As digital payments become the norm and cash fades into the background, the European Central Bank (ECB) is preparing a transformative answer: the Digital Euro. It is not just a response to technological change, but a strategic move to assert European sovereignty over its currency and digital infrastructure.
In a world where payment systems, cloud services, and stablecoins are increasingly dominated by non-European players, the European authorities view the Digital Euro as an opportunity to reassert control over the most foundational tool of economic life ; money.
1. What is the Digital Euro ; and where do we stand today?
The Digital Euro is a central bank digital currency (CBDC), meaning it is issued by the ECB and denominated in euros, just like banknotes. But unlike physical cash, it is designed for use in digital environments. It is not a cryptocurrency, nor is it a stablecoin: it is fully backed by the central bank, designed to be risk-free, and aims to offer the same legal certainty and trust as traditional central bank money.
The ECB’s goal is clear: to ensure public access to central bank money, even as payment behavior shifts away from cash. Today, most digital payments in Europe are managed by private intermediaries, often based outside the EU. In card payments, for instance, the market is largely dominated by U.S. players. At the same time, Big Tech companies are developing private digital currencies and wallets that could further displace public money. In this context, the Digital Euro is as much about resilience and sovereignty as it is about innovation.
Since 2021, the ECB has explored the concept through an investigation phase, and is now deep into a preparation phase set to continue through 2025, and probably even 2026. During this time, five major tenders have been launched to prototype essential building blocks: the future Digital Euro wallet, offline payments, acceptance infrastructure, back-end systems, and fraud/security layers.
A draft legal framework for the Digital Euro is currently being debated by the European Parliament and Council, but no final vote is expected before 2026. If all goes according to plan, issuance could begin from 2027 or 2028 ; although this remains an optimistic scenario, given the technical and political complexity involved.
2. How will it work?
The ECB has designed the Digital Euro to be usable in a wide range of daily scenarios. Whether it’s paying online, in-store, between individuals, or even offline, the Digital Euro is intended to work wherever cash or cards are used today.
One of its most ambitious features is offline functionality. Individuals will be able to make peer-to-peer payments or in-store purchases without an internet connection, using local hardware-based communication such as NFC. This makes the Digital Euro resilient to outages, rural connectivity gaps, or crisis scenarios.
Users will access their Digital Euros through one of three possible channels:
- via their bank’s mobile application (integrated wallet),
- through a dedicated Eurosystem app developed by the European Central Bank itself,
- Or leverage the EUDI Wallet to offer a unified identity and payment solution ; an innovative path already envisioned by the eIDAS2 regulation.
Privacy will be a priority. Transactions will be pseudonymized. The ECB will not have access to personal data ; only regulated intermediaries (like banks) will manage limited identity information to ensure compliance with anti-money laundering rules.
Also, holding limits will apply. For individual users, a cap of around €3,000 per person is under consideration to prevent destabilisation of bank funding. For merchants, however, the ECB has confirmed a zero holding limit: businesses will not be permitted to store Digital Euros and will be required to convert them back into traditional bank money after each transaction. This ensures that the Digital Euro does not compete directly with commercial liquidity pools in the business sector.
3. What does it mean for banks?
A legal obligation, but with hard to assess demand
While the ECB will issue the Digital Euro, it will be distributed exclusively via commercial banks and supervised payment service providers, who will be legally required to make it available to their customers. PSPs will be responsible for onboarding, KYC, wallet provisioning, transaction monitoring, and customer servicing.
However, this model introduces a new dynamic: the Digital Euro may compete with commercial bank deposits. In times of economic instability, customers could prefer to hold Digital Euros, which are risk-free and guaranteed by the ECB.
That said, the Digital Euro does not offer a major functional advantage to consumers. It will likely be used in similar ways as today’s cards or mobile wallets like Apple Pay or Wero. For most users, the experience will feel familiar, meaning that active switching from traditional money to Digital Euro will not be automatic or universal.
Still, the potential for deposit outflows must be factored into banks’ funding models. According to the ECB, around 50% of euro area current accounts contain less than €3,000 (current defined holding limit on Digital Euro) ; which means a substantial proportion of household liquidity could migrate to Digital Euro wallets, especially if some doubts were to be raised about the solidity of commercial banks.
Additionally, each bank will need to define its strategic posture. Should they promote the Digital Euro to their clients? Offer it passively? Or direct customers to alternative products such as cards or the recently introduced payment wallets based on instant payments (ie. Wero and EuropA)?
Operational transformation
Implementing the Digital Euro will also require major IT and infrastructure upgrades. Specifically, banks will need to integrate wallets within their systems, but also manage a new type of currency, with specific logic for liquidity management to allow funding and defunding, new back-end processes, and clear contractual frameworks.
- Funding refers to the action of converting traditional bank money (a deposit) into Digital Euro (public money), and placing it into the user's Digital Euro wallet.
- Defunding is the reverse: it means converting Digital Euros back into commercial bank money (i.e. traditional deposits).
IT systems must also make sure to implement in real time the waterfall logic – to ensure that users never exceed the maximum holding limit set by the European Central Bank while still allowing them to receive or send payments naturally.
24/7 real-time payments and privacy-by-design are also required and although banks are used to such requests (also driven by instant payments), this had tremendous effects, for example on accounting.
Besides, adding a new payment instrument alongside cards and account-to-account (A2A) transfers raises significant challenges, including robust fraud prevention, transaction caps, and efficient dispute resolution mechanisms. These elements will be critical to ensuring security, user trust, and smooth adoption of the Digital Euro.
4. How can banks and PSPs prepare?
The Digital Euro is not just a payment technology ; it is a structural evolution of Europe’s financial ecosystem. Banks cannot afford to wait for regulation to finalize. They should begin now in three key areas:
1. Liquidity readiness
- Model customer behavior under different holding limits
- Revisit funding strategies
- Prepare stress test scenarios and alternative deposit solutions
- Anticipate new challenges to manage reserves and liquidity
2. System and architecture
- Identify all parts of the core banking affected by Digital Euro integration
- Build or adopt wallet infrastructure and waterfall / reverse waterfall logic
- Separate identity and transaction data
- Prepare for offline scenarios and multi-channel use cases
3. Strategic positioning
- Monitor the evolving EU legislative process
- Participate in industry pilots and collaborative testing
- Define internal positioning and governance
- Educate internal teams
Conclusion – Shaping the Future of European Money, Together
The Digital Euro represents more than just a new payment instrument ; it is a milestone in Europe’s journey toward financial sovereignty, resilience, and inclusion in the digital age. For banks, it introduces real challenges, especially around liquidity management, customer trust, and system integration. But it also opens the door to rethinking their role in a modern financial ecosystem.
At Sopra Steria, we believe this is a defining moment ; one where technology, regulation, and purpose converge. We support financial institutions with:
- Strategic workshops to define positioning and risk scenarios,
- Technology health checks to map impacted systems and define readiness plans,
- And end-to-end delivery capabilities to accelerate wallet, infrastructure, and compliance integration.
Because the Digital Euro is not just about money.
It’s about building a European financial system that is open, trusted, and future-ready.
And the time to build it is now.