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While welcoming the digital euro as an additional payment method, trade associations want to ensure it is consumer-friendly and cost-effective for merchants — pushing for low fees.
A letter, co-signed by EuroCommerce, Ecommerce Europe, Independent Retail Europe, International Air Transport Association (IATA) and SMEunited, has been sent to co-legislators in the EU, as well as the European Central Bank (ECB).
The trade associations say the rationale for lower digital euro acceptance costs are that the digital euro falls in the realm of a public infrastructure and is owned by the ECB, so there is no private network/scheme to run, and that transactions settle instantly, so there is no counter-party or fraud risk.
Therefore, the four-party model of interchange fees does not apply to the digital euro.
Rather than compensating payment service providers (PSPs) by replicating the remuneration model of a private scheme, the trade associations say that the co-legislators should instead ensure that PSPs are compensated via value-added services.
Speaking to Vixio, IATA’s David Grivet said that the cost of acceptance represents a large distribution cost. “This is a natural source of concern for the airlines who are always looking to support the payment instruments that are the most relevant to their customers.
“As an industry, we are looking at the digital euro as an innovation that may come and enrich the range of payment instruments that clients want to use when paying for airline tickets,” the EU affairs manager commented.
EuroCommerce, meanwhile, was one of the complainants that eventually led to the Interchange Fee Regulation being introduced in 2015. “We have always been very vocal on payment costs,” Atze Faas, the trade association’s payments advisor, told Vixio.
“Until recently, banks, consumer groups and PSPs have been pretty well organised but merchants have not had a strong coordinated voice,” said Faas. “This is one of the first times that we have publicly and jointly communicated on a payment topic."
Faas added that he hopes the letter can change the conversation. “So much has gone wrong with interchange fee caps, because scheme fees were left uncapped and have increased sharply,” he said.
“We want to introduce the idea of paying per transaction as only then will we merchants benefit from economies of scale,” he suggested.
According to Faas, this is why the trade associations are pushing strongly for the digital euro. “Since the introduction of strong customer authentication there are no objective reasons to apply a different fee for higher amounts or for credit versus debit or for commercial versus consumer.
“It takes the same effort for the payments value chain to move €1 or to move €1,000, yet with percentage-based prices the fee is totally different,” he said.
The co-signatories said that they are closely engaged with and keen to help introduce the payment method "in a way that enhances competition and affordable pricing".
This, they suggest, will mean that it can be an alternative to the "current, non-EU relatively dominant card-based payment methods".
"Along with instant payments, we hope that the digital euro not only boosts competition, but it will also offer simpler fee structures to help drive its acceptance," the letter says.
Recommendations from industry groups
In the letter, the trade associations — which boast members such as eBay, IKEA and Spar — have set out four recommendations for the co-legislators to consider.
These include making the total cost of acceptance as close to zero as possible and on a fee-per-transaction basis, not as a percentage of value, with no fee applying for low-value payments.
“At the very minimum, percentage-based fees should be capped to a certain amount,” the letter argues.
In addition, with former ECB official Fabio Panetta having previously told the European Parliament that the acceptance of the digital euro is planned to become mandatory yet “free to consumers for basic use”, the co-signatories say that their sector needs strong safeguards against the imposition of overly high fees charged by banks and PSPs.
“This means that if they cannot be set at zero, they should be as close to zero as possible,” the letter says.
“We respectfully expect and request that digital euro merchant fees should be considerably lower than any current payment method.”
According to the trade associations, there is “ample evidence that the two-sided payments market is inefficient”. Without regulation, they argue it will not lead to competitive pricing.
“Without caps, there's a high probability or even certainty that pricing will be disproportionate or even excessive.”
The trade associations also warn against mandatory acceptance. According to the associations, by forcing acceptance with only a handful of exemptions, coupled with measures to ensure a prohibition to surcharge, merchants are unlikely to be attracted by the digital euro.
Lastly, the associations have said that although existing systems and processes should be reused as much as possible, to avoid lengthy and costly updates, upgrades and retraining, the digital euro should not seek to replicate the current landscape, as this would potentially limit future innovation.
Industry concerns over the digital euro
The letter argues that lower costs of payments will be key to the widespread adoption of the digital euro.
There are signs that regulators behind the project feel the same. For example, Panetta said in a public hearing at the European Parliament in September 2023 that "there will be no extra charge" and that the digital euro "would push down, not up, on commissions", which indicates that fees will be lower.
For now, the digital euro legislation is in its early stages. The European Parliament has yet to release amendments to the European Commission’s proposed legislation, meaning that there is a chance that the merchants' wishes may be taken on.
However, stakeholders involved in the project will be conscious of the scepticism that has brewed among PSPs.
Many stakeholders believe that it risks being an overreach of the state and the ECB and others are all too keen to play down the project’s risks to the EU’s financial services sector.
According to Grivet, there are concerns that in its current state, the draft legislation on digital euro acceptance considers a “dangerous and costly parallel” between how much it will cost to receive a future payment in digital euro and how much it costs today to be paid by other means.
“The digital euro will be a completely new payment instrument underpinned by a public infrastructure provided by the central banks to all the commercial banks,” he said.
Grivet continued that IATA does not understand why merchants should be forced to pay an “artificial and inflated” merchant fee set to be similar to the one paid to accept card, for example.
"We have our back against the wall, especially as we can't surcharge. The main thing to make the digital euro attractive to merchants is to make it competitive in price,” said Faas.
“We hear from the banking side that they don't want caps or involvement from the ECB. They believe that they should be able to negotiate with merchants, but if you do what you always did, then you get what you always got,” the payments advisor warned.
Faas continued that the digital euro should not be regarded as a usual payment method and should not be left to the banking industry.
“We all see what happens if you don't have a basic cap. Scheme fees went through the roof and this is what we need to make sure that does not happen with the digital euro as it is a different animal,” he said. “No other payment method apart from cash has this kind of mandatory acceptance."
