Europe’s attempt to reduce dependence on U.S. payment companies has exposed tensions between the European Central Bank and private financial players, according to participants in the debate, and those tensions are slowing progress on creating a domestically rooted payments system.
Card payments in the euro zone have surged since the COVID-19 pandemic, increasing reliance on non-European firms that now process nearly two thirds of card transactions across the bloc. U.S.-based companies such as Visa and Mastercard remain central to the flow of payments, while technology and fintech firms including PayPal and Apple have expanded their footprint in the payments landscape.
European policymakers have elevated payment sovereignty to a strategic priority. Concerns about geopolitical fragmentation and the potential weaponisation of access to payment rails, together with new forms of money that could challenge the euro’s centrality, have driven regulators to seek a stronger domestic posture on payments. The ECB has proposed introducing a digital euro by 2029 - a form of online wallet that would be guaranteed by the central bank but operated in partnership with private-sector actors including banks.
Private financial institutions, however, are voicing unease with that architecture. Banks fear that a central bank-backed digital wallet could prompt customers to move deposits from commercial banks into the safer, ECB-guaranteed instrument, weakening banks’ deposit bases and revenue generation. Those concerns have led banks to investigate alternative approaches to preserve their payments businesses.
Illustrating the private sector’s push, on Wednesday 25 additional banks, among them ABN Amro and Sabadell, joined a European consortium aiming to launch a cryptocurrency pegged to the euro. That effort reflects a widening range of private options intended to reduce dependence on foreign card schemes.
"Public and private actors are moving in the same strategic direction, but with misaligned incentives and timelines," said Paolo Gusmerini, director for digital banking at consultancy PwC.
Legislative delays and revenue concerns
Industry resistance has had a direct policy impact. Questions raised by banks and payments companies have delayed a reform in the European Parliament that would enable issuance of a digital currency for three years. Fernando Navarrete, the EU lawmaker charged with shepherding the proposal, told Reuters that talks over the specific role of the digital euro remain ongoing, though he expects a final vote prior to the end of the summer.
Navarrete said Europe is pursuing both private interoperable payment options and the digital euro as complementary routes to payment sovereignty. He emphasized that the test will be designing both paths so they work together without imposing extra costs on consumers - a balance dependent on legislative choices and the incentives lawmakers embed in regulation.
The ECB has proposed providing the infrastructure required to support digital euro transactions free of charge and capping the fees merchants would pay to accept the instrument. Given that card payments in the euro zone amount to roughly 3.4 trillion euros annually, Reuters calculations based on ECB information project that the proposed merchant fee cap could result in 8 billion to 9 billion euros in lost annual revenues for the private payments ecosystem.
Analysts say one means to recoup some of that shortfall could be to reduce interchange fees - the fees that the cardholder’s bank charges the merchant’s bank. Kunal Jhanji, head of payments for Europe, Middle East, Africa and South America at BCG, highlighted that the digital euro must still resolve issues tied to acceptance and the commercial arrangements that govern the payments value chain.
Debit card fees alone cost euro zone merchants about 3.75 billion euros a year, according to ECB data, with roughly half of that amount flowing to non-EU card schemes and the remainder paid to banks.
Design limits and market fragmentation
To limit disruption to the wider financial sector, legislation under discussion would cap holdings of the digital euro by individuals at approximately 3,000 euros. That constraint leaves room for banks, payments firms and technology startups to run competing systems alongside the central bank-backed wallet. Yet multiple parallel systems could raise vulnerability to cyberattacks and technical outages, a concern voiced by both industry insiders and public officials.
Ulrich Bindseil, an academic and former senior ECB official, criticized imposing a cap as "a serious defeat." He argued that the policy stance should reflect the expectation that commercial bank money remains subordinate to central bank money, not the reverse.
The ECB envisions the digital euro as the backbone that a single, pan-euro zone payments standard never achieved through private initiative. As legal tender, the digital euro would be required to be accepted by merchants, which in the ECB’s view would promote common standards across member states.
"Once the regulation is adopted, there will be certainty these standards will become widespread ... and open for private solutions to use," said Ignacio Terol, who leads the ECB’s digital euro strategy unit.
At the same time, national solutions are pursuing incremental interoperability. Systems such as Italy’s Bancomat and Spain’s Bizum have focused on linking their existing networks. Bizum recently began expanding its person-to-person instant payment offering directly to merchants, and Paris-based Wero has begun moving in the same direction. Nonetheless, Terol pointed out that banks distributing services like Bizum currently receive payment revenue from international card partners, which could limit their willingness to price their merchant offers competitively compared with card schemes.
Norman Wooding, founder and CEO of crypto services provider Scrypt, warned that fast-paced private-sector innovations risk overtaking the ECB’s timetable. "Innovation is structurally ahead of regulation - you’re assessing an orange in 2026 and by 2029 that could be an apple, or a banana. The delays are kneecapping," he said.
Currency conversion used in reporting: $1 = 0.8624 euros.