In the coming weeks, the European Central Bank (ECB) is expected to make a decision to advance the development of the retail central bank digital currency (CBDC) to its next phase. In anticipation of this, Spanish banks formed a working group last year to undertake a proof of concept (PoC) aimed at integrating a potential digital euro. It’s worth noting that this initiative was independent of any central bank, showcasing the proactive approach of Spain’s financial institutions. Recently, the results of these digital euro trials were announced, with a particular focus on leveraging Bizum, a bank-owned payments app that enjoys widespread use among half of Spain’s population.
The collaboration involved participation from virtually all major banks in Spain, including Santander, BBVA, CaixaBank, and Sabadell. In addition to the banks, payment infrastructures like Iberpay, Bizum, and Redsys were also actively involved.
Up until now, the ECB has primarily engaged in high-level discussions about the CBDC business model. Banks are poised to earn revenue through capped merchant services fees, and pending draft legislation compels their participation. Consequently, banks are keen on minimizing the considerable costs associated with integrating the digital euro. This rationale underscores the importance of making the most of existing infrastructure wherever possible.
The trials have revealed the potential for reusing existing components, particularly those from Bizum, contingent on the final design of the digital euro. Bizum, launched in 2016, links phone numbers and email addresses with bank accounts, simplifying peer-to-peer (P2P) payments. Over time, it expanded to encompass e-commerce payments and QR payments at physical point-of-sale locations. The plan is for Bizum to establish connections with other European services. Multiple aspects of Bizum, such as user registration, authentication, transaction processing, and fraud prevention, can be repurposed. The familiarity of the interface and Bizum’s extensive user base could facilitate the adoption of the digital euro.
Spanish banks have recognized the significance of offering a similarly straightforward experience for an offline digital euro, potentially setting it apart. These financial institutions are enthusiastic about contributing to the development of the central bank digital currency.
Notably, the Spanish sector, led by Iberpay, has been actively exploring digital currency initiatives. Even before the ECB announced the digital euro project, Spanish institutions were delving into blockchain for smart payments in 2019. In 2021, this evolved into an examination of the coexistence of blockchain tokens and a CBDC. While other regions, like Germany, are accelerating work on tokenized deposits for B2B distributed ledger technology (DLT) payments, Spain has not yet elaborated further on this topic.