Summary
- On Friday, ECB board member Cipollone cautioned that the rise of stablecoins could lead to a significant loss of retail deposits for European banks, in addition to the fees and transaction data they are already ceding to mobile payment services.
- Currently, two-thirds of card transactions in the eurozone are processed through non-European systems, and 13 out of 21 eurozone nations lack their own national card systems.
- The ECB has identified 36 payment service providers for a digital euro pilot program set to commence in the latter half of 2027, shortly after the European Parliament voted 416 to 169 to initiate formal legislative discussions.
European banks are gradually losing ground in the payments landscape. Initially, mobile applications began siphoning off their fees and transaction data, followed by digital payment platforms and startups gaining further control. Now, the ECB has issued a warning that stablecoins might take away a crucial asset: their deposits.
Piero Cipollone, a member of the European Central Bank's executive board, conveyed this concern on Friday during a banking conference held in Rome, presenting the digital euro as a potential structural solution.
“Even conventional debit card transactions are witnessing a decline in popularity. Indeed, mobile payments are gaining traction, already accounting for over 10% of point-of-sale transactions in Ireland, the Netherlands, and Finland,” he noted.
“When customers opt for mobile payments, banks typically incur higher fees than those linked to debit cards and often lack access to payment information, resulting in a loss of both fees and data,” Cipollone added. “Should the usage of stablecoins rise in the future, banks will also experience a decline in retail deposits.”
He addressed Italian cooperative bank leaders, who have their own reasons for concern: around half of Italy's cooperative bank branches cater to communities with populations under 10,000, where the loss of payment data could severely impact local lending activities.
Stablecoins introduce an additional complication to this issue. These privately issued crypto tokens are pegged 1:1 to a fiat currency—most commonly the dollar—allowing users to manage and transfer money outside the traditional banking framework. Think of them as a digital dollar stored in an app rather than in a bank account. Even fintech companies such as PayPal and Stripe depend on the existing banking infrastructure in some capacity.
The worldwide stablecoin market is approximately $300 billion, according to DefiLlama data, and is predominantly dollar-based.
Cipollone expressed concern that widespread adoption of stablecoins could make cash deposits irrelevant. While mobile payments impose costs on banks in terms of fees and data, stablecoins may jeopardize the deposit base that banks require to facilitate loans.
Deposits are not merely figures in a ledger; they are essential resources that banks utilize to extend credit to both businesses and homebuyers. A reduction in deposits translates to diminished lending capacity—and for small cooperative banks that operate on narrow margins and rely on local clientele, this poses a critical threat, not just a numerical issue.
Ironically, the ECB's suggested remedy is a digital euro: a government-backed electronic cash form that is distributed through commercial banks rather than replacing them. In the proposed framework, banks would manage customer accounts, earn interchange fees, and retain transaction data. The ECB has already enlisted 36 payment providers—including Deutsche Bank, UniCredit, and Revolut—for a 12-month pilot that is set to begin in the latter half of 2027.
One notable concern is that a risk-free, government-supported digital wallet could potentially withdraw deposits just as effectively as a stablecoin. The ECB has safeguards in place: the digital euro will not yield interest, thus eliminating the incentive for individuals to hold large amounts in it, and there will be limits on the amount that can be maintained in a digital euro account. The bank's own analysis of financial stability has determined that this design does not pose a significant risk to bank liquidity.
However, critics remain unconvinced, and the ECB's ongoing warnings about stablecoins have not noticeably deterred market activity. Nonetheless, legislative progress is being made.
According to Cipollone, discussions regarding the digital euro have already commenced following approval on July 9, with the first session taking place four days later. Lawmakers aim to finalize a deal by the end of 2026, with the first issuance anticipated in 2029.