The digital euro gets a rulebook

The ECB's two-year investigation phase on the digital euro will end this autumn. Subsequently, it will be decided whether and in what form the digital euro will be implemented. The ECB plans to organise the distribution of the digital euro through a scheme that will set rules and guidelines for its introduction and distribution. Earlier this year, the ECB established a Rulebook Development Group (RDG) to produce a first draft of a scheme rulebook. This first draft could be particularly interesting for commercial banks and payment service providers, as the ECB would like to process the distribution of the digital euro through them.

Composition and tasks of the RDG
The Rulebook Development Group's task is to create a preliminary scheme rulebook for a potential digital euro. It is composed of 22 experienced professionals from the private and public sectors. This includes 8 Eurosystem representatives and 14 representatives from various payment market stakeholder organisations, ensuring that the different perspectives and needs of all stakeholders are considered.

Contents of the rulebook
The rulebook provides a framework to which all intermediaries involved in the introduction and distribution of the digital euro are bound. It includes the following aspects:
  • Basic characteristics of the scheme
  • Functional and operational model
  • Compliance (adherence)
  • Technical requirements
  • Risk management
  • Scheme management

In developing the rulebook, the Research Development Group is guided by the design options endorsed by the Governing Council, which are explained in the so-called progress reports during the investigation phase. These are accessible via the ECB's website digital euro publications.

Importance of a scheme rulebook for the digital euro
A scheme rulebook creates uniform standards for the introduction and distribution of the digital euro, which can improve the interoperability and efficiency. It provides clarity and transparency to intermediaries and also to the users of the digital euro, which reduces misunderstandings and uncertainties during the implementation and strengthens trust in the digital euro. The design of the rulebook can also be crucial for a smooth introduction and distribution. To this end, flexible rules and a low level of bureaucracy are particularly important to enable an uncomplicated onboarding for all intermediaries.

Potential for innovative services
The rulebook also influences the development of additional and innovative services that can be offered with the digital euro. Depending on its design, the rulebook can be an important basis for commercial banks and licensed intermediaries to develop additional services beyond the original scope of application. In this respect, the inclusion of stakeholders from different sectors of the private sector raises hope. Innovative services could be decisive for the future success of the digital euro. This is because there is still a lack of clear unique selling points that distinguish the digital euro from existing payment instruments such as card payments with commercial bank money.

We now have to wait about six months for the decision on the introduction of the digital euro. Important announcements are still expected in this final stage of the investigation phase. In order to prepare in the best possible way, it is advisable to deal with the topic intensively now and not just if the introduction is imminent. One thing is certain: PPI will continue to follow the developments on the digital euro with enthusiasm and will continue to keep you informed of the most important developments.

Author: Alois Brügge, Philipp Schröder

Instant payments on their way to becoming the "new normal" – the time is now!

In our latest whitepaper we show why financial institutions should see instant payments not just as a regulatory and technical challenge, but as a strategic opportunity. We outline the need for action for financial institutions to make instant payments a success story.
The way to the new normal
For a long time instant payments in the SEPA area were niche products, even though the technical prerequisites have been in place since 2017. Even a good five years later, the share of instant payments in total payment transactions is just 14 %. That is going to change now. Many factors suggest that instant payments are now becoming the "new normal", as envisaged by the Eurosystem Retail Payments Strategy. Instant payments can form the basis for new types of business models, which should give financial institutions economic incentives to promote instant payments. Added to this is the European Commission's push to make instant payments mandatory. This will cause the use of instant payments to skyrocket and accelerate its development.

How should financial institutions act now?
There is a need for action for all financial institutions, even if they have already introduced instant payments. On the plus side, there are also new opportunities!

Those who have not yet introduced instant payments should become instant-ready as soon as possible – there is no way around it. Here it is worth comparing different operating models. The processing of instant payments places particularly high demands on the performance and stability of the systems. Therefore, it may be worthwhile for many institutions to think about outsourcing in the form of a payments-as-a-service model, especially in the area of instant payments.

Financial institutions that have already introduced instant payments are faced with a strategically important decision: Does the institution only want to meet the minimum requirements in order to be able to process the expected higher volumes? Or does it recognise the fact that instant payments are at the core of payments of the future and set a strategic course to succeed in the "new normal"?

If the financial institution opts for the minimum solution, the requirements should not be underestimated here either. According to the EU proposal the financial institution must implement an IBAN name matching for the recipient, for which there is no European solution yet. It must also examine the impact on the business model if higher volumes can be expected to increase clearing costs but the income from instant payments decreases because the fees may no longer be higher than for classic SEPA credit transfers. We also strongly advise to check the system thoroughly in terms of scalability against the background of significantly higher volumes. The fraud prevention will be faced with new requirements as well, which financial institutions must prepare for as quickly as possible, for example by supplementing expert systems with AI approaches.

Financial institutions may also decide to view instant payments not just as a regulatory necessity but as an opportunity to put the account back at the centre of payments and recapture market share from non-banks. Now is the time to refine the investment in instant payments and generate new revenues with innovative additional services such as Request to Pay. In addition, instant payments are not only becoming the new normal in Europe but international payments are also moving towards real-time or at least near-time. The EPC rulebook for one-leg out instant credit transfers comes into force in November 2023, and promising initiatives such as IXB are waiting in the wings. Those who do not master SEPA instant will be left behind in international payments. In the area of instant payments a strategically focused approach promises considerable advantages in the form of regained market shares or even completely new business areas.

What should financial institutions do now? These and other questions are answered in the new whitepaper "Instant payments on the way to the new normal".

You can download the whitepaper here free of charge:

Author: Lukas Schlotfeldt