Industry
Banking
Banking Services Transformation: Unlocking Exponential Value
Highlights
- The European Commercial Bank has decided to accelerate the launch of the digital euro. The ECB plans to initiate a pilot for the digital euro in the second half of 2027, with commercial launch scheduled in 2029.
- European banks, however, face challenges such as varying degree of technology and payment infrastructure maturity in transitioning to the digital euro.
- The way forward for banks is to adopt a holistic payments strategy along with a digital euro roadmap, defining key implementation milestones and timelines.
Overview
Globally, the payments sector is witnessing significant transformation.
While cash continues to dominate the landscape, a dramatic shift to digital has taken hold over the last five years, largely driven by customer preferences, technological advances, government policies, regulations, and the pandemic. Smartphone proliferation has resulted in the increasing adoption of digital wallets and touchless payment methods. In a bid to enable low-cost payment options, national governments and regulators are launching real-time payments and introducing new payment methods such as QR codes, request-to-pay, and proxy payments. At the same time, new forms of digital currencies such as the Central Bank Digital Currency (CBDC) and stablecoins as well as related regulations are being introduced. Many countries are experimenting with their sovereign CBDC to counter the threat of unregulated crypto currencies.
Coming to Europe, the payments landscape is increasingly fragmented though initiatives such as the Single Euro Payments Area (SEPA) have harmonized the commercial payments landscape to some extent. Many countries in Europe are now part of the European Union (EU) and accept Euro as a currency governed by the European Central Bank (ECB). Despite this, retail real-time payments are yet to reach mass adoption because of smaller populations in some European countries, preference for national payment systems which adversely affects interoperability, and varying technology maturity of payment infrastructures across Europe.
Europeans are increasingly beginning to prefer digital payment methods, however, there is heavy reliance on non-European digital payment providers. Demographic diversity, merchant adoption and the degree of digital as well as social financial inclusion dictate payment preferences. Unbanked and underbanked customer segments that include small merchants, gig workers, minors, tourists, senior citizens, and persons with disabilities (PWD) have varied payment needs. All these factors have combined to create a fragmented payments landscape across EU countries.
We performed an analysis of the European payments landscape which revealed that currently there is no pan European solution spanning all payment methods such as peer-to-peer (P2P), point-of-sale (PoS), online and offline commerce. For instance, Germany prefers to pay via bank accounts, The Netherlands favors iDEAL, France operates with local networks such as Paylib and Carte Bancaire, Nordics uses Vipps MobilePay, Swish, and Klarna, while debit cards and PayPal are prevalent in the UK. While these methods are used more for online payments, cash and debit cards still dominate the physical payments landscape. Europe lacks a card scheme that covers the entire Euro zone—13 out of 20 countries depend on international card schemes1—and hence the cost of adoption is influenced by non-EU players.
A universally accepted digital payment method, which offers all the advantages of cash, is the way forward, and the ECB’s digital euro initiative is a step in this direction. The introduction of digital euro, which is the digital equivalent of cash, will offer tremendous advantages: universal acceptance across the EU, lower costs compared to other payment methods, and widespread accessibility through offline and online channels thereby ensuring financial inclusion and digital payment facility for all demographic segments.
Enter digital euro
The ECB is going full steam ahead with its plans to introduce a common digital currency, the digital euro, to tackle the challenges and peculiarities of payments in Europe.
Given the escalating global geo-political situation and prevailing trade tensions, the ECB has decided to accelerate the launch of the digital euro. The preparation phase concluded in October 2025 and the pilot is expected to start in the second half of 2027 with commercial launch scheduled in 2029, subject to European co-legislators adopting the regulation before the end of 2026.2 This will help the ECB to maintain sovereignty and control over European payment systems and infrastructure, making Europe’s payments landscape more resilient and competitive while minimizing dependence on non-European payment providers. In addition, the ECB envisages the digital euro as a pan-European digital payment method that will help achieve financial and social inclusion, reduce cash usage, cut costs, enable real-time payments within and outside Europe, usher in innovation, harmonize the payments landscape, and adhere to global standards. In parallel, the European Commission (EC) has introduced the EU Digital Identity (EUDI) Regulation along with a framework that will act as enablers in the adoption of digital euro. Such initiatives will help bring harmony in the European financial services landscape besides helping to unlock social benefits, particularly in government payments. They will also enable cross‑border trade, access to financial services in remote regions, tourism payments, and services for senior and PWD segments and drive the digital transformation of EU member states.
Despite the ECB’s push for the digital euro, the path to pan-European adoption is likely to be rocky. EU member states are at different levels of maturity when it comes to payment infrastructure and technology. In addition, individual European countries may have different objectives spanning:
- Cutting dependence on cash.
- Innovation in digital payments.
- Customer acquisition, especially new underserved or unserved segments.
- Helping the less digitally-savvy and under-privileged customers.
- Specific and distinct requirements, for example, some countries that are high on tourism may prefer to focus on the tourist segment.
- Countering threat from private players that may introduce alternative digital currencies or payment methods.
The challenges also vary: lack of acceptance for new payment methods and ecosystems, difficulties in ensuring interoperability with existing payment systems, convincing customers on security and privacy, and so on. Unsurprisingly, the ECB has decided to initially focus on basic use cases such as P2P online, P2P offline or via near field communication (NFC), person-to-business (P2B) via NFC and point-of-sale (PoS) terminals, and P2B for ecommerce and m-commerce.
While the ECB decides on the initial set of payment service providers (PSPs) for the pilot, the key question is: what is the degree of readiness of EU member states to adopt the digital euro? Central banks of EU member states will need to undertake a comprehensive evaluation of their payment landscape and related ecosystems to understand the various nuances of digital euro adoption in their countries.
Figure 1: Readiness of EU member states to transition to the digital euro
The adoption of digital financial services is diverse across Europe; consequently readiness varies significantly across member states. We performed an assessment basis five parameters—digital infrastructure, digital payment adoption, regulatory support, demographics, and economic integration—to determine the readiness of different EU member states. Our analysis revealed that EU member states can be classified into three categories in terms of readiness to adopt the digital euro (see Figure 1).
Preparing for the digital euro: What banks must do
As the ECB advances toward the launch of the digital euro, banks across the Eurozone face a pivotal moment.
The transition to a digital currency backed by the ECB presents both a challenge and an opportunity to modernize legacy systems, enhance customer experience, and lead innovation in the evolving digital payments landscape.
Banks must define a holistic payments strategy keeping in mind factors such as long-term growth opportunities, differentiated and innovative products, customer expectations, and risks. Based on our analysis of the European financial services space, we believe that banks must:
- Define their own digital euro roadmap, which must pinpoint the target customer segments and personas to focus on, for example, tourists, underbanked and unbanked, gig workers, elderly, and so on, pilot markets, channel strategy, and ecosystem partnerships, among others. Given the highly fragmented nature of the European market, identifying use cases by persona will be the right approach for enabling digital financial inclusion across all segments and countries.
- Liaise with partners, the ECB and their own central banks to understand applicable country specific regulations and integration with the digital euro platforms and processes.
- Assess the impact on their existing systems and processes across liquidity management, compliance, core banking, fraud management, customer and merchant onboarding systems, ATMs, and so on.
- Accelerate the development of their digital-ready platforms to enable:
- Rapid integration with the ECB’s digital euro infrastructure through frameworks, connectors, and application programming interfaces (APIs).
- Digital euro wallets within existing mobile and online banking apps.
- Programmable payments, conditional disbursements, and P2P cross-border payments.
- Compliance with ECB’s holding limits, know your customer (KYC) and anti-money laundering (AML) norms, transaction monitoring requirements.
- Partner with a technology service provider to co-create a futuristic payment infrastructure on an as-a-service model through new, cloud-native, modular digital payment platforms to overcome agility and scalability challenges of legacy infrastructure. Such a payment infrastructure must:
- Comply with the ECB’s digital euro rulebook and technical standards.
- Ensure real-time settlement and interoperability with the digital euro architecture.
- Embed privacy, security, and fraud detection capabilities.
- Offer offline payment readiness and programmable money features.
- Collaborate with fintechs, leveraging their expertise in niche, innovation areas such as biometric payments, offline payments using NFC, and internet of things (IoT) payments, which will require banks to build capabilities to:
- Support online and offline payment modes.
- Integrate with existing banking and fintech platforms.
A seamless and trouble-free transition to the digital euro ecosystem will not be easy. While digital euro will make the European financial landscape more resilient and competitive, it will place huge demands on incumbent banks, especially around upgrading legacy infrastructure and building digital platforms and innovative payment products. But the benefits of launching digital euro wallets, delivering differentiated customer experience, and accelerating the development of innovative products, and achieving faster time-to-value will be well worth the effort.
Conclusion
The digital euro promises to be the catalyst for Europe’s next great payments revolution.
It is poised to serve as a powerful and essential bridge, seamlessly connecting the established, secure banking ecosystem with the dynamic, rapidly evolving world of digital finance. Its positive impact will resonate across the entire payments value chain—bringing unparalleled benefits to individual users, merchants, banks, and across EU economies, ultimately reinforcing the cohesion, resilience, and global competitiveness of the EU.
Digital currencies such as digital euro offer a unique and potent value proposition, with the capability to usher in a whole new paradigm—the internet of finance and tokenized assets—that sets them worlds apart from speculative private digital assets like volatile cryptocurrencies and stablecoins. The digital euro initiative by the ECB is therefore perfectly positioned to drive swift and broad mainstream adoption, instil unwavering confidence among both consumers and merchants, and decisively enhance Europe’s strategic autonomy and sovereignty.
Converting the digital euro vision into reality, however, will not be easy. It will place untold demands on banks: modification of operating models, infrastructure modernization, ensuring interoperability, and stringent security and compliance measures. European banks must therefore consider partnering with an IT service provider with the requisite domain expertise, implementation experience, and relevant products and frameworks, after a well-rounded market analysis, for a trouble-free transition to the digital euro.
References
1 European Central Bank | Eurosystem, Digital Euro, Why do we need the digital euro? Retrieved February 2026, https://www.ecb.europa.eu/euro/digital_euro/html/index.en.html
2 European Central Bank, The future of money, a central bank perspective, Dec 2025, Retrieved February 2026, https://www.ecb.europa.eu/press/key/date/2025/html/ecb.sp251219~fd2fee081a.en.html