Offline Digital Euro Payments Possible But Scale Is The Challenge, ECB Finds

May 31, 2023
Offline payments using a digital euro are possible, but whether existing technology will be able to manage this is less clear, says the European Central Bank’s latest report.

Offline payments using a digital euro are possible, but whether existing technology will be able to manage this is less clear, says the European Central Bank’s (ECB) latest report.

The report details the lessons learned from a July 2022 to February 2023 prototyping exercise to test how design choices for the digital euro could be technically implemented and integrated into the existing European payments ecosystem.

These tests showed that it is possible to smoothly integrate them, while leaving scope for innovation, said the ECB.

The findings also confirmed that a digital euro would work both online and offline, using independent designs, therefore increasing the resilience of the digital euro.

This is likely a cause for celebration for the digital euro project’s team.

“We want to design a digital euro with online and offline functionalities,” the ECB’s Fabio Panetta had told EU lawmakers in January.

According to Panetta, this innovation will allow it to serve different use cases and offer users different benefits.

For example, an offline functionality would give payments a level of privacy that is close to that of cash.

It would also increase resilience as it would work without internet access.

However, according to the ECB, questions do remain as to whether the existing technology is capable of delivering a production-ready and secure offline solution in line with the Eurosystem’s requirements and the scale foreseen for the digital euro in the short-to-medium term.

Among its findings, the ECB has also touted the possibility of tiered due diligence checks.

The report found that it was technically feasible and potentially advantageous to unbundle checks that are dependent on the user’s identity, such as know your customer (KYC) checks, from the payment flow.

This means that they could be either skipped for low-value payments if permitted by legislation or potentially performed by different entities.

In such a set-up, the use of the digital euro would come closer to that of cash from a privacy perspective, and benefits could be achieved by relying on specialised identity verification service providers, the ECB said.

This tiered system has already been touted by the Chinese government in its work on a central bank digital currency (CBDC).

As reported by VIXIO, the People’s Bank of China (PBOC) intends for there to be "managed anonymity".

This would provide anonymity for small-value transactions but offers traceability for high-value transfers.

In the case of small-value transactions, the PBOC will collect information only on phone numbers.

Privacy has been a central theme in the EU’s response to the prospect of a CBDC.

In an early survey it ranked high among respondents and members of the European Parliament from a variety of political factions have stressed the need for privacy rules during hearings with ECB officials.

Issues such as tiered KYC could become a reality depending on the European Commission, which is due to release the EU’s digital euro legislation on June 28.

Among other things, this will include rules regarding access to cash.

The ECB’s work also delved into self-custody wallets.

Custodial wallets are the current standard in payment instruments, whereas self-custody is a novel approach that aims to be more cashlike and give the end user full control over their digital euro.

One conclusion from the experiment was that the implications of key custody at the end-user level did not have any impact on the user experience for customers or on the role of intermediaries for the digital euro.

Here, the ECB has said that such work could allow for greater innovation and enable new service offerings.


Last year, the ECB irked practically everyone in the Brussels bubble by opting to collaborate with Amazon on its digital euro prototyping work.

Alongside this, the central bank also sought assistance from Italian bank Nexi, a company that has worked hard to please regulators by calling itself a European champion.

Further, it pumped a new lease of life into the at-times written-off European Payments Initiative (EPI).

The companies have now more warmly welcomed the notion of a digital euro being launched, following their role in the prototyping.

“We believe a digital euro can be a tool to foster innovation and increase the efficiency of payments,” said Amazon in a statement.

Meanwhile, a spokesperson for Nexi said that it was “honoured” to be asked to take part by the ECB.

“An engaging user and merchant experience is paramount to ensure wide adoption of the digital euro and we have brought our best expertise in both acceptance and mobile payments technologies to set a clear way forward,” said Roberto Catanzaro, who heads up merchant solutions for the company.

Nexi has been an early supporter of the project, with its CEO having said in September 2021 that it was of “strategic importance” for Europe.

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