By Milya Safiullina, Financial Institutions

The pilot project also shows that Europe is moving faster than expected to close the gap in digital payments with the US.

The move will test whether Europe’s top-down, regulation-first approach is more effective than the market-driven approach in the US, particularly regarding the growing demand for stablecoins.

There are reasons for thinking that is the case. By establishing a predictable regulatory framework upfront, Europe’s approach offers banks greater certainty and helps enlarge the benefits of interconnected digital-money developments, including both the digital euro and stablecoins, while minimising associated risks.

The ability of European banks to balance the integration of the digital euro with stablecoin innovation will impact their medium-term profitability, competitiveness and market positioning.

The total development costs for the pilot phase of digital euro are estimated by the ECB at around EUR 1.3bn with annual operating costs of EUR 320m from 2029. These costs would be borne by the Eurosystem.

The ECB expects that euro area banks’ digital euro investment, after potential savings, will total EUR 4bn to EUR 5.8bn over four years, about 3.4% of a leading bank’s IT upgrade budget. While this may appear manageable for larger banking groups with stronger balance sheets and greater scale, the costs remain significant, particularly for smaller institutions.

Digital euro adoption to reshape bank competitiveness and profitability across Europe

The decision on 30 October 2025 by the Governing Council of the ECB to advance to the next phase of the digital euro project followed the successful completion of the preparation phase, which began in November 2023.

The upcoming phase will focus on technical development, market engagement, and legislative coordination. According to the ECB’s current timeline, if European co-legislators approve the legal framework in 2026, a pilot project could begin by mid-2027, paving the way for a potential digital euro issuance in 2029.

The pilot project will be critical in defining how European banks adapt to this evolving monetary environment. It will enable banks to test the technical infrastructure, settlement mechanisms and interoperability with existing payment systems, while also providing valuable insights into consumer behaviour, liquidity management and deposit dynamics.

The pilot phase will thus serve as a proving ground for the operational readiness and strategic adaptability of banks, helping them anticipate regulatory expectations and align product offerings with emerging digital finance standards. Institutions that actively participate and invest early in this phase are likely to shape market standards, influence the design of future digital-currency services, and secure a stronger foothold in the next stage of Europe’s payments evolution.

Digital euro does present cost, risk and investment challenges

The flipside is that slower adoption or limited investment – particularly a problem for smaller institutions – could leave some banks at a competitive disadvantage to larger rivals, new fintech entrants and non-banking competitors amid pressure on traditional deposit-based funding.

Early strategic planning and phased investment will be vital for banks to capture the benefits – and manage risks - of the transition. Institutions that carefully integrate digital euro capabilities with existing IT systems and payment infrastructures can mitigate risks, capture efficiency gains, and maintain competitiveness, whereas banks that delay investment may face higher relative costs and market share erosion in payments in the medium term.

Appropriate holding limit for digital deposits remains key question to answer

The ECB’s pilot phase will also play a crucial role in determining the appropriate holding limit for the digital euro — a key factor that will influence how widely it is adopted.

We have concerns that excessively high limits could expose banks to large deposit outflows during periods of stress. The pilot will therefore be essential in assessing adoption potential and observing consumer behaviour toward digital deposits under real-world conditions.

For more detailed analysis, see Scope’s recent research: Europe’s digital finance transformation: implications for financial autonomy and market resilience (October 2025)