Q23: Would payment service providers (PSPs) be compensated for distributing the digital euro?

The European Central Bank answers:

The Eurosystem is proposing a compensation model that would create fair economic incentives for all parties involved in the digital euro ecosystem. For banks and other PSPs, the compensation model addresses the operational costs of distributing the digital euro.

As is currently the case with other payment systems, PSPs distributing the digital euro would be able to charge merchants for these services. Price setting for merchants and PSPs would be subject to a cap, as proposed by the European Commission in its digital euro Regulation.

As with the production and issuance of banknotes, the Eurosystem would bear the costs of the establishment of the digital euro scheme and infrastructure. Moreover, the Eurosystem would aim to minimise additional investment costs for PSPs by reusing existing infrastructures as much as possible.

We answer them:

Existing large payment service providers with extensive KYC data will likely be able to monetize their existing customer relationships to profitably offer services related to the digital euro, while new and smaller businesses with higher initial costs may be effectively excluded by the fee cap and the uniformity of the service offering (KF4).

Given that the digital euro will be a liability of the central bank, payment service providers will not just compete mostly on costs; they will be able to do so at the expense of security as they are not ultimately liable for the digital euro (KF3). Thus, we predict that running systems cheaply with minimal regard for security— or even committing outright fraud at the expense of the central bank— will be the competitive drivers among private digital euro payment service providers.