The digital euro revolution: preparing for cross-border payments in Europe

Europe stands at the precipice of a payments revolution. With international transfers expected to increase five percent per year until 2027 ¹, businesses across the continent face mounting pressure to modernize their cross-border payment infrastructure. The digital transformation sweeping through European financial services isn't just changing how money moves – it's fundamentally reshaping how businesses compete in an increasingly interconnected marketplace.

For companies operating across European borders, the complexity of managing multiple currencies and payment systems has long been a significant operational burden. A typical 'standard' foreign exchange margin for a business account is over 2% even for amounts in excess of £50,000 with mainstream banks in the UK ². This reality makes finding efficient, cost-effective payment solutions not just a nice-to-have, but a critical business imperative.

The emergence of digital payment technologies and the potential introduction of a digital euro represent a watershed moment for European commerce. As 90 percent of central banks globally are currently working on developing a Central Bank Digital Currency ¹, businesses that prepare now will be best positioned to capitalize on the opportunities ahead.

The current state of European cross-border payments

Despite significant technological advances, cross-border payments in Europe remain surprisingly fragmented. With 195 countries all having their own payments systems, regulations, and levels of technological maturity ¹, navigating international transactions requires sophisticated infrastructure and deep expertise.

The good news? Payment speeds have improved dramatically. According to Swift data, 89 percent of payments that flow through the Swift network arrive at the destination bank within an hour, with half making it all the way to the beneficiary account in less than five minutes ¹. Yet speed alone doesn't solve all challenges.

Small and medium enterprises face particularly acute pain points. Foreign exchange conversion fees are often a lot more expensive for small businesses than payments themselves ². A transfer of a thousand US dollars could cost around £40 - over 4% of the amount ². These costs quickly erode profit margins, especially for businesses operating with single-digit margins.

The complexity extends beyond costs. Foreign payments often require more details and additional verification steps, and because of siloed systems, foreign payments are mainly done manually, taking hours and leading to numerous mistakes ². According to data analytics company LexisNexis, up to 50 percent of payments that don't complete or are delayed are due to simple data entry problems ¹.

Understanding the digital euro initiative

The European Central Bank's digital euro project represents one of the most ambitious financial infrastructure initiatives in modern European history. As part of a global trend where central banks are exploring digital currencies, Europe's approach focuses on creating a digital complement to physical cash that maintains the stability and trust of traditional currency while enabling instant, secure digital transactions.

Unlike cryptocurrencies, a digital euro would be backed by the European Central Bank, providing the same guarantee as physical euros. This distinction matters enormously for businesses that require stable, predictable payment mechanisms for their operations. The digital euro aims to combine the convenience of digital payments with the security and stability of central bank money.

For cross-border transactions within the eurozone, a digital euro could eliminate many current friction points. Instant settlement, reduced intermediary costs, and standardized payment protocols would transform how businesses manage their European operations. The potential for programmable money through smart contracts opens entirely new possibilities for automated payment flows and conditional transactions.

Technology driving the transformation

Blockchain technology is fundamentally transforming payment systems by addressing critical inefficiencies and limitations of traditional financial infrastructures ³. This technological revolution extends far beyond simple digitization – it's creating entirely new paradigms for how value moves across borders.

Automated agreements, or smart contracts, can handle complex financial transactions, including real-time currency conversions, with unprecedented efficiency and accuracy ³. These capabilities enable businesses to automate previously manual processes, reducing errors and accelerating transaction speeds.

The security advantages are equally compelling. Advanced encryption techniques protect transaction data, ensuring that only authorized participants can access sensitive financial information, while each transaction is permanently recorded on a distributed ledger, creating an unalterable and transparent financial trail ³.

Real-time payment systems are already demonstrating their economic impact. RTP systems are expected to generate $173 billion in additional economic output by 2026, according to the Center for Economic and Business Research ¹. This economic boost comes from reduced transaction costs, faster settlement times, and improved cash flow management.

Preparing your business for digital euro adoption

Successful preparation for the digital euro requires both strategic planning and practical implementation. Businesses need to assess their current payment infrastructure, identify gaps, and develop a roadmap for digital transformation.

Start by evaluating your existing payment systems and processes. Many businesses have already discovered the benefits of using AP automation, payment runs, and accounting system integrations for domestic payments ², but few solutions exist for SMEs when it comes to foreign invoices ².

Consider implementing multi-currency account capabilities now. Multi-currency accounts allow businesses to hold, receive, and send money in multiple currencies from a single account ⁴. This foundation will prove invaluable as digital currency adoption accelerates.

Invest in staff training and change management. The shift to digital currencies isn't just technological – it requires new skills and mindsets. Ensure your finance team understands both the technical aspects and strategic implications of digital currency adoption.

Benefits of early adoption

Early adopters of digital payment technologies consistently report significant operational improvements. Orlebar Brown, for example, saw a 66% increase in basket completion rates after modernizing their payment infrastructure ⁵. These improvements translate directly to bottom-line results.

Cost savings represent another compelling benefit. Orlebar Brown achieved a 50% reduction in commerce technology ownership costs through platform consolidation ⁵. For businesses managing multiple currencies and payment systems, similar efficiencies are achievable.

Competitive advantage accrues to those who move first. As 75% of consumers use mobile banking apps and digital wallets for their daily transactions ⁶, businesses that offer seamless digital payment experiences will capture greater market share.

Operational efficiency improvements extend beyond direct cost savings. Automated reconciliation helps providers track payments, identify discrepancies, and ensure accurate revenue reporting ⁷. These capabilities become even more valuable when managing cross-border transactions.

Challenges and considerations

Despite the promise of digital transformation, businesses face real challenges in modernizing their payment infrastructure. Integration complexity tops the list of concerns for many organizations. Legacy systems often weren't designed for real-time, multi-currency operations, requiring significant technical work to upgrade.

Regulatory compliance adds another layer of complexity. Businesses need to comply with regulatory requirements and protect their payment systems from fraud and cyber threats ⁸. The evolving regulatory landscape around digital currencies requires constant vigilance and adaptation.

Currency volatility remains a persistent challenge. Over the last 12 months, Pound Sterling has weakened by almost 20% against the US Dollar ². While digital currencies may offer some stability advantages, businesses still need robust hedging strategies.

Technical infrastructure requirements shouldn't be underestimated. Decentralized blockchain networks operate continuously, transcending traditional banking hours and geographical limitations ³, but implementing systems that can leverage these capabilities requires significant investment.

The role of payment service providers

Modern payment service providers play a crucial role in bridging the gap between current systems and future digital currency infrastructure. The global B2B payments market, which reached US$ 1,108.6 Billion in 2023 ⁸, continues to evolve rapidly as providers introduce new capabilities.

Leading providers are already preparing for digital currency integration. Several key players are leveraging blockchain technology to offer innovative payment solutions which are secure, transparent, and tamper-proof ⁸. These early investments position them well for digital euro adoption.

The integration of enterprise resource planning (ERP) systems to manage operations, including finance, supply chain, and customer relationship management, is creating a positive market outlook ⁸. This holistic approach to financial operations becomes even more valuable in a digital currency environment.

For businesses evaluating providers, key considerations include global reach, currency support, and technical capabilities. Stripe Inc., for example, has a strong global presence in over 40 countries and supports payments in over 135 currencies ⁹. This breadth of coverage proves essential for businesses with international operations.

Building a future-proof payment strategy

Creating a payment strategy that can adapt to digital currency adoption requires careful planning and strategic partnerships. Start by identifying your core payment flows and understanding where digital currencies could provide the most value.

Consider implementing a phased approach. Begin with optimizing your current cross-border payments using modern financial services platforms. A growing number of companies are using specialist currency providers, fintechs, or neo banks, which can save up to 80% on foreign payments ².

Develop clear metrics for success. Whether focusing on cost reduction, transaction speed, or operational efficiency, establish baselines and track improvements. Only 4% of UK exporters surveyed by the British Business Bank said they manage foreign currencies ², highlighting the opportunity for competitive advantage through better currency management.

Build flexibility into your infrastructure. The digital payment market is expected to grow at a CAGR of 15.62% during 2024-2032 ⁹, indicating rapid ongoing change. Systems that can adapt to new payment methods and currencies will prove most valuable.

Why Airwallex stands out for European businesses

As businesses navigate this transformation, choosing the right financial services partner becomes critical. Airwallex has emerged as a leading solution for companies seeking to modernize their cross-border payment capabilities while preparing for digital currency adoption.

Airwallex's global account infrastructure provides businesses with local currency accounts in multiple markets, eliminating many traditional cross-border payment challenges. The platform's ability to hold, receive, and send money in multiple currencies from a single account streamlines operations significantly ⁴.

The company's track record speaks to its reliability. TradeBridge, a fintech offering multi-currency funding to businesses in the eCommerce, healthcare, and corporate sectors, uses Airwallex to power its intuitive, multi-currency finance platform ¹⁰. This partnership demonstrates Airwallex's capability to support sophisticated financial operations.

For European businesses specifically, Airwallex offers dedicated Euro account capabilities that provide local payment rails and competitive exchange rates ¹¹. This infrastructure positions businesses well for both current needs and future digital euro integration.

The platform's API-first approach ensures seamless integration with existing business systems. TradeBridge uses Airwallex's Global Accounts and Platform APIs and Embedded Finance products ¹⁰, demonstrating the flexibility to support various business models and technical requirements.

Looking ahead: the next five years

The transformation of European cross-border payments will accelerate dramatically over the next five years. With the B2B payments market expected to reach US$ 2,117.0 Billion by 2032, exhibiting a growth rate of 7.3% during 2024-2032 ⁸, the scale of opportunity is immense.

Digital currency adoption will likely follow a gradual path. Initial implementations may focus on wholesale transactions between financial institutions before expanding to retail and corporate use cases. Businesses that build capabilities now will be best positioned to capitalize on each phase of adoption.

The convergence of multiple technologies – blockchain, artificial intelligence, real-time payments, and digital currencies – will create entirely new possibilities for financial operations. Major market players are already leveraging technologies such as blockchain, artificial intelligence, machine learning, and the Internet of Things for making transactions more convenient ⁹.

Regulatory frameworks will continue evolving to support innovation while maintaining stability. Regulators have been pushing for more fairness and transparency in international payments ², a trend that will accelerate with digital currency adoption.

Conclusion

The digital euro revolution represents both a challenge and an opportunity for European businesses. Those who prepare now, investing in modern payment infrastructure and building capabilities for multi-currency operations, will find themselves at a significant competitive advantage.

The path forward requires careful planning, strategic partnerships, and a willingness to embrace change. With international transfers expected to increase five percent per year until 2027 ¹, the urgency for action is clear.

For businesses seeking to navigate this transformation successfully, Airwallex offers a proven platform that combines current operational excellence with future-ready capabilities. By providing comprehensive multi-currency account functionality, competitive pricing, and robust API integration options, Airwallex enables businesses to optimize their payment operations today while building the foundation for tomorrow's digital currency landscape.

The digital euro revolution isn't coming – it's already beginning. Businesses that act now to modernize their payment infrastructure and embrace digital transformation will be the ones that thrive in Europe's digital future. With the right strategy, technology, and partners, the complexity of cross-border payments can transform from a burden into a competitive advantage.

FAQ

What is the digital euro and how will it impact cross-border payments in Europe?

The digital euro is a proposed central bank digital currency (CBDC) that will serve as a digital version of the euro, issued and backed by the European Central Bank. It will revolutionize cross-border payments by enabling instant, low-cost transactions across European borders without the need for traditional correspondent banking networks. This will significantly reduce settlement times from days to seconds and lower transaction costs for businesses operating across Europe.

Why should businesses prepare their payment infrastructure now for the digital euro?

With international transfers expected to increase 5% per year until 2027 according to J.P. Morgan research, businesses need to modernize their payment systems to remain competitive. Early preparation allows companies to integrate digital payment capabilities, establish multi-currency accounts, and build the technical infrastructure needed to seamlessly adopt the digital euro when it launches. Waiting until implementation could result in operational disruptions and competitive disadvantages.

How can multi-currency accounts help businesses prepare for digital currency adoption?

Multi-currency accounts enable businesses to hold, manage, and transact in multiple currencies from a single platform, providing the foundational infrastructure needed for digital currency integration. These accounts offer real-time currency conversion, reduced foreign exchange costs, and streamlined international payment processes. By establishing multi-currency capabilities now, businesses can more easily incorporate digital euros alongside traditional currencies when the CBDC becomes available.

What are the key benefits of the digital euro for European businesses?

The digital euro will offer European businesses instant settlement, reduced transaction costs, enhanced transparency, and improved cash flow management. Unlike traditional cross-border payments that can take 2-5 business days, digital euro transactions will settle in real-time. Businesses will also benefit from lower fees, better exchange rate transparency, and the ability to program smart contracts for automated payments and compliance.

How large is the cross-border payments market and what growth is expected?

The global cross-border payments market is experiencing significant growth, with international transfer volumes expected to increase by 5% annually through 2027. Market research indicates that the European mobile payment market is also expanding rapidly, driven by digital transformation and increasing demand for seamless international commerce. This growth underscores the importance of businesses preparing their payment infrastructure for digital currency adoption.

What steps should Canadian businesses take to prepare for European digital payment expansion?

Canadian businesses looking to expand into European markets should establish euro accounts, implement multi-currency payment solutions, and understand European ecommerce payment trends. Setting up proper financial infrastructure now will position businesses to take advantage of the digital euro when it launches. This includes partnering with payment providers that offer European banking capabilities and staying informed about regulatory developments in digital currency adoption.

Citations

1. https://www.jpmorgan.com/payments/payments-unbound/volume-3/cross-border-payment-modernization

2. https://smexpo.co.uk/news/why-are-international-payments-still-broken-for-smes

3. https://www.bytefederal.com/byteu/13/157

4. https://www.airwallex.com/ca/blog/what-is-a-multi-currency-account

5. https://www.shopify.com/be/case-studies/orlebar-brown

6. https://www.airpayfintech.com/

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8. https://www.imarcgroup.com/b2b-payments-companies

9. https://www.imarcgroup.com/top-digital-payment-companies

10. https://www.airwallex.com/ca/case-studies/tradebridge

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