The Impact of a Programmable Euro on Banks’ Business Models

Anna Spengel
6 min readMar 8, 2021

The drivers for change in the banking sector nowadays must include blockchain technology, the associated processes and their infrastructure. In order to analyze and classify the impact that the introduction of the digital, programmable euro would have on the business model of commercial banks, one must highlight the affected areas of the business model and discuss the impact that a programmable euro could have on them.

Disruptive technologies offer manifested systems the chance to test themselves and rethink their own business model.(1)

Photo by Maryna Yazbeck on Unsplash

The programmable Euro as a Central Bank Digital Currency

Since October 2020, the ECB has also been looking much more closely into the opportunities and risks of introducing a Central Bank Digital Currency (CBDC), the digital and programmable euro. The report can be found here. At the ECB Forum for Central Banks in November 2020, Christine Lagarde spoke about the possible introduction of a digital euro and later announced that the central bank could introduce the digital euro in five years at the latest.

The digital euro is an unrestricted means of payment and is not physically held. At the same time, it fulfills the functions of money, analogous to cash. The FinTech Council at the German Federal Ministry of Finance describes the digital euro as a blockchain-based euro. The Distributed Ledger Technology would be the carrier platform for clearly assigning and managing the ownership of euro amounts.(2)

The digital euro only becomes programmable by adding a property related to its use. This property enables the integration of the euro into smart contracts, which correctly and automatically execute contract terms. The programmability of money flows in euros can also increase the level of automation and efficiency of the current payment processes.

The programmable euro is a digital euro that is equipped with additional programmable features and has an inherent logic.(3)

Banks will take on a new role as innovator and trustee

The key activities of a bank’s service provision include transformation services and the offering of various products. These are, in particular, loans, payment services and financial investments.
If the programmable Euro were introduced as a CBDC, Ulrich Bindseil points out that the ECB could take over the bank-side issuance of demand deposits to a certain extent. Although this would also increase the ECB’s income from the issuance of central bank money, at the same time the commercial banks’ money creation functions would be used to a lesser extent.(4) This would weaken the importance of money creation in banks’ business models and could shorten banks’ balance sheets.(5) If the loss in demand deposits is not offset by central bank reserves, the volume of credit could also potentially shrink.

Even the payment services could change. Siegfried Utzig, of the German Banking Association (BdB) emphasized in a 2020 speech that banks should build on their strengths, which lie in payments, should a CBDC be introduced. Banks should enable innovative payment solutions and provide support in developing them.(6) Lengthy and for customers expensive foreign payments, or trade financing in general, could become more efficiently with the help of a programmable euro.

In particular the development and implementation of a bridge solution between DLT networks and the current payment infrastructure is becoming more interesting for central banks. The money could be sent from commercial bank account to commercial bank account within seconds, the (central?) bank sending a signed confirmation to the smart contract after the transaction is complete.(7)

This process would bring a new key activity to banks. With a CBDC mapped on their systems and payment execution using CBDC, banks become fiduciaries for the claims that customers hold against the ECB and would still hold a supporting role through customer contact, infrastructure, and the management and execution of transactions within the financial system.(8) A greater focus on the role of a change agent also provides an opportunity for banks to reform their business model.

Managing resources will be crucial

The requirements for key resources of commercial banks would change and with them the scalability of the system should a programmable Euro be introduced. Key resources include the bank’s IT and payment systems, both for internal and external processes. There would need to be a redesign, altered maintenance processes and continuous improvement of the systems. New regulations and services such as KYC or anti-money laundering regulations would also need to be incorporated into these new processes. Should peer-to-peer payments and offline payments be enabled for customers, additional safeguarding features would need to be addressed to mitigate fraud risks.(9)

Banks’ cost structures and refinancing will change

Changes would also occur regarding the cost structure. In the event that demand for deposits are shifted to CBDC as a result of the introduction of the programmable euro, banks’ funding costs could rise. This is because, in order to protect their deposit base, they would possibly have to grant a more attractive interest rate on deposits, as refinancing via central bank loans or issuing bonds is more expensive than via demand deposits.(10)
If the mentioned possibility of sight deposits shifting into CBDC was to arise, banks would increasingly have to take this risk into account and sight deposits would have to be covered with a higher percentage of reserves.(11)
The cost structure would also change should transaction costs fall and, for example, real-time payments become the norm. By introducing them, the bank could enhance delivery-versus-payment transactions, especially securities transactions, by making them faster and more efficient. Using the programmability of a digital Euro, leasing or factoring payments could also be automated through smart contracts. Thanks to shorter settlement cycles, shortened processes and reduced transaction costs, the digital euro could contribute to a more efficient and more favorable range of services offered by banks.(12) Banks could take advantage of these features and at the same time minimize risks through the faster finality of payments.


Commercial banks could act as innovators and contribute to the development of an improved payment infrastructure, or develop a solution that is also compatible with current systems. Being a trustee for customers’ claims against the central bank could also result in a new service offering for banks. However, if liquidity were to be drained by the CBDC, the money creation function would be in danger of losing importance and there would be a risk that the volume of lending could decline. This is because funding costs and risk costs would rise, while there could be cost savings from more efficient processes and transactions. Revenues would also change as a result of the change in service offering, and higher profitability would be possible. There could be a change in customer structure due to changes in customer needs. However, with reduced lending volumes, the influence of banks on the economy would also decrease. Investments in applications, processes and programs would also be required to integrate the programmable euro into banking systems and possibly to comply with new regulations and security requirements. The current banking landscape is also in upheaval as a result of social and structural change, as well as megatrends such as digitalization. The programmable euro is just one part of the change drivers and another catalyst for change.

(1): Hellenkamp, D. (2018): Bankwirtschaft, 2 Auflage, Wiesbaden.
(2): FinTechRat beim Bundesministerium der Finanzen (2020): Der digitale, programmierbare Euro, Bundesministerium der Finanzen (Hrsg.), Stellungnahme 01/2020, Juni 2020, Berlin.
(3): Gross, J./ Bechtel, A./ Sandner, P./ von Wachter, V. (2020): Programmable Money and Programmable Payments, in: Medium, online: payments-c0f06bbcd569, abgerufen am 8.12.2020.
(4): Bindseil, Ulrich (2020): Tiered CBDC and the financial system, Europäische Zentralbank (Hrsg.), in: Working Paper Series, №2351, Januar 2020.
(5):Gross, J./ Schiller, J. (2020): A Model for Central Bank Digital Currencies — Do CBDCs Disrupt the Financial Sector?, in: Social Science Research Network, SSRN Scholarly Paper, Bayreuth.
(6): Utzig, S. (2020): Keynote Siegfried Utzig, Crypto Asset Conference 2020, 31.10.2020, Frankfurt a. M.
(7): Deutsche Bundesbank (2020): Money in programmable applications — Cross-sector perspectives from the German economy, Frankfurt a. M.
(8): Sandner, P./ Gross, J./ Schulden, P./ Grale, L. (2020): Digitaler, programmierbarer Euro, Libra und CBDCs — Auswirkungen digitaler Zahlungsinitiativen auf europäische Banken, In: ifo Schnelldienst, 73. Jahrgang, 10 / 2020.
(9): Bank for International Settlements (2020): CBDC — central bank digital currencies: foundational principles and core features, Report №1.
(10): Bindseil, Ulrich (2020): Tiered CBDC and the financial system, Europäische Zentralbank (Hrsg.), in: Working Paper Series, №2351, Januar 2020.
(11): Klein, M./ Gross, J./ Sandner, P. (2020): Der digitale Blockchain-Euro — Sind Central Bank Digital Currencies die Zukunft?, in: ifo Schnelldienst, ifo Institut — Leibniz Institut für Wirtschaftsforschung an der Universität München, Vol. 73, Iss. 03, S. 39–47, München.
(12): FinTechRat beim Bundesministerium der Finanzen (2020): Der digitale, programmierbare Euro, Bundesministerium der Finanzen (Hrsg.), Stellungnahme 01/2020, Juni 2020, Berlin.