Desirée Buchholz, Editorial Director of flow: Thomas, in March this year, the Eurosystem set out a comprehensive strategy for the future of European payments.¹ Why did you feel this was needed?

Thomas Vlassopoulos, Director General Market Infrastructure and Payments at the European Central Bank (ECB): The Eurosystem has long had a retail payments strategy, which it relaunched in 2019. It was ambitious but obviously limited to retail payments. Over time it became evident that we needed a broader vision across use cases. Two developments drove this: technology, especially tokenisation, and the geopolitical environment.

Tokenisation may transform financial markets and payments, and it raises questions about what the settlement assets will be in a tokenised world. We felt it was important to provide clarity on how we at the ECB see this world developing.

In parallel, the geopolitical environment has sharpened minds in Europe and across the globe on the need for strategic autonomy for payments. Payments are critical infrastructures, and we need to make sure we are sovereign in our ability to ensure payment continuity and cybersecurity across retail, wholesale and cross-border payments.

Desirée: How would you describe the key objectives of the strategy?

Thomas: Our comprehensive payments strategy has four aims. First, central bank money must retain its anchoring role so that the ECB can fulfil its mandates for monetary policy, financial stability and the smooth functioning of payment systems. Second, Europe needs strategic autonomy and sovereignty in payments. Third, we need an integrated, innovative and competitive payments system. That is a delicate balance, especially in Europe’s fragmented payments landscape: innovation requires investment that must generate returns, without restricting competition.

Desirée: How does the ECB address this balancing act?

Thomas: One element here is tokenisation. We believe it offers a clear promise for integration in Europe, as it allows us to leapfrog from a fragmented landscape to one that can be integrated from the outset, if done right. This is why the strategy supports a European ecosystem of digital financial assets, including the digital euro² on the retail side and tokenised central bank money for wholesale use.

Desirée: You mentioned four strategic goals. What’s the fourth?

Thomas: Yes, indeed. The fourth strategy supports the international role of the euro for trade and financial transactions. This requires continuously evolving our state-of-the-art infrastructures to make sure they remain fit for purpose. In the cross-border space, this includes all our initiatives around achieving the goals of the G20 roadmap to make international payments faster, cheaper, more transparent and accessible.

“Ultimately, tokenisation needs to be market-driven”
Thomas Vlassopoulos, Director General Market Infrastructure and Payments, ECB

Desirée: As we speak, almost six months have passed since the strategy was launched. Where has progress been made since March? And what’s the time horizon of the strategy?

Thomas: There is no single timeline because the components have different horizons. Some initiatives linked to strategic autonomy are urgent. There is a window of opportunity for Europe, but it is not open forever. This is why the digital euro has a clear timeline, as do Pontes and Appia – our initiatives around tokenisation which we can speak about in more detail later.

But let me highlight one thing: the Eurosystem can only provide the enabling conditions within its mandate, including central bank money in tokenised form, and act as a catalyst and advocate. Ultimately, tokenisation needs to be market-driven.

Desirée: Do you see the market – namely financial institutions – stepping up?

Thomas: Yes. There are many market initiatives, although scale is still a challenge. There is more work to do to win over corporate issuers and investors, but the interest in Pontes suggests strong market engagement and a promising direction. This is also backed by government initiatives: on 9 July, the Eurogroup+ published a statement on digital finance showing a clear appreciation of the potential of tokenisation and digital finance for Europe’s financial system.³

Desirée: How will corporates and consumers experience the benefits of this strategy over time – including in areas such as cross-border payments, where clients often face the greatest complexity?

Thomas: For corporates, payments within Europe are already quite efficient in terms of cost and speed. So, for intra-Euro payments, I believe the next step will now be around better integration into business-wide and treasury-related processes, including richer information and standardisation enabled by the ISO 20022 migration.

When it comes to cross-border payments outside Europe, extended operating hours and the interlinking of faster payments systems should make payments quicker, more cost-efficient and more transparent for businesses and consumers alike. In May, we published a roadmap for extending the operating hours of T2, our real-time gross settlement component of TARGET Services.⁴ The US Federal Reserve, for example, has also announced its intention to expand the operating days for Fedwire Funds Service and National Settlement Service.⁵

Desirée: We have reported on the ECB’s plans to interlink its TARGET Instant Payment Settlement (TIPS) with India’s Unified Payments Interface (UPI) and Project Nexus, led by the Bank for International Settlements (BIS). What’s the status of these plans?

Thomas: UPI is the world’s largest fast payment system, and its interlinking with TIPS is progressing well. As you rightly said, we are also working to connect TIPS with Nexus Global Payments, which covers six fast payment systems across the Asia-Pacific market.

Within Europe, the Swiss Interbank Clearing Instant Payments system is in the pipeline for interlinking.⁶ In parallel, the Norwegian krone⁷ and Icelandic króna⁸ are being onboarded to TIPS directly, following the example of the Danish krone and the Swedish krona⁹, which are already live. We are also exploring interlinking with other partners. I cannot disclose names yet, but we prioritise corridors that matter for European exporters, importers and remittances and corridors that are currently not well served.

Desirée: As you mentioned, the strategy emphasises a robust European market for tokenised euro-denominated settlement assets based on EU infrastructure. How does the ECB contribute to this goal?

Thomas: Pontes is our first contribution – and the go-live is today, 21 September, as this interview gets published. With Pontes, we enable transactions on distributed ledger technology (DLT) platforms to be settled in central bank money, giving institutional investors confidence to engage in tokenisation without price volatility or risk-limit constraints in the settlement asset they use. It also helps to address the interoperability challenge: there are several DLT networks, and – to ensure that an investor can sell digital assets on one network and buy on another – you can either connect those technically or via a common settlement asset. Pontes does the latter.

Desirée: How does Appia fit into the picture?

Thomas: Appia complements Pontes. While Pontes focuses on settlement infrastructure, Appia brings together financial market participants and DLT platform operators to explore common approaches and requirements for the tokenised ecosystem. Lessons from Appia will help inform the future evolution of Pontes and support the development of a scalable and interoperable European tokenised financial ecosystem.

Desirée: Other regions, especially the US, place more emphasis on stablecoins, which are the most widespread form of tokenised settlement asset today. So far, the vast majority of stablecoins are denominated in US-dollar. As commercial banks are making their investment decisions around digital assets, they tend to prioritise initiatives that have the potential to scale quickly – in order to develop use cases for clients quickly. How does the ECB observe this development?

Thomas: Our strategy makes clear that central bank money must remain the anchor, also in a tokenised world. A tokenised form of central bank money is therefore needed as a safe settlement asset. This does not mean it needs to be the only one. Private settlement assets could include tokenised deposits and EU-governed, properly designed and regulated euro-denominated stablecoins.

Stablecoins could have useful applications, especially in underserved cross-border corridors. They can be exchanged quickly without requiring a relationship between sender and receiver.

But let’s be clear. Currently, the vast majority of stablecoin transactions involve the trading of crypto assets. Stablecoins have not reached scale in payments yet and there are good reasons for this. For example, for large, time-critical wholesale transactions, price fluctuations are an important limitation.

“Stablecoins still need to prove their benefits for payments in terms of speed and cost”

Desirée: But in the traditional world, you also must deal with FX fluctuations when you pay cross-border.

Thomas: For transactions involving more than one currency, yes, but with stablecoins you have market risk even in the same currency. And on top you have the credit risk of the issuer. Ultimately stablecoins still need to prove their benefits for payments in terms of speed and cost. At some point in the payment chain, there will be a conversion to fiat currency. So, once you consider the end-to-end transaction with all the checks associated with anti-money laundering and countering the financing of terrorism, stablecoin transactions are not free of the pain points that you have in cross-border payments.

Desirée: What about tokenised deposits?

Thomas: We see them as a promising private settlement asset. The challenge is transferability across banks. Pontes will provide a native tokenised settlement asset which the industry can build on. Project Agorá – driven by the BIS – is also important because it applies tokenised deposits in a cross-border public-private setting. In July, the first real-value test transactions took place, so this is making progress.

Desirée: Let’s put it more broadly: how do you see the roles of central banks, commercial banks and corporates evolving with tokenisation and DLT?

Thomas: The aim should be to replicate the two-tier structure of the current monetary system. The central bank provides the first tier: the safe settlement asset. Private actors build on that to provide private settlement assets and services at scale. Corporates need to be brought into the process early, even if much of the initial momentum comes from the financial side of the ecosystem.

Desirée: Many initiatives in payments require not only infrastructure changes, but also adaptation in client processes and behaviours. How does the ECB think about supporting adoption for financial institutions and corporates?

Thomas: Early engagement is essential, as is demonstrating the benefits. If corporates only see adjustment costs without a clear upside, the case is not compelling. Our communication channels with the financial industry are well established. When it comes to engaging with corporates, central banks and commercial banks jointly need to identify their pain points and design initiatives that address them. In retail payments, the Euro Retail Payments Board has brought the demand side – including corporates and consumers – together with the supply side for more than a decade. For tokenisation, this is one part of what we aim to do under Appia.

“Instantaneous settlement allows for a much more efficient use of liquidity and collateral”

Desirée: As payments become faster and more integrated, what role will real-time and 24/7 processing play?

Thomas: The direction is clearly towards more real-time settlement and 24/7 availability. Retail payments in Europe already operate 24/7, and wholesale opening hours are being extended. Instantaneous settlement allows for a much more efficient use of liquidity and collateral. But we need to acknowledge that real-time settlement needs to be prefunded, which is costly and creates a large demand for liquidity. So, a 24/7 environment raises questions about how financial institutions, and ultimately central banks as liquidity providers, manage liquidity outside normal business hours.

Desirée: Are you seeing stronger uptake of TIPS compared with traditional settlement channels?

Thomas: Yes. Following the entry into force of the EU Instant Payments Regulation in January 2025¹⁰ and especially with the introduction of the requirement to be able to initiate instant payments in October 2025, instant payment traffic is clearly increasing, reaching record highs almost month after month. There is some evidence that volumes are moving from real-time gross settlement to TIPS. More growth should come as instant-payment-based solutions become more ubiquitous, including at the point of sale.

Desirée: Wrapping up, where do you see the biggest opportunities for the European payments system if the strategy is successfully implemented?

Thomas: The biggest opportunities are in three areas: improving financial integration and efficiency in Europe, including through tokenisation; ensuring strategic autonomy in retail, wholesale and cross-border payments; and, consequently, strengthening the role of the euro in global payments and the broader financial landscape.

Image: Courtesy of the ECB

Sources

¹ See Eurosystem sets out comprehensive strategy for future of European payments at ecb.europa.eu
² See Digital euro at ecb.europa.eu
³ See Statement of the Eurogroup+ on digital finance at consilium.europa.eu
⁴ See Eurosystem moves toward extending T2 operating hours at ecb.europa.eu
⁵ See Federal Reserve announces intent to expand operating days for Fedwire Funds Service and National Settlement Service at frbservices.org
⁶ See ECB and SNB explore link between instant payments systems at ecb.europa.eu
⁷ See Norway joins TIPS, adding Norwegian krone to Eurosystem’s instant payment service at ecb.europa.eu
⁸ See Iceland joins TIPS for instant payments at ecb.europa.eu
⁹ See Cross-currency payments between the euro area, Denmark and Sweden at ecb.europa.eu
¹⁰ See Instant Payments Regulation at ecb.europa.eu