Protecting consumers is key to digital Euro project
The digital euro project holds great opportunity for Europe, and it can spur payment innovation and meet its intended public policy objectives—preserving the role of public money while addressing declining use of cash payments. Implementing a retail central bank digital currency (CBDC) is an immensely complex task and requires cooperation and partnership across the entire payment ecosystem.
A key part of this task is understanding the anticipated role of existing payment service providers. We see the role of payment networks, such as Visa, very clearly: we support the broader policy objectives of the digital euro and will extend the same protections and benefits that consumers currently enjoy to the digital euro.
Designing a system that significantly alters the payment landscape while mitigating financial system risk is a delicate dance, but achievable if certain principles are followed. We find the G7 Principles for Retail CBDCs provide a good guide for policymakers, particularly their focus on competition, resilience, cybersecurity, and privacy.
Fostering competition is the most fundamental principle for the project and for consumers: robust competition pushes service providers to bring their best capabilities and drive innovation. The best way to encourage competition for the Digital Euro is to leverage the existing and widely used acceptance infrastructure for digital payments. Further, by creating an open platform built on existing acceptance infrastructure, policymakers can tap into the already very competitive, innovative, and secure payment system.
Policymakers must also create a regulatory framework that ensures a level playing field for the payment ecosystem, both between providers (banks/fintechs) and currencies (commercial bank money/digital currencies). Regulations for the digital euro ecosystem should not sit separate from current rules governing the payment ecosystem: current rules and expectations should be extended to the digital euro. This includes considerations for licensing, oversight, pricing, and consumer choice. Ultimately, when the rules are fair and competition is healthy, consumers benefit the most.
Operational resilience and cybersecurity are also fundamental to the project and should be top of mind for every design consideration. A diverse payment system is a resilient payment system: having many providers with competing services creates natural redundancies and fail-safes and at the same time benefits consumers. This includes important value-added services such as enhanced risk analytics, which already serve a critical role in safeguarding consumers today.
Further, payment security requires significant, ongoing investment in public and private infrastructure. Initiatives to provide payment services for free or on a cost-recovery basis may put future innovation and security at risk. We believe that no service should be expected to be given at or below cost, including those provided by the Eurosystem. Integrating the digital euro into the existing payments regulatory framework will not only contribute to the overall success of the project but will also ensure the coexistence of central bank money and commercial bank money. As ECB Executive Board member Mr. Fabio Panetta stated, the digital euro by design should not “crowd out existing private financial instruments.”1
Privacy is also critical for both protecting consumers and maintaining trust in the payment system. Because the digital euro is intended to compliment and not replace cash, consumers will expect some of the same anonymity that cash holds. Of course, anonymity must be balanced with financial integrity considerations, but by default consumer data should be anonymized whenever possible.
Looking at additional ways to protect consumers, the digital euro should provide a clear framework for dispute resolution. Dispute resolution is integral to the current payment system and a key reason the success of digital payments. Consumers fundamentally expect that digital payments come with certain protections, and they will have these expectations for the digital euro.
Of course, dispute resolution is complex and like payment infrastructure requires ongoing investment. Policymakers have an important role to play in defining scheme rules but should ultimately leave the task of dispute resolution to the private sector, as providers will have clear market incentives to handle disputes efficiently and in the best interest of their customers.
Policymakers have a unique opportunity to meet policy objectives and foster innovation. Ultimately, we see the changing role of payment networks in the digital euro project as another important step forward in the ever-evolving payment system. We intend to work closely with the entire ecosystem to ensure consumers are as protected making purchases using the digital euro as they are making payments today.
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Originally published in The Eurofi Magazine - April 2023
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1 Fabio Panetta, “Bringing European payments to the next stage: a public-private endeavour,” 16 June 2022.