Public digital money is moving closer to reality as central banks advance their digital currency initiatives. Today, 146 countries and currency unions are exploring a central bank digital currency (CBDC), with 41 pilots underway and three fully launched.[1]
In Europe, the digital euro project, which started in 2023, is progressing. The European Central Bank plans to run a 12-month pilot starting in the second half of 2027 ahead of a first issuance in 2029.[2]
While 2029 may still seem far away, the scale of technical preparation, integration, testing and operational change involved leaves little room for a wait-and-see approach.
Banks and payment service providers should be assessing the infrastructure, capabilities and processes they may need to support the digital euro, while considering how those investments could also help prepare them for emerging forms of digital money.
Ultimately, supporting the digital euro will involve far more than adding another traditional payment method. Here are some areas banks should be considering now.
Build for a specialized digital money future
Not all forms of public digital money operate in the same way. Capabilities designed for other CBDCs may not be suitable for the digital euro, which will have its own extensive operating and technical requirements.
The digital euro is also unlikely to be the only new form of digital money that European banks may need to support. Interest is growing in regulated stablecoins, tokenized deposits and other forms of tokenized value as banks, regulators and policymakers explore how those might coexist with traditional money.
Banks should therefore look to reuse infrastructure and capabilities wherever practical, but keep in mind that the digital euro will have its own highly detailed, complex requirements.
The digital euro requires a strategic infrastructure choice
Banks have two main options when deciding where digital euro capabilities should sit within their business.
For some, integrating digital euro capabilities within core banking is the most appropriate approach. This would simplify data access, account servicing, liquidity movements and transaction processing (particularly if the core already supports real-time operations). Others may prefer a standalone layer, reducing changes to the core, limiting implementation disruption, and allowing digital money capabilities to evolve more independently.
The right approach will depend on each bank’s existing infrastructure, modernization priorities, integration requirements and wider digital asset strategy.
Digital euro accounts will introduce new liquidity requirements
Under the current design, the digital euro would be accessed through an account provided by a bank or intermediary through channels such as mobile apps, digital wallets or physical cards. Individual holdings will be subject to a limit, with proposals currently suggesting a threshold of around €3,000.
Supporting these services would require banks to provide capabilities across several key areas:
- Access: onboarding, KYC, linking digital euro and traditional accounts, user lifecycle management, Digital Euro Access Number management, account switching, and offboarding.
- Liquidity: funding and defunding, balance limits, waterfall and reverse waterfall, and balance replenishment.
- Transactions: payment initiation, authentication, confirmation and rejection, settlement, refunds, dispute handling and exception management.
The waterfall and reverse waterfall funding are distinctive features that allow balances to move automatically between a digital euro account and another linked euro bank account when the digital euro holding limit is reached or there are insufficient digital euros. These are automated movements that would introduce additional (and strict) real-time liquidity, reconciliation, and exception management requirements.
Resilience and real-time processing will be critical
Banks will need to provide secure and resilient digital euro services across a range of online and offline payments. Transactions will need to be processed in real time and customer experiences will need to be smooth, placing significant demands on banks’ existing payments infrastructure.
Banks should therefore assess whether their systems can support:
- Real-time, event-driven processing
- Low-latency transaction execution
- High availability and operational resilience
- Scalable integration through modern APIs
- Real-time monitoring and exception handling
- Strong security, privacy and fraud controls
For many, this could catalyze broader payments modernization (see latest payments technology trends here).
Don’t underestimate the task at hand
The digital euro draft rulebook is over 1,000 pages-long – even before the pilot phase has begun – and will continue to evolve as the project and legislative framework progress. Meeting these detailed and complex needs will be a significant undertaking for banks.
As mentioned, it will also require seamless interoperability with existing euro accounts and other payment services. Banks therefore need to assess whether their infrastructure, liquidity management, operational resilience and customer-facing channels are equipped to meet these new demands.
The good news is that the capabilities required for the digital euro should also help banks support tokenized deposits, regulated stablecoins and other forms of digital money. By taking a strategic, long-term approach, value can be created beyond a single initiative and thus yield a stronger return on investment.
References
[1] https://www.atlanticcouncil.org/cbdctracker/
[2] https://www.ecb.europa.eu/euro/digital_euro/pilot/html/index.en.html
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