Merchant Fee Lobbying Threatens to Squeeze Digital Euro Business Models

Merchant Fee Lobbying Threatens to Squeeze Digital Euro Business Models

As the European Central Bank (ECB) opens applications for its digital euro pilot, a coalition of merchant groups has called for a simplified fee structure to ensure the central bank digital currency (CBDC) delivers long-term, low-cost payments.

In a statement, the Merchant Payments Coalition Europe (MPCE), made up of EuroCommerce, Ecommerce Europe, EACT, IATA, Independent Retail Europe and SME United, urged lawmakers to make significant changes to the European Commission’s proposed fee structure.

At the centre of the debate is Article 17 of the Commission’s draft digital euro regulation, which sets out how merchant service charges and inter-payment service provider (PSP) fees should be determined.

Under the current proposal, these fees must comply with the “principle of proportionality” and must not exceed the lowest of the following two amounts:

1. The “relevant costs” incurred by PSPs for the provision of digital euro payments, including a “reasonable” profit margin.
2. The fees or charges requested for “comparable" digital means of payment.

The methodology for monitoring and calculating these amounts would be developed by the ECB and would be based on:

1. Costs incurred by the “most cost-efficient” PSPs representing collectively one-fourth of the digital euro distributed across the euro area in a given year.
2. The “reasonable” profit margin would be calculated based on the PSPs charging the lowest profit margins and representing collectively one-fourth of the digital euro distributed in the euro area in a given year.

In order to produce these calculations, PSPs would be required to provide the necessary information to the ECB on an annual basis.

Subsequently, the Commission would determine euro-area-wide caps and national caps through implementing acts, with technical support from the ECB.

A European Council mandate for negotiations also proposes a transitional period that would last at least five years, but no longer than ten, after the first issuance of the digital euro, followed by subsequent review.

MPCE’s simplified ceiling proposal

In response, the MPCE argues that these proposals would introduce unnecessary complexity and continued regulatory uncertainty into the digital euro ecosystem.

The coalition contends that determining caps based on “relevant costs”, “reasonable margins” and “comparable” payment methods would require extensive data collection and subjective interpretation.

It also warns that PSPs would likely treat any regulatory cap as a de facto standard price rather than a ceiling, reducing the extent to which merchants would benefit from lower costs.

Instead, the MPCE proposes a uniform and simplified fee structure that would apply from the first issuance of the digital euro, and would be reviewed at least every five years by the Commission and ECB.

It suggests a 0.1 percent cap with a maximum of €0.04 per transaction for online payments, except in Belgium, Spain, Ireland and the Netherlands, where it suggests a per transaction cap of €0.06 to €0.07.

For offline payments, which are intended to replicate some of the characteristics of physical cash, the MCPE proposes that these payments are offered cost-free to merchants.

It argues that the digital euro is fundamentally different from private payment methods, such as cards and digital wallets, and should therefore not be benchmarked against them when determining fee caps.

Implications for PSPs

For PSPs, the structure of merchant fees will directly affect the economics of offering digital euro services.

The MPCE acknowledges that the proposed fee cap would need to cover PSP costs, but maintains that the digital euro’s design should reduce overall system costs compared with card-based payment schemes.

According to the statement, the absence of scheme fees charged by card networks is a key factor that justifies lower merchant service charges.

The coalition also argues that a simple fee model would reduce administrative burdens for both regulators and market participants by eliminating the need for complex calculations, benchmarking exercises and ongoing regulatory reviews.

However, the proposal raises important questions about the viability of PSP business models under a tightly capped fee structure.

PSPs participating in the ecosystem would need to absorb upfront infrastructure, integration and operational costs, including onboarding merchants and consumers and maintaining digital euro payment applications.

These considerations are likely to feature prominently in the next stage of the ECB’s engagement with the payments industry.

Pilot programme marks next phase of preparation

At the same time, the ECB’s newly announced digital euro pilot provides a clearer indication of how the project may develop in practice.

The 12-month pilot will test a “beta digital euro” in a controlled environment involving a limited number of PSPs, merchants and individual users.

The objective is to validate the technical infrastructure, assess operational readiness and gather feedback on user experience before any broader rollout.

The test environment will cover both person-to-person (P2P) and person-to-business (P2B) transactions, including in-store payments using near-field communication (NFC) technology and online payments in e-commerce and mobile commerce environments. Additionally, the pilot will test offline payment functionality.

PSPs selected for the programme will be responsible for providing pilot payment services, onboarding users and merchants, and helping validate core digital euro functionalities.

Notably, participants will not be remunerated for taking part in the pilot.

Applications must be submitted by May 14, 2026, and the ECB is expecting to select between 10 and 30 PSPs to participate.

Preparing for an uncertain but advancing timeline

For compliance and regulatory teams, the current stage of the digital euro project presents a mixture of uncertainty and forward momentum.

The digital euro regulation remains under negotiation, and crucial elements such as merchant fees are yet to be determined.

Nonetheless, the Commission remains committed to ensuring that the digital euro regulation is finalised and approved by the European Parliament and European Council by the end of 2026.

This would establish the legal basis for a potential first issuance of the digital euro in 2029, in line with the Commission and the ECB’s current timetable.

As such, the ECB’s pilot preparations suggest that operational planning will proceed in parallel with the legislative process.

If the pilot launches in the second half of 2027 as planned, the digital euro ecosystem could begin to take shape well before any full-scale rollout.

Against that backdrop, the debate over merchant fees is likely to remain central to the project’s success.

For merchants, the fee structure will determine whether the digital euro becomes a genuine cost-saving alternative to existing payment methods, and for PSPs, it will shape the commercial viability of participating in the ecosystem.