and adapted to IoT payments so that payments related to these new business models can also be processed efficiently, automatically and in real time.

However, today's payments system still has the following inefficiencies in the context of IoT:

1. Limited feasibility of Internet of Things (IoT) business models
   Pay-per-use and machine-to-machine payments require human intervention.
   
   
2. No end-to-end standardisation
   Suitable standards for continuous automated processing are still lacking.
   
   
3. Lack of automation in onboarding
   With the establishment of autonomous machines, automated onboarding is necessary.
   
   
4. High transaction costs
   Cross-border transactions and micro payments in particular are associated with high costs.
   
   
5. Slow settlement mechanisms
   Real-time payments are possible with instant payments, but their spread is limited.
   
   
6. Lack of know-your-object processes
   Appropriate compliance processes for recognising and checking machine identities still need to be created.

To minimise these process inefficiencies and limitations of the payments system, establishing an innovative monetary system would be of great advantage. Thus, during the two-year analysis phase of the digital euro, the European Central Bank (ECB) should not only consider the impact on the consumer, but also develop solutions for the advancing digital transformation of economic processes. However, as it is currently unclear what results the analysis phase will yield for the economy, the private sector has already started to digitise the euro so that (transitional) technologies for economic processes can take hold.

At PPI, we are following this topic with great enthusiasm and consider the innovative capacity of the payments system as indispensable for the economy. To keep you up to date on current developments, we will use this blog to regularly inform you about news on the digital euro throughout the year.

Author: Philipp Schröder