Payment service providers will be able to charge merchants a fee for enabling them to accept digital euro transactions, the European Central Bank (ECB) has revealed, but a cap will be placed on the amount that it will be possible for them to charge.

“As a public good, a digital euro would be free of charge for basic use,” the ECB explains in a progress report on the digital euro preparation phase.

“PSPs would charge merchant fees for providing digital euro-related services to offset the operational costs of distributing a digital euro, as is the case today for other digital means of payment. PSPs would also be able to develop additional digital euro services for their customers, on top of those required for basic use.

“The fees that merchants pay to PSPs for digital euro services would be subject to a cap to provide adequate safeguards against excessive charges, as outlined by the European Commission in its legislative proposal on a digital euro.

“The Eurosystem would bear the issuance costs, as it does in the production of banknotes.”

Consumers will be able to use their mobile phone to make digital euro payments offline, online and peer-to-peer, between themselves and another individual. The ECB “has also been investigating alternative form factors for an offline digital euro, for example battery-powered smart cards and non-powered smart cards,” it says.

For offline transactions, the digital euro is being designed to offer users “a cash-like level of privacy for payments in physical shops and between individuals,” the ECB adds.

“When paying offline, personal transaction details would only be known to the payer and the payee and would not be shared with payment service providers, the Eurosystem or any providers of supporting services.

“The Eurosystem would use state-of-the-art measures, including pseudonymisation, hashing and data encryption, to ensure it would not be able to directly link digital euro transactions to specific users.”

“For mobile phones, delivery of the offline functionality is contingent on access [to] the near-field communication (NFC) antenna and the secure element. NFC provides a highly convenient end-user experience which consumers in the euro area are already familiar with.

“The ECB has been looking at the modalities of accessing the hardware component (“secure element”) in mobile devices and smart cards to allow settlement of transactions in end users’ devices.

“There are technical tools on the market which allow applications to be deployed remotely on the secure elements of mobile devices.

“These tools are commonly used for identification, telecommunications and transport purposes and could be used to deploy the offline digital euro solution too, allowing users to easily download it and use it on their mobile devices without having to go to a bank branch to verify their identity.”

The offline functionality “would enable digital euro users to pay without an internet connection after pre-funding their digital euro account via the internet or an ATM,” the ECB explains. “Moreover, users would have the option to link their digital euro wallet with a commercial bank account, allowing them to make payments through their digital euro wallet without needing to pre-load it with funds.

“Payments would take place directly between the offline devices – eg mobile phones or payment cards – belonging to the users involved in the transaction, without having to rely on third parties.”

“The digital euro preparation phase is progressing well and we support the ongoing democratic debate on the legal framework for the digital euro,” Executive Board member Piero Cipollone, chair of the High-Level Task Force on a digital euro, says.

“The digital euro is a common European endeavour. As such, we will continue engaging with all stakeholders, including the European public, to ensure that it is successful and benefits us all.”

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