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The European Central Bank (ECB) expects the digital euro to drive innovation in payments and improve financial inclusion as it enters the next phase of experimentation.
After completing the first round of tests on its digital euro innovation platform, the ECB has announced a second wave of experimentation with the EU’s potential central bank digital currency (CBDC) for 2026.
This comes after a period of positive developments for the digital euro solution. In recent weeks, ECB executive board member Piero Cipollone suggested that a launch could be possible by the middle of 2029, EU finance ministers agreed a roadmap for introducing a digital euro, and a survey by the EU’s consumer organisation, BEUC, found that consumers expect the digital euro to be “safe and reliable”.
Nearly 70 banks, fintechs, start-ups, merchants, academics and other stakeholders took part in the ECB platform’s inaugural phase, launched in October 2024 to explore how a central bank digital currency might work in practice.
Participants joined two tracks: “visionaries”, which looked at long-term possibilities, and “pioneers”, which ran technical trials in a simulated environment.
Both groups stressed the importance of harmonised standards, a shared infrastructure and close cooperation with market participants to make the digital euro scalable and reliable across the euro area.
“We asked market participants to imagine the many opportunities a digital euro could offer consumers and merchants. Their enthusiastic response shows the immense scope for the digital euro to play a transformative role in the European payments landscape,” said Cipollone.
“By fostering collaboration and providing a harmonised infrastructure, the digital euro can enhance the payment experience for Europeans, while enabling market participants to develop innovative services and business models.”
Conditional payments emerge as stand-out use case
Among the most promising applications identified were conditional payments, which are a kind of transaction that is executed automatically once predefined conditions are met.
For example, online shoppers could authorise funds to be released to a seller only after confirming delivery of goods. Refunds for delayed services or automated insurance payouts could also be streamlined.
In public transport or shared mobility, conditional payments could enable tap-and-go travel and automatically calculate the best fare. In business-to-business (B2B) settings, conditional payments could reduce fragmentation and costs while boosting liquidity.
The trials showed that the digital euro’s planned “reservation of funds” functionality, allowing money to be set aside pending settlement, would give payment service providers (PSPs) the technical base to develop such services.
The ECB has reiterated that the digital euro will not be “programmable money” with restrictions on where or when it can be spent, stressing that it must remain interchangeable with cash and deposits at par.
Other innovations tested
The report also highlights integrated electronic receipts (e-receipts) as a potential benefit for consumers and merchants.
Studies showed that secure, encrypted e-receipts could simplify returns, warranty claims, expense reporting and budgeting while cutting the cost and environmental impact of printed paper slips.
Participants also proposed ideas to make the digital euro more inclusive, such as wallets tailored for children to support financial education, or free student wallets linked to discounts and benefits.
In addition, accessibility features such as voice controls, large fonts and guided onboarding were discussed.
Innovation is great, but will it win over PSPs?
Banks and PSPs still have concerns about the digital euro, particularly about disintermediation, despite the ECB’s attempts at reassurance.
However, the unpredictability of the second Trump administration in the US has increased the EU’s focus on sovereignty, including in payments, and banks and payment players are under no illusion that the digital euro project will move forward.
Conditional payments could give banks and PSPs opportunities to improve their customer offerings by providing for richer, automated services that improve the customer experience.
By layering a new functionality over the digital euro’s core infrastructure, firms could create premium products such as automated refunds, milestone-based escrow or dynamic subscriptions.
They could also extend into new sectors, including insurance claims, mobility, gig-economy payouts and B2B trade finance, creating revenue opportunities.
However, these possibilities – which the ECB is relying on – come with significant challenges.
The added conditionality layer may compress margins on basic processing and attract new entrants – at the same time as requiring significant investment in infrastructure, compliance and liquidity management.
Banks and PSPs will need to integrate new back-office systems, APIs and smart-contract-style logic to define and monitor payment conditions. They will also have to handle disputes, failed triggers and potential fraud scenarios without the protections of today’s card or SEPA schemes.
Although schemes will likely be implemented in due course, public and private sector organisations will need to move quickly to avoid exposing consumers and merchants, as well as themselves, to legal and liability risks.
Fraud and financial crime risks may also evolve, which could be embarrassing for the ECB.
Fraudsters may try to exploit automated triggers or spoof delivery confirmations to release funds, and new transaction patterns could strain existing anti-money laundering and counter-terrorism financing (AML/CTF) and transaction-monitoring systems.
Strong safeguards, updated monitoring rules and clear contractual frameworks will be vital to manage these risks.
Next steps
Building on what it says was the success of the first phase, the ECB has confirmed it will launch a second round of experimentation through the platform next year, with details to follow in the first half of 2026.
Although still at the pilot stage, the innovation platform is intended to help ensure that the digital euro’s final design meets the needs of future users and providers across the euro area.
