SPEECH
On the edge of a new frontier: European payments in
the digital age

  
Keynote speech by Fabio Panetta, Member of the Executive Board of the ECB, at the ECB
Conference "A new horizon for pan-European payments and digital euro"
Frankfurt am Main, 22 October 2020
Introduction
It is a great pleasure for me to open this conference on the new horizon for European payments.
Payments are indispensable to our daily lives and to the functioning of our economies. They allow money
to fulfil its role as a dependable means of exchange and thereby help to maintain trust in our currency. As
central bankers, we have therefore been tasked with ensuring the smooth functioning of payment systems.
Payments are undergoing fundamental change, driven by the digital revolution and its impact on the
demand for new forms of payment, the provision of innovative payment services and the response of
public authorities. Central banks have a key stake in the digital transition of payments and are adapting
their policies to ensure that payments remain resilient, efficient and inclusive.
In my speech today I want to address the transformation that is taking place in the payments landscape.
The European market is registering significant progress due to the digital revolution. However, the
transition to a digital payments market may create inefficiencies and risks that require an adequate
response by European authorities, in order to ensure that payments continue to serve citizens well.
The changing payments landscape
Digital technologies are changing our economies.[1] They affect the way people consume and the way
companies produce and sell goods and services. E-commerce sales, for example, have doubled in the
euro area over the past six years and have jumped by one-third during the lockdown compared with pre-
crisis levels.[2]
Radical innovation and new players are shaping the market and have the potential to bring more choice,
efficiency and inclusion to payments. But an uncontrolled transition could lead to more complexity, higher
concentration, lower standards and reduced autonomy of European payments, generating risks for
consumers and financial stability.
Central banks have an inherent interest in accompanying the digital transition so that payments remain
safe, efficient and inclusive. They must be alert and respond to three trends that are shaping the payments
landscape.
The first trend is the evolving preferences of European consumers and businesses. While cash is still the
main way people make retail payments in the euro area, its role is diminishing.
Cash increasingly accounts for a smaller share of point-of-sale and person-to-person transactions in the
euro area. In terms of the volume of total transactions, it declined from 79% in 2016 to 73% in 2019. And in
terms of the value of transactions, it fell from 54% to 48%. The parallel expansion of cashless transactions
has been largely driven by card payments, which have increased from 19% to 24% in terms of volume and
from 39% to 41% in terms of value.[3]
Turning to other retail payments by households, cash is seldom used.[4] Cards and e-payment solutions
dominate remote purchases[5], while direct debit and credit transfers are the most common way people
pay their bills[6].
The trend towards cashless payments has been accelerated by the pandemic. There has been a surge in
online payments by households and a shift towards contactless payments in shops. About 41% of
respondents to a recent survey say they have reduced their use of cash.[7] The vast majority of them
expect to continue to pay less with cash after the pandemic is over.[8]
Against this background, the Eurosystem has a responsibility to ensure that costless, risk-free payment
options remain available to all. This includes ensuring continued access to cash.
The second trend we need to respond to is the evolving structure of the payments market, which risks
becoming both more fragmented and more concentrated in each segment.
On the one hand, the acceleration towards digital payments is adding to the diversity of payment methods.
But it is also increasing market fragmentation and complexity. New fintech players increase potential
competition and innovation, but only a fraction of their innovative payment solutions are useable for the
most common transactions, such as online, in shops and peer to peer. Moreover, domestic card schemes
are often not useable in other Member States. The risk is that payments are not as simple, efficient and
affordable as they could be.
On the other hand, there is a risk of excessive concentration and insufficient competition in each market
segment. Europe is already experiencing the dominance of a handful of payment service providers:
PayPal dominates online payments, while Visa and Mastercard handled more than two-thirds of card
payment transactions in Europe in 2018.[9] In the future, concentration might be exacerbated by the ability
of global technology firms - the so-called big tech firms - to leverage their large customer bases and offer
payments services in Europe and globally, initially bundling them with their other products and gradually
extending them to broader use cases online and in shops. Given the strong network effects in payments,
these firms could acquire excessive market power.
The Eurosystem must respond to these risks by facilitating market entry and diversity in the supply of
payment services, in particular by European players. This would foster competition in all parts of the
payments value chain, ensuring that Europe can be at the cutting edge of innovation and efficiency, to the
benefit of customers.
The third trend we need to consider is the increased risks that would be associated with dependence on
foreign payment instruments and technologies.
While openness to global competition is crucial to foster innovation, excessive dependency on foreign
private or public digital means of payment and technologies could lead to adverse effects. These relate, for
example, to the ownership of critical data, or issues of traceability in the fight against money laundering,
terrorist financing and tax evasion. Also, a payment market that relies on technology designed and
controlled elsewhere may not be fit to support our Single Market and single currency and could be
vulnerable to external disruption, such as cyber threats. Moreover, if the bulk of deposits are denominated
in foreign private or public digital assets, with weak links to our currency, European monetary and financial
sovereignty could be weakened.
The Eurosystem therefore has a key role to play in ensuring that innovative payment solutions offered by
new players benefit European consumers, while preserving European monetary and financial sovereignty.
The Eurosystem's response to the changing payments landscape
Faced with a changing payments landscape, the Eurosystem has put in place a comprehensive strategy to
foster a competitive market that is capable of responding to changing consumer preferences and is rooted
in the EU framework and our single currency. I will briefly explain the essential elements of our payment
strategy.
Continued provision of cash
In spite of the reduction in the use of cash for payments, the demand for euro banknotes is increasing at
an annual rate of about 10%, and accelerated sharply at the onset of the pandemic[10]. In response to
these developments, the Eurosystem is carefully planning its activities related to the cash supply chain -
production, storage, distribution and recirculation - in order to ensure it remains resilient. We are well
prepared to ensure the continued availability of banknotes, including in crisis situations: our stocks of cash
in each country, at Eurosystem level and for all banknote denominations, are continuously monitored, and
scenario analyses are used to anticipate any risk of depletion and react accordingly. We engage with
banks and all stakeholders involved in the distribution of banknotes to ensure appropriate service levels,
geographical coverage and fee policies.
Looking ahead, we have recently launched our Cash 2030 strategy to ensure that banknotes remain
widely available and accepted as a competitive, reliable payment instrument and store of value that can be
owned and used directly by all consumers. We welcome the decision of the European Commission, in the
context of its Retail Payments Strategy for the EU, to reconvene the Euro Legal Tender Expert Group in
2021 to examine developments regarding the acceptance and availability of euro banknotes.
Retail payments strategy
The Eurosystem's retail payments strategy aims to foster competitive and innovative payments by
providing cutting-edge payments infrastructures and supporting pan-European solutions.
A fundamental component of our strategy addresses the need for pan-European initiatives that allow
consumers and merchants to have easy access to efficient payments. In 2019 the ECB's Governing
Council formulated five objectives that any such initiative would need to fulfil: pan-European reach and
seamless customer experience; convenience and low cost; safety and security; European brand and
governance; and global acceptance. We welcome initiatives by European players to create unified
panEuropean payment solutions, provided that they fulfil these objectives.
The recently launched European Payments Initiative seeks to replace national schemes for card, online
and mobile payments with a unified card and digital wallet that can be used across Europe.[11] To succeed,
it will need to overcome the existing fragmentation of national card schemes with a view to covering the
whole EU and offering a credible alternative to global players. Other initiatives are in the pipeline, and we
will assess whether they comply with our five objectives.
Another key element of our strategy is the fast deployment of instant payments, which allow households
and businesses to get access to their funds immediately - as the payment is completed - and in central
bank money, eliminating any financial risk for either the payer or the payee. In 2018 the Eurosystem
introduced a powerful platform for the continuous settlement of instant payments (TARGET Instant
Payment Settlement, or TIPS), putting the euro area at the forefront of retail payments.[12] In order to make
instant payments available to everyone in Europe, we have recently taken important steps to ensure
panEuropean instant payments by the end of 2021 via TIPS.[13]
We have also updated our retail payments strategy to embrace the objective of fostering competition and
an innovative European ecosystem for payments. This includes actively supporting European fintech
companies and promoting the use of pan-European harmonised electronic identity and signature systems
in retail payments.
We are cooperating closely with the European Commission. In fact, the European Commission's "Retail
payments strategy for the EU" complements our own strategy by setting the stage for European legislation
to contribute to objectives we share, such as making instant payments the new normal and making
crossborder payments easier, faster and cheaper.
Oversight
At the root of our oversight activity lies the principle of "same business, same risks, same requirements".
Our new oversight framework for electronic payment instruments, schemes and arrangements (PISA) will
be released for public consultation in the coming weeks and will extend this approach to all relevant actors
in the payments market, including the big tech firms.
A properly designed oversight framework is necessary to guarantee competition and innovation in the
payments market, while limiting the risks that new products and new players may generate. To avoid
regulatory arbitrage and ensure a level playing field, it is critical that issuers and service providers of
significant stablecoins are also regulated, supervised and overseen at European level.
The European Commission's legislative proposals on crypto-assets (MiCA) are an important step in this
regard. Together with its proposal on digital operational resilience (DORA) and our revised oversight
framework, they will address the broader risks and threats posed by new products and players. If new,
potentially systemic products are introduced before these regulatory and oversight initiatives are
completed, this could endanger the integrity of the European payments system.
Digital euro
The Eurosystem's work on a digital euro is an insight into the future of retail payments. A digital euro would
make digital central bank money accessible to everyone. It would provide access to a simple, costless,
risk-free and trusted digital means of payment that is accepted throughout the euro area.
The possible issuance of a digital euro alongside cash would be driven by the same objectives I have
already outlined: responding to evolving consumer preferences, fostering a competitive payments market
and preserving European autonomy.
A digital euro would both shape and promote the digitalisation of payments, in turn supporting the
digitalisation and modernisation of the European economy. If properly designed, it would allow banks to
build new business models and offer their customers cheaper and innovative services. It would increase
privacy in digital payments thanks to the involvement of the central bank, which - unlike private suppliers
of payment services - has no commercial interests related to consumer data.
A digital euro could become necessary in a number of scenarios. For example, if people would become
reluctant to use cash, if other electronic payment methods could become unavailable owing to natural
disasters, or if foreign digital means of payments threatened to largely displace domestic money.
But introducing a digital euro could pose challenges. Some are technical, such as cyber risks and the
protection of privacy. Others are related to the possible impact on the activity of banks, on financial stability
and on monetary policy. A properly designed digital euro would need to address such risks. We have
started to explore appropriate strategies, for example in relation to the remuneration of digital euro
holdings[14] and the protection of privacy.[15]
As the issuer of our currency, the Eurosystem is carefully examining the economic, technological, societal
and strategic implications of the possible issuance of a digital euro. We have recently published our Report
on a digital euro, and started a public consultation.[16] We will carefully examine the feedback we receive,
so that if and when developments around us make it necessary, we will be ready to issue a digital euro that
meets the needs of Europeans.
Conclusion
European authorities must be attentive and ready to respond to the ongoing transformation of the
European payments landscape. They must ensure that digital payments are underpinned by a competitive
and innovative market capable of meeting consumer demand, while preserving European sovereignty.
To reach these objectives, the Eurosystem has set out a comprehensive strategy based on complementary
elements, which range from the provision of cash to the promotion of pan-European payment solutions,
the fast deployment of instant payments in the entire euro area, the introduction of a new comprehensive
oversight framework embracing new products and players, and the preparation for the possible issuance
of a digital euro. Our action on these fronts, in close cooperation with the European Commission and other
European institutions, will help to foster a resilient and innovative European payments market that will
strengthen confidence and trust in the euro.
[1]

Anderton, R., Jarvis, V., Labhard, V., Morgan, J., Petroulakis, F. and Vivian, L. (2020), " Virtually everywhere? Digitalisation and
the euro area and EU economies: Degree, effects, and key issues", Occasional Paper Series, No 244, ECB, June.
[2]
Source: Eurostat.
[3]
Among other means of payment, which account for the remainder, the share of credit transfers, direct debits and e-money has
increased, while the share of cheques has declined. See ECB (2020), Study on the payment attitudes of consumers in the euro
area (SPACE), forthcoming.
[4]
Cash is used for about 4% of remote purchases and 11% of bill payments in terms of volume; 3% and 6% respectively in terms of
value. Remote purchases include internet, telephone and mail order purchases.
[5]
Approximately one-half and one-quarter, respectively, in terms of both volume and value.
[6]
41% and 20%, respectively, in terms of volume; 37% and 29%, respectively, in terms of value.
[7]
ECB (2020), Impact of the pandemic on cash trends (IMPACT), forthcoming; Allensbach-Umfrage zum Bezahlen in Deutschland
2020 (Initiative Deutsche Zahlungssysteme).
[8]
When looking at the entire universe of retail transactions, whether they are made at the physical point of sale or online and whether
they are made by private individuals, businesses or the public sector, the transformation of payment behaviour is even more striking.
While cash continues to be used in the majority of retail payments, it accounts in value for similar amounts to cards and cheques, which
are all dwarfed by payment instruments that are mainly used for remote payments, such as credit transfers (accounting for approximately
90% of all retail payments in value in 2019) and direct debits.
[9]
Up from 52.5% in 2009.
[10]
Panetta, F. (2020), "Beyond monetary policy - protecting the continuity and safety of payments during the coronavirus crisis", The
ECB Blog, 28 April.
[11]
ECB (2020), "ECB welcomes initiative to launch new European payment solution".
[12]
Sweden has recently joined TIPS (see ECB (2020), "Sweden joins ECB's instant payments settlement platform") and the Federal
Reserve is taking steps to build an instant payments infrastructure, FedNow (see Brainard, L. (2020), "  The Future of Retail Payments
in the United States", speech at the FedNow Service Webinar, 6 August).
[13]
ECB (2020), "ECB takes steps to ensure pan-European reach of instant payments".
[14]
See Bindseil, U. and Panetta, F. (2020), "  Central bank digital currency remuneration in a world with low or negative nominal
interest rates", VoxEU, October.
[15]

See ECB and Bank of Japan (2020), " Balancing confidentiality and auditability in a distributed ledger

environment", Project Stella, February; and ECB (2019), " Exploring anonymity in central bank digital currencies", In Focus, No 4,
December.
[16]

ECB (2020), Report on a digital euro, Frankfurt am Main.
Related topics
Instant payments Financial market infrastructures Fintech Technology Euro
Banknotes and coins Currencies Financial markets Digitalisation Money
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