Why I'm rooting for the digital euro

Mention the digital euro online and you can start counting the seconds before someone replies that the ECB wants to know what you had for breakfast. Usually it takes less than ten.

I'm in favour. Not in a flag-waving way, but clearly. A good part of my career has been wiring payments into products: Stripe integrations for marketplaces and fashion e-commerce sites, bank transfers for an investment platform, even a class on online payment methods at IED. From that seat, the digital euro looks less like a surveillance project and more like a piece of infrastructure Europe forgot to build. Three reasons.

Who owns the pipes

Pay by card almost anywhere in Europe and there is a very good chance the transaction travels on Visa and Mastercard rails. Pay with your phone and Apple or Google sit in the middle as well. Two American card networks and two American phone makers: that's the checkout counter of a continent.

I have nothing against these companies. Their products work, and I've spent enough nights debugging payment flows to appreciate things that work. The problem is dependency. The declared goal of the digital euro is to reduce it: a free, fully European way to pay digitally, accepted everywhere in the euro area, that doesn't need a provider from outside the EU to function.

A few years ago this sounded like industrial policy, the kind of thing that ends up in a report nobody reads. Today it sounds like security. In 2022 Visa and Mastercard suspended their operations in Russia. I'm not crying over that one, but it proved a point: the off switch exists, and it isn't in Europe. Add a few eventful years in transatlantic relations and payment sovereignty stops being a market preference. It's in the same drawer as power grids and undersea cables: infrastructure that nobody from outside should be able to turn off.

Keeping public money alive

Here's something most people never think about, and honestly why would they: the money in your bank account is not the same thing as the banknote in your wallet.

The banknote is central bank money, issued directly by the Eurosystem. The balance on your account is money created by a commercial bank, a promise that the bank will give you the real thing when you ask. A very solid promise, backed by deposit insurance, but still a private one.

Today cash is the only form of central bank money an ordinary person can actually hold, and cash use goes down every year. Follow that line to the end and you get a system where every euro people use day to day is private money. The digital euro is basically the banknote made digital: a public anchor in a system that would otherwise become entirely private. If it works, you'll use it without thinking about it, which is exactly how you use banknotes.

About the breakfast: as it's currently designed, the ECB is not supposed to see who pays whom, and offline payments are meant to be close to cash in terms of privacy. Meanwhile your bank, your card network and your phone already know a lot more about your cappuccino habits than Frankfurt ever will.

A ceiling on merchant fees

For shops, card payments are not free. Every transaction leaves a slice to the acquirer, the card network, the issuing bank and whoever else found a seat at the table. Small merchants feel it most, which is why some bars in Italy still sigh when you pull out a card for a one euro espresso.

The digital euro proposal puts a cap on what merchants can be charged for accepting it. The obvious effect is cheaper digital euro payments. The less obvious one, and to me the more interesting, is the pressure on everything else. A free public option with capped merchant fees is the kind of competitor that suddenly makes existing price lists look negotiable. Even if you never use the digital euro, you might end up paying less because it exists.

I know the objections. Banks worry about deposits leaving, which is why there's a limit on how much you can hold. Some say a private European solution like Wero should be enough. Maybe. I don't see why one should exclude the other, and a public rail underneath makes private products on top less fragile, not more.

So where's the money?

This is the part I find most interesting as a product person. If the basic services are free and the fees have a ceiling, a payment service provider can't make much money just by moving the transaction from A to B. Bad news if your business model is being a toll booth.

The value moves to what you build around the transaction: services for merchants, integrations, data, loyalty. It's a product problem, and that happens to be my job 😎.