What PSPs Should Examine

The feedback from payment service providers (PSPs) will significantly influence the technical development of the digital euro, aiding in the identification and avoidance of potential issues before its official launch.

For PSPs to avoid constant rebuilding of infrastructure with each spec or nuanced change, solid APIs and software development kits for integration are essential,” said Joel Hugentobler, Cryptocurrency Analyst at Javelin Strategy & Research. The solution must be simple and easy to integrate into their operations.”

Clear rules regarding liability and fraud handling will be critical,” Hugentobler added. A standardized integration framework should also be established to ensure seamless adoption, rather than forcing PSPs to reinvent the wheel.”

A challenge of the pilot phase is that PSPs are expected to cover all costs associated with building, onboarding, certifying, and operating the digital euro themselves. This limitation may result in participation primarily by larger institutions.

A Tough Road Ahead

Since its introduction in 2020, the digital euro’s development has faced numerous obstacles. Initially aimed at countering foreign currencies and global payment networks like Visa and Mastercard, it now competes with stablecoins that have become vital for cross-border transactions.

The pilot phase may determine if the digital euro can establish a meaningful position in the market. However, doubts remain about its future relevance.

The current efforts might only strengthen stablecoins and the U.S. dollar,” Hugentobler said. This could potentially diminish the significance of other currencies.”