Digital euro advances to counter Visa and Mastercard

Strategic addiction describes Europe's position in digital payments. About two-thirds of euro-area card transactions run through Visa and Mastercard (ECB, Journal of Competition Law & Economics). Thirteen of the euro area's 21 countries have no domestic card scheme that works at shop tills (Bundesbank). On 23 June, the European Parliament's economics committee voted to advance the digital euro regulation, moving the file toward a full plenary vote (European Parliament).

The digital euro would be electronic cash issued by the ECB (the European Central Bank, which manages the euro) and distributed through ordinary banks. It is not a cryptocurrency. It is a euro, always worth one euro, backed by the central bank rather than a private company (ECB). Think of it as the money in your wallet going digital: public money you hold directly, not a deposit at a private bank.

Why no fallback means no control

Visa and Mastercard process payments efficiently. But when payment traffic runs almost entirely on foreign networks, Europe does not fully control the price, technical standards, or resilience of its own digital payments. If those networks raise fees, change terms, or suffer outages, European merchants and consumers have nowhere else to go.

Germany's girocard illustrates the gap. It works inside Germany but reaches foreign terminals only by piggybacking on Visa or Mastercard infrastructure (Bundesbank). For cross-border card payments within the euro area, the share handled by non-European networks approaches 100%, according to ECB officials (Le Monde). France has Cartes Bancaires, Italy has Bancomat, the Netherlands has iDEAL. None works seamlessly across borders, and their combined share has been shrinking: international card schemes rose from roughly 56% of euro-area card payments in 2017 to about 61% in 2022 (Journal of Competition Law & Economics).

The digital euro would set a single technical standard so that any phone, card, or terminal in the euro area can process payments directly. That removes the need to route transactions through American networks. Parliament's draft text would require most businesses already accepting digital payments to accept the digital euro, cap merchant fees (the charges shops pay every time a customer taps a card), and make basic accounts free for users (European Parliament, EU Perspectives).

Banks stand to lose cheap funding

Consumers would get a free public payment option that works online and offline. For offline transactions, Parliament's text specifies that payment data stays on the device rather than passing through banks or payment processors (European Parliament). Merchants could benefit if fee competition brings costs down: Visa and Mastercard currently collect roughly €2 billion a year from European merchants in interchange and scheme fees, according to Le Monde (Le Monde).

Banks are the most conflicted players. They would distribute the digital euro and keep the customer relationship, but they risk losing deposits. If people move money from ordinary bank balances into digital euro wallets, banks lose a cheap source of funding they currently use to make loans. That can push up borrowing costs across the economy.

How large is that risk? According to Reuters reporting, ECB simulations suggest that with a €3,000 holding cap per person, up to €699 billion, or 8.2% of euro-area household and business deposits, could shift out of bank accounts (Marketscreener/Reuters). That is a scenario, not a forecast. But it explains why German banks have called the project a "state parallel offer" with no clear added value (Handelsblatt). The cost of building the system is itself disputed: the ECB estimates €4 billion to €5.8 billion over four years; banking-sector figures run as high as €18 billion to €30 billion (Marketscreener/Reuters).

The real test is adoption

Parliament's committee vote is one step. Plenary approval, negotiations between Parliament and member states, and a final Council decision all remain. The ECB has pointed to pilot transactions from mid-2027 and a possible first issuance in 2029 (ECB, EUNews).

The harder question is whether anyone will use it. A payment network nobody routes money through is sovereignty on paper. Adoption rates by country, actual merchant costs after integration, whether banks actively promote or quietly bury the product: these will matter more than any regulation text. Europe diagnosed its dependence accurately. Whether it can change the habit remains an open bet.