The European Central Bank (ECB) is starting to explore ‘interface solutions’ for making payments with a potential digital euro.
The Frankfurt-headquartered authority has published a ‘call for expression[s] of interest for digital euro front-end prototyping’ in a move that marks its latest engagement with the private sector during its ‘investigation phase’ into a potential eurozone central bank digital currency (CBDC).
Global Government Fintech reported a couple of months ago that the ECB had kicked off a tender process for digital euro-related design and business model consultancy.
This new search for external expertise is aimed at ‘payment service providers, banks and other relevant companies’ as the ECB looks to ‘form a pool of providers with which the ECB can collaborate on the development of prototypes that address specific use cases for the payment process’, according a short announcement on 28 April that links to details on the process.
One of the objectives of the prototyping exercise is to test an end-to-end transaction, starting at the front-end prototype (the focus of the call for expressions of interest) through the interface into the ‘back-end’: both will be developed by the Eurosystem (which comprises the ECB and the central banks of the 19 European Union member states that use the euro).
Prototyping to start in August
The ECB’s digital euro investigation phase began last autumn and is expected to run until October 2023. After this the ECB could move to what it describes as a ‘realisation phase’ to ‘develop and test the appropriate technical solutions and business arrangements necessary to provide a digital euro’, which could take a further three years.
In terms of the prototyping plans, the Eurosystem intends to select a limited number of front-end providers (up to five), based on selected use cases.
The ECB’s documentation points out that selection into the pool does not mean that a provider will also be selected to provide a front-end prototype, nor does it mean that being selected into the pool or as front-end prototype provider confers any right for future collaboration or joint work in next phases of the project – should there be any.
Companies keen to get involved in what is described as a ‘co-operative exercise’ (companies will not be remunerated by the ECB) need to complete a 12-page questionnaire on their capabilities by 20 May. There will then be an information session in June to discuss specific expectations for the project, including use cases.
Prototyping is planned to start in August and will last until the first quarter of 2023.
ECB’s private-sector support
The call for support on front-end prototyping is the latest move by the ECB to engage private-sector expertise in its digital euro explorations.
The tender for digital euro-related design and business model consultancy, worth a total value of EUR20m (about £16.8m) and which carried a 25 March deadline for applications, sees the ECB seeking to engage ‘strategic partners for consultancy services that allow the delivery of excellent, strategic capabilities to support solving complex questions that are not only new to the ECB but also globally in the context of CBDCs’
The authority is also being informed on CBDC by a ‘Market Advisory Group’ (MAG), which comprises 30 private-sector retail payments specialists. The MAG, whose members are drawn mainly from major European banks but also include retail-sector professionals, is meeting at least quarterly. Representatives from Eurosystem national central banks, as well as the Commission, are also participating.
In terms of the ECB’s own staff, Evelien Witlox took up the newly created role of digital euro programme manager in January. The contact listed in the prototype documentation is Lydia de Jongh-Veneman, a team lead and IT project manager.
Potential for welfare and tax payments
Beyond developments in Frankfurt, other ongoing digital euro-related activity includes a European Commission ‘targeted consultation on a digital euro’ that launched on 5 April (those responding to the 34-page document have until 14 June to do so). This consultation is a different exercise to the ECB’s own digital euro consultation, which received 8,221 responses – more than any previous ECB public consultation.
ECB executive board member Fabio Panetta also appeared before the European Parliament’s (EP) economic and monetary affairs committee on 30 March, making introductory remarks entitled ‘A digital euro that serves the needs of the public: striking the right balance’.
Panetta provided an update on a variety of challenges, including CBDC user privacy – an increasingly high-profile topic in CBDC discussions globally – saying that “full anonymity is not a viable option from a public policy perspective” but saying that “in a baseline scenario, a digital euro would provide people with a level of privacy equal to or higher than that of private digital solutions.”
In terms of possible use cases for a potential digital euro, he said such a eurozone CBDC could be used for payments between governments and individuals, “for example to pay out public welfare benefits or to pay taxes”.
The ECB has commissioned research (including focus groups) on ‘the current payment habits of citizens of euro area countries and specifically their attitudes towards digital payment methods’ (128 pages of findings were published in March). Panetta told the EP committee that the ECB plans to conduct further focus groups “towards the end of the year, this time giving participants a better idea of the envisaged user experience to gather their feedback”.
=>>> Global Government Fintech’s dedicated ‘Digital Currencies’ section <<<=
‘ECB kicks off €20m tender for digital euro architects’ – our news story (2 March 2022) on the tender process for design and business model consultancy for a potential digital euro
‘D€: unanswered questions (and quirks) amid Europe’s CBDC “nitty-gritty”’ – our analysis (20 September 2021) of eurozone central banks’ digital currency explorations