The European payments landscape is undergoing a profound transformation, shaped by technological advancements, evolving consumer behaviours, and new legislative measures aimed at improving both efficiency and inclusion. As cash usage declines and digital payment methods expand, payment fraud becomes more sophisticated, and geopolitical tensions rise, the EU faces increasing pressure to secure its payment infrastructure. This article explores these trends, the associated risks, and the EU’s legislative responses, including the draft Payment Services Regulation (PSR), the Instant Payments Regulation, and the digital euro proposal. It discusses how these initiatives aim to combat fraud, ensure financial inclusion, and safeguard payment sovereignty, while also requiring private sector investments to meet regulatory demands. The paper highlights how the EU’s legislative actions are shaping the future of the payments market, with providers needing to navigate both challenges and opportunities as they adapt to this evolving landscape.
The use of cash in the euro area has been steadily declining. According to the European Central Bank (ECB), in 2022, cash accounted for 59% of point-of-sale (POS) transactions, down from 79% in 2016. As of 2022, cards (credit, debit, and network-based payments) were used in 46% of POS transactions, surpassing cash (42%). This decline is even more pronounced in specific countries such as the Netherlands and Finland, where cash transactions fell to 21% and 19%, respectively. As cash becomes less prevalent, the availability of cash at ATMs and branches is also diminishing, contributing to a cyclical pattern: less use leads to less availability, further reducing use. The primary users of cash tend to be older or less affluent groups, raising concerns about the financial exclusion of these vulnerable populations as digital payment methods take precedence.
The digitalisation of payments has led to a decline in traditional banking services. According to ECB, the number of bank branches in the euro area has decreased from 170,847 in 2002 to 108,772 in 2022, with significant variations across countries. For example, Germany experienced a drop from 50,868 branches in 2002 to 20,432 in 2022, while the Netherlands saw a decline from 4,269 branches to just 729. This trend is reflective of increasing consumer reliance on online services for banking and payments, marking a shift from physical to digital interactions in financial services.
As payments become increasingly digital, the prevalence of payment fraud is on the rise. The ECB and the European Banking Authority (EBA) reported that payment fraud in the euro area amounted to EUR 4.3 billion in 2022 and EUR 2.0 billion in the first half of 2023. Fraud techniques have evolved, with social engineering scams (e.g., impersonating family members or bank representatives) becoming more common. Fraudsters are also leveraging artificial intelligence (AI) to create convincing fake videos and audio, making it harder for consumers to identify scams. As payment systems become faster and more seamless, the potential for these frauds grows, posing a significant risk to both consumers and the broader payment ecosystem.
The fourth trend is that payments have gained geopolitical relevance. Without a smoothly functioning payment system, the European economy would come to a grinding halt. The COVID-19 pandemic and the United States’ use of the financial system for geopolitical purposes (e.g., sanctions against Iran and Russia) have made the European Commission (EC) and ECB acutely aware of their dependence on US players such as Visa and Mastercard. In fact, the ECB has attempted to nudge EU players toward creating an EU card scheme as an alternative to Visa and Mastercard, though this effort has so far been unsuccessful. Chinese payment systems are not widely used in the EU payments market – at least for payments not involving Chinese payers or payees – and the EC aims to keep it that way. A clear sign that the EC intends to defend EU interests on the international stage was President-elect Von der Leyen’s speech in the European Parliament Plenary during the presentation of her College of Commissioners and their programme. In this speech, she coined the term ‘Geopolitical Commission’.
Many of the new legislative measures aim to address the disadvantages and mitigate the risks that vulnerable consumers face due to the digitisation of payments. In other words, new technology brings new forms of service delivery, which require additional measures to protect or assist less digitally savvy consumers or those who, for other reasons, may not be able to use digital payment methods.
The EU’s Accessibility Act 2019 aims to make digital payments more accessible for vulnerable consumers, including those with disabilities (Accessibility Act, recital 2). It requires payment terminals and ATMs to incorporate text-to-speech technology and support personal headsets while ensuring services are designed to be understandable at an upper-intermediate language proficiency level (B2). Similar provisions are included in the PSR, which, along with the PSD3 directive, forms a cohesive legislative package. Under PSD2, Strong Customer Authentication (SCA) was introduced, and the PSR mandates PSPs to ensure SCA methods are accessible to people with disabilities, the elderly, and those with limited digital skills or access. Compliance with these rules requires significant investment from PSPs and adherence to deadlines, with the risk of reputational damage if measures are not properly implemented, as they are aimed at protecting vulnerable members of society.
The PSR proposal introduces new measures to combat payment fraud and allocate risk when fraud occurs. The three key provisions are:
Conditional reversal of liability for authorised (push) payment (APP) fraud: unlike under PSD2, where PSPs are only liable for unauthorised transactions, the PSR proposal addresses APP fraud. This occurs when a victim authorises a payment based on fraudulent grounds, such as social engineering or impersonation. In cases of bank impersonation fraud, the PSP will be required to refund the victim, except in cases of client fraud or gross negligence.
Extension of IBAN verification: the PSR original proposal extends IBAN verification to all credit transfers, making it mandatory for PSPs to confirm that the payee’s name matches the bank account number. This has meanwhile been implemented under the Instant Payments Regulation and is aimed at preventing fraudulent payments due to incorrect account details.
Improved fraud monitoring: PSPs are required to implement transaction monitoring systems to detect fraudulent activities. Effective monitoring must strike a balance: too lax monitoring can result in liability, while overly stringent monitoring can lead to false positives and privacy concerns.
These measures aim to alleviate fraud risks but require significant investment from PSPs to meet the new regulatory standards. Failure to comply could result in financial losses and reputational damage.
The European Commission (EC) is addressing the declining availability and acceptance of cash, which disproportionately affects vulnerable groups reliant on cash payments. A proposed regulation on the legal tender of euro banknotes and coins ensures universal access to cash services, requiring member states to maintain cash availability, including in rural areas. In line with this proposed regulation, Dutch lawmakers are proposing rules for banks to sustain ATMs, provide cash services, and prohibit related fees. The regulation also mandates that payees accept cash without additional charges, with exceptions only in rare cases, and requires member states to monitor and address issues with cash acceptance. PSPs must continue offering cash services even if commercially unviable, potentially collaborating to reduce costs or lobbying governments for financial support to meet these obligations effectively.
The digital euro, also known as a central bank digital currency (CBDC), is being introduced as a digital alternative to cash and aims to address several vulnerabilities in the evolving digital economy. The digital euro represents a claim on the ECB, rather than a commercial bank, ensuring that its value remains unaffected by the insolvency of financial institutions. It will operate similarly to existing payment schemes like Visa or Mastercard, with a rulebook under development.
Loss of a monetary anchor: the decline in cash usage risks losing the euro’s status as a monetary anchor. The digital euro is seen as a means to restore the balance between central bank money and private digital payment methods, as the trust in euro-denominated deposits relies on the ability to convert them into cash.
Vulnerability to third-country CBDCs and private stablecoins: the EC is concerned that third-country CBDCs (like China’s digital yuan) or private stablecoins could erode the ECB’s control over the EU currency. The introduction of the digital euro is seen as a way to safeguard EU sovereignty in the payment space and counteract the dominance of non-EU digital currencies.
Backup for other payment systems: as cash usage declines, the digital euro would serve as a backup payment method during disruptions, such as IT failures, a disturbance in telephone connection or cyberattacks, when other payment systems might fail.
The digital euro, as envisioned by the ECB, aims to combine the best aspects of cash and digital payments. It will be widely accepted, easy to use, free for basic transactions, usable across the euro area for all digital payments, and operable offline, ensuring inclusivity and high privacy protection. Designed for instant, secure, and risk-free payment settlement, the digital euro will have two variants: an online version resembling a bank account, where funds are held with PSPs, and an offline version mimicking cash (Digital Euro Regulation, art. 23q and ECB Stocktake, p. 13), stored on devices like smartphones and transferable in face-to-face transactions without internet connectivity. These features enable the digital euro to support a wide range of uses, including person-to-person, point-of-sale, ecommerce, and government payments, fostering an inclusive payment ecosystem (ECB Stocktake, p. 16).
The draft regulation provides for mandatory acceptance by granting legal tender status to the digital euro (Digital Euro Regulation, art. 7. ECB Stocktake, p. 11). This means that everyone must accept the digital euro as a means of payment at its full-face value. Additionally, payees are prohibited from charging fees for accepting the digital euro. A general exception applies to natural persons acting in the course of purely personal or household activities, as well as to small or medium-sized enterprises and charities that do not accept comparable digital means of payment.
The ECB emphasises the role of retail banks in distributing the digital euro under the draft regulation (ECB Stocktake, p. 18). PSPs must connect to the digital euro system, enabling clients to fund and defund their accounts. They must also implement ‘waterfall’ and ‘reverse waterfall’ functionalities to manage a cap on digital euro holdings. This cap has not yet been set but the numbers that have been mentioned are EUR 0 for businesses and EUR 3,000 for individuals. Excess payments will be transferred to a non-digital euro account (waterfall), and deficits will be covered from a connected non-digital euro account (reverse waterfall). Retail banks must offer digital euro accounts and basic services, and PSPs must handle KYC, AML checks, payment instrument issuance, and authentication to ensure compliance and accessibility (ECB Stocktake, p.18).
The remuneration model for retail banks offering digital euro services is restricted. Banks cannot charge individuals for basic digital euro payment services (Digital Euro Regulation, art. 17), but they may receive an inter-PSP fee from the merchant’s PSP. This fee, along with merchant fees, is capped at either the provider’s relevant costs plus a reasonable profit margin or the fees for comparable digital payment methods, ensuring merchants are not overcharged given the mandatory acceptance of the digital euro.
The ECB will play a pivotal role by providing essential technical infrastructure, including transaction settlement, pseudonymised user accounts, digital euro account numbers (DEANs), an alias look-up service, and a digital euro scheme. PSPs can use the ECB’s front-end services if they do not develop their own, with the ECB covering its operational costs.
The digital euro will be designed to ensure accessibility for vulnerable consumers, such as the elderly or those with limited digital skills. Post-office institutions and credit institutions will provide face-to-face digital inclusion support, helping these individuals with onboarding and using digital euro services in compliance with accessibility standards.
While the digital euro represents a major implementation effort for PSPs, its success remains uncertain. Some believe it may face limited uptake due to the strength of existing payment schemes. However, with mandatory acceptance and price caps, the digital euro could become a widely accepted, low-cost payment method, potentially having a significant commercial impact on PSPs and shaping the future of digital payments in the EU.
The introduction of alternative payment systems alongside the digital euro aims to break the dominance of US-owned card networks like Mastercard and Visa in point-of-interaction (POI) payments.
In March 2024, the new Instant Payments Regulation was officially published in the Official Journal of the European Union. Instant payments in euros must be completed within 10 seconds across the EU and offered 24/7 by all PSPs, with some minor exceptions. Additionally, PSPs are required to treat instant euro payments the same as non-instant payments in terms of available payment channels and charges. This regulation makes instant payments a low-cost, direct payment method across the EU, competing with Visa and Mastercard. The goal is to reduce reliance on US-owned card schemes, enhance competition, and improve services, while reinforcing the EU’s strategic autonomy.
While instant payments can help create POI solutions for EU cross-border payments, they may not be enough. For example, manually entering a restaurant’s bank details when ordering a pizza would slow down the process. Additionally, the restaurant would face challenges matching incoming payments to orders before preparing the food. To address this, the European Payment Initiative (EPI) was launched by 14 major retail banks from Germany, France, Belgium, and the Netherlands, along with two major acquirers. EPI aims to upgrade cross-border payments by adding a layer on top of SEPA instant payments, such as a QR code that triggers payment in the payer’s bank app. Other solutions include Request-to-Pay functionality and proxy lookup services. The payment solution is branded as Wero.
The EU is advancing Open Banking as an additional payment infrastructure, building on PSD2, which introduced payment initiation services (PIS) and account information services (AIS) in 2018. PIS enables providers (PISPs) to initiate payments from a user’s account at another PSP, offering a cost-efficient alternative to credit cards. However, PSD2’s implementation has been limited; APIs provided by banks (ASPSPs) often fall short, confirming only payment initiation rather than execution. This lack of assurance has hindered adoption.
To bridge the gap, the SPAA Scheme was developed, ensuring confirmation that the payment will indeed be executed, confirming that sufficient funds are available, and that the payment will not be blocked because of suspected fraud. The SPAA scheme also introduces new use cases and aligns with the proposed Financial Data Access Regulation (FIDA), which promotes Open Finance.
Emerging risks and trends are pushing private sector involvement in addressing societal and geopolitical issues, with significant implications for PSPs. As liability shifts from consumers to PSPs, service costs are likely to rise, and upgraded fraud monitoring systems will be required, while balancing privacy concerns. PSPs must also adjust services to ensure accessibility for vulnerable consumers, especially in distributing the digital euro, which could impact their commercial strategies. Additionally, PSPs are mandated to continue cash distribution, collaborate on fraud prevention standards, and may face challenges in the viability of legislator-driven initiatives like the EPI and SPAA. The digital euro will be legally enforced, potentially altering market dynamics, and PSPs must carefully assess its strategic and commercial importance.
An in-depth version of this text is available in the Journal of Payments Strategy & Systems.
This editorial piece was originally published in The Paypers` Global Payments and Fintech Trends Report 2025. The report compiles insights and expertise from leaders representing companies across the financial services spectrum and it delves into the latest innovations and trends in payments and fintech across key markets worldwide.
As an Attorney-at-law at Kennedy Van der Laan, Emanuel van Praag helps leading financial institutions navigate the complex and dynamic regulatory landscape. With over 15 years of experience in the financial industry, he has in-depth knowledge and practical insights into the legal and business challenges facing the sector, especially in the areas of Big Data, Open Finance, Payments (PSD2), Investment Services (MiFID II, AIFMD) and Crypto-Assets. Emanuel combines legal practice with academic research and teaching as a Professor of Financial Technology and Law at Erasmus School of Law. He publishes articles and books on the impact of emerging technologies on the financial sector and the law. He wrote a leading textbook on PSD2 and Open Finance.
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