Unlocking the Future of Payments: Preparing for PSD3

For banks, this new instrument represents an opportunity, but one that also entails fundamental challenges to established business models. How will this development affect the banking community?

Without a digital euro, Europe’s payment structures could increasingly shift in favor of private, global infrastructures. Stablecoins such as Circle’s EURC or AllUnity’s EURAU already demonstrate that digital euro equivalents are marketable. Operated by US-based or other globally active private-sector players, they can be used worldwide via exchanges and wallets, yet they remain outside the scope of direct European regulation and monetary policy.

At the same time, Big Tech platforms such as Apple Pay, Google Pay, and PayPal already control access to customer interfaces. If this trend continues, there is a risk that digital money will become privatized, with consequences for monetary sovereignty, data autonomy, and competitive equality. EU regulation of these developments could bring initial change, but would also likely provoke reactions, potentially including countermeasures from affected parties. The scale and impact of such responses could be considerable and might extend beyond the financial sector to affect the European Economic Area more broadly (for example, through punitive tariffs imposed by the US).

For banks, this scenario would mean that payment transactions, customer access, and data increasingly lie outside their sphere of influence. “Whoever controls the wallet controls the customer interface, and therefore trust” is a frequently cited observation in this context. The digital euro should therefore be seen less as a technological option and more as a strategic necessity: a shared European foundational infrastructure on which banks and payment service providers can build their own offerings—largely independent of US or other non-European requirements or influences.

For decades, the European financial system has been based on a clear division of labor. The European Central Bank provides the money supply and stability, while banks mainly lend and manage deposits.

The digital euro blurs this line. The ECB could interact directly with citizens and companies by issuing digital cash (euros) via its own app or through banks and, in doing so, could also manage it itself, thereby taking over part of the banks’ role in the money supply. The concrete design of the digital euro is still open, but three basic models are being discussed, each with different consequences for the role of banks.

• Direct Model: ECB as a Customer Bank

In this scenario, the ECB itself would provide wallets and maintain digital euro accounts for citizens. Banks would lose part of their role as intermediaries in the digital cash supply and would be reduced to purely infrastructure or refinancing functions. This model is considered risky from a monetary policy perspective and difficult to scale operationally, but it remains the theoretical reference point of the debate.

• Intermediation Model: The Bank as Administrator of the Digital Euro

The ECB’s currently favored model envisions banks and licensed payment service providers acting as distributors. They provide wallets, conduct KYC and AML checks, and serve customers. This means that they remain operationally integrated, but on a highly regulated infrastructure whose rules and branding are dictated by the Eurosystem. Value creation is shifting away from sovereignty over products and pricing toward service quality, infrastructure capabilities, and data expertise. In the future, banks will be able to differentiate themselves primarily by how efficiently they operate wallets, offer integration services for merchants or third-party providers, and analyze payment data in real time to improve security, compliance, and personalized services.

• Third-Party Model: Big Tech as a Wallet Provider

Another scenario is that large platform providers such as Apple Pay, Google Pay, and PayPal could act as technical administrators through their existing ecosystems. They could integrate digital euro wallets into their user interfaces and thereby control the customer interface. For banks, this would mean a strategic loss of control. They would remain liquidity providers, while value creation and customer data would stay with the platforms.

The intermediation model currently appears to be the most likely scenario for the digital euro. It offers banks the greatest stability but does not guarantee strategic relevance. Only those who control the customer interface and the data layer will define access to payments in the future. Banks must therefore clarify now what role they want to play in this new architecture, whether as gatekeepers, infrastructure operators, or mere payment processors.

The digital euro has a direct impact on the liabilities side of banks’ balance sheets. If households shift even part of their deposits into central bank digital money, the favorable refinancing base is reduced. Studies by the ECB and the European Banking Associations show that even with realistic holding limits of €500 to €3,000 per person, outflows of between one and ten percent are possible, depending on the degree of acceptance. For a medium-sized bank with €20 billion in deposits, this would correspond to additional refinancing costs of between €3 million and €30 million per year if the funds have to be replaced by more expensive market financing. At the same time, supervisors are increasing requirements for liquidity buffers and high-quality liquid assets, as digital euro holdings are treated as cash outflows on the balance sheet. As a result, capital is more tightly tied up and lending tends to become more restrictive, especially for smaller institutions.

At the same time, earnings structures are changing. If the Eurosystem’s payment infrastructure enables very low-cost or free transactions in the future, traditional payment fees will decline further. Banks that have so far relied on card or account fees will come under increasing margin pressure. In the long term, this will force a shift toward data-driven and infrastructure-based services, such as the operation of wallet infrastructures, API interfaces, or analytics platforms for merchants and partners. At the same time, competitive pressure is intensifying from Big Tech providers, which already benefit from superior user experiences and extensive access to data.

The technical integration of the digital euro is less a one-time IT project than a permanent infrastructure commitment. Wallet management, KYC and AML processes, transaction monitoring, and reporting to the Eurosystem entail significant implementation and ongoing operational costs. Depending on the initial infrastructure, one-time project costs can reach the tens of millions per institution. In addition, further effort is required to integrate offline functionality, multi-channel wallets, and new interfaces with core banking systems and deposit guarantee schemes. The digital euro is therefore becoming a compliance-driven, yet strategically relevant, investment topic.

The digital euro presents banks not only with economic and regulatory challenges, but also with profound technological ones.

Its introduction requires banks to fundamentally review and further develop their systems in order to manage the digital nature of this new form of money. To achieve this, technical measures must first be aligned with EU regulatory requirements and internal strategic objectives.

The introduction of the digital euro requires close coordination between compliance, IT, operations, and customer service. Each institution will need to establish specialized project and transformation teams responsible not only for the technical connection to the Eurosystem’s infrastructure, but also for adapting internal processes and governance structures.

Implementation activities related to the digital euro should therefore be accompanied and supported by active change management. Processes, systems, and employees must be aligned with the new role of banks as operational intermediaries in the digital money system and be sustainably empowered.

At the same time, customers should be involved in the change process at an early stage. Communication with customers remains a core responsibility of banks. Transparent information on service changes, security features, and usage limits is crucial to building trust and encouraging adoption of the digital euro. Banks that actively provide information and user-friendly solutions early on can clearly differentiate themselves within the emerging ecosystem.

The digital euro can reorganize value creation in payments, shifting it away from transaction margins and toward infrastructure, data, and integration services. For banks, this opens up a new playing field that goes beyond pure payment processing.

Infrastructure as a service: Institutions can position themselves as operators or technical enablers, for example by running wallet platforms or API gateways to the digital euro settlement infrastructure.

Data as a source of value: Standardized payment data can be used to develop new, privacy-compliant value-added services.

Integration as a key competence: The digital euro is creating new interfaces between central bank money, open banking APIs, and corporate systems.

The challenge lies less in the technology than in strategic positioning. Institutions that understand the digital euro as a public infrastructure that can be integrated into their own private value creation can develop new business models.

The introduction of the digital euro will be a gradual transformation process requiring close coordination between banks, regulators, and technology providers.

For banks, the digital euro is more than just another compliance project. It is a test of adaptability, cooperation, and technological maturity.

In the long term, the digital euro will not only change how money is transferred, but also redefine the relationship between the central bank, financial institutions, and citizens.

Banks should therefore already be addressing the topic and considering what strategic role the digital euro can and should play in their future business models. Ignoring the issue or attempting to circumvent it would be a serious mistake.

In the context of the intermediation model outlined above, the digital euro will place banks in the role of central intermediaries. They will be responsible for customer onboarding, identity verification, transaction execution, liquidity management within the ecosystem, and the provision of secure wallets.

The architecture envisioned by the ECB positions banks as operational intermediaries between end users and the Digital Euro Settling Platform (DESP). This means that banks retain access to the customer, but operate on a standardized infrastructure regulated by the Eurosystem.

Each participating bank or Payment Service Provider (PSP) must ensure:

• Technical integration of the wallet infrastructure into existing core banking systems.

• Secure provisioning and management of wallets.

• Seamless and secure customer authentication across all channels.

• Full compliance with KYC and AML requirements for all digital euro users.

• High availability, resilience, and offline functionality in accordance with ECB requirements.

To meet these requirements, banks need to modernize their existing payment and IT infrastructures and ensure interoperability between systems, channels, and endpoints. This applies both to back-end systems and to customer-facing applications that will enable access to the digital euro in the future.

Integrating the digital euro into existing banking systems is one of the most technically challenging aspects of the project. Banks must modernize their core banking systems and payment architectures so that they can communicate with the DESP securely, efficiently, and in real time.

These include:

• The development of secure API interfaces and standardized message formats.

• Support for ISO 20022-compliant transactional messages to ensure a harmonized data standard across the euro area.

• Participation in certification and interoperability programs for systems and integration points.

• As well as the ability to process both online and offline payments.

Offline payments pose a particular challenge, as they require asynchronous, temporarily non-networked validation and settlement processes while maintaining security and ease of use.

In addition, banks must establish comprehensive logging, monitoring, and reconciliation processes to ensure full traceability and data integrity for all transactions.

The security and stability of the digital euro infrastructure are among the key prerequisites for participation in the system. The ECB expects the highest levels of cyber resilience, data protection, and operational continuity from all participating institutions.

Within the regulatory context, banks must consistently implement the evolving framework, including GDPR, PSD2/PSD3, AMLD5/6, DORA, and specific digital euro regulations. This includes automating KYC and AML processes for both traditional accounts and digital euro wallets. The objective is to detect suspicious activity in real time while simultaneously protecting user privacy, particularly for low-value payments, where the payment path and account balance are not intended to be traceable.

To meet strict AML and CTF requirements, banks must implement robust risk management and fraud prevention systems based on behavioral analysis, geolocation, and real-time monitoring. The use of artificial intelligence and automated verification mechanisms will play a crucial role in increasing efficiency and reducing false positives, which can otherwise strain customer relationships and damage reputations.

Finally, the Eurosystem requires high system availability supported by redundancy and failover mechanisms, as well as regularly tested emergency and recovery plans. Banks must report security incidents, compliance breaches, and technical irregularities to the Eurosystem in a timely manner. These processes must be aligned with existing supervisory frameworks, including BAIT, EBA Guidelines, and DORA.

If the intermediation variant prevails, the customer interface will remain the responsibility of banks within the digital euro architecture. Banks will manage onboarding, the user lifecycle—including registration, verification, and offboarding—and the operational management of digital euro accounts.

To support this, existing digital channels such as web interfaces, mobile banking, payment applications, and physical POS terminals must be technically enhanced to enable seamless digital euro transactions. This applies to traditional retail payments as well as P2P transfers and online payments. Back-end systems must also be capable of handling delayed reconciliation and settlement processes, particularly in connection with offline transactions.

Offline functionality itself is a central design feature of the digital euro. Users should be able to make low-value payments even without an internet connection. To enable this, banks must provide secure hardware or software components, smart cards, or mobile secure elements capable of storing limited amounts locally. These devices must comply with data protection requirements, be user-friendly, and certified in accordance with Eurosystem standards. At the same time, the ECB Rulebook defines minimum standards for user experience and security, including QR code or link-based payment capabilities, uniform interfaces, and clear holding limits per user.