The digital euro is the ECB project of a Central Bank Digital Currency (CBDC), a digital form of central bank money available to all the euro area citizens as well as cash. The ECB envisions the digital euro as being at the heart of the financial sovereignty of the Eurozone through a European digital instrument of payment, reducing reliance on non-EU payment intermediaries (e.g., Visa and Mastercard) and responding to the rise of U.S.-pegged stablecoins.

The project is currently at the preparation phase, which began in November 2023. The framework agreements are to prepare for readiness. ECB indicated that it continues to await legislative approval by the European Parliament and the member states. Aiming to receive parliamentary approval somewhere in the middle of next year, as preparation for a potential 2029 launch of the digital currency.

The Feedzai Partnership

European Central Bank’s (ECB) is now selecting partners with which it will develop its digital euro. Feedzai, a Portuguese artificial intelligence startup, is one of the shortlisting partners. A financial crime prevention expert, Feedzai constructs real-time machine learning technology to identify and prevent fraudulent payment transactions and risk management.

Its subcontractor PwC (PricewaterhouseCoopers) is employed by Feedzai to develop the core fraud detection and prevention platform for the European Central Bank’s (ECB) and its Digital Euro project, a “state-of-the-art” platform that is able to provide payment service providers (PSPs) with real-time fraud risk scores to aid in their own fraud controls on every digital euro transaction.

The final decision to reject a transaction will likely remain with the individual PSP, but the ECB central system provides an essential second line of defense against systemic crime and co-ordinated groups of fraudsters.

The four-year framework contract is valued at some €79.1 million (approximately $92 million) and has a maximum value of €237.3 million (approximately $278.69 million), but it can be extended to 15 years. This transaction is clear evidence of the degree to which big financial institutions like the ECB are relying on AI-born, end-to-end money crime and fraud platforms to safeguard next-gen payment systems. Feedzai’s platform is already handling roughly $8 trillion worth of payments annually for a variety of clients, including banks like Novobanco and Wio Bank, which speaks well of its entrenched position in the fintech security space.

The Core Components of the Digital Euro

The ECB released four more framework contracts to the major elements of the digital euro:

Capgemini, a French IT consultancy, was one of the other companies that were awarded a contract. Capgemini has been part of a collaboration, led by Giesecke+Devrient (G+D) and Nexi, that was selected to manage the “offline solution” aspect.

• “Offline Solution” Purpose: This is an essential feature that aims to enable the digital euro payments without an internet or power connection, just like cash, using specialized hardware or secure elements on a phone or card. It guarantees both privacy and resilience. Capgemini’s contribution to this collaboration is to aid the development and testing of the interfaces required.

Other Components: The remaining framework contracts that were issued contain areas involving:

• Alias Lookup (to make payments using an email address or phone number instead of an account number). It is a component that is important in the ability to provide a competitive user experience with existing payment providers.
• App and Software Development Kit (SDK). These contracts are essential since they will enable third-party payment providers (PSPs) and banks to integrate the digital euro into their existing online and mobile services to facilitate widespread acceptance.
• Secure Exchange of Payment Information.

The selection of a niche, AI-first vendor like Feedzai for fraud prevention underlines the high priority that ECB attaches to security and financial crime management for the future of the digital euro.

Why AI Fraud Detection is Necessary

The problem that drives the ECB to invest in an AI anti-fraud system for the Digital Euro is a combination of two very important elements: The first and most current problem is the scale and complexity of fraud in the digital age, which would have an instantaneous effect on the public’s trust in the Digital Euro.

• Cybersecurity Threats of a CBDC: A Central Bank Digital Currency like the Digital Euro is a gigantic, high-value target. Any successful breach—whether phishing, malware, counterfeiting, or data breachwould be on a systemic level and could erode public trust and confidence, which is fatal for a currency.
• Enormous Volume: With “tens of billions of transactions anticipated within the eurozone,” states Feedzai’s CEO, the enormous volume of payments simply cannot be handled by standard, manual fraud detection measures. An infrastructure must be in place to scrutinize every peer-to-peer (P2P) and peer-to-merchant (P2M) transaction in real-time for the risk of fraud.
• Adapting Criminal Tactics: Fraudsters and cybercrime elements constantly employ the latest technology, including AI itself (e.g., to create deepfakes for fraud), to develop ever more elaborate schemes to commit fraud. To combat “sophisticated fraud,” the defense must be equally sophisticated and keep pace with quick changes.
• Centralized Intelligence Requirement: ECB’s remedy, provided by AI firm Feedzai, will provide an aggregated fraud prevention and detection framework. It will augment the stand-alone banks’ (PSPs) risk management with a bird’s-eye view at the infrastructure level. The bird’s-eye view is necessary to detect the fraud rings and organized assaults that could extend across a number of banking systems.

The investment is also driven by the larger political and strategic question of the EU vision of monetary sovereignty and strategic autonomy.

• Reducing Reliance on Non-EU Payment Providers: One of the key objectives of the Digital Euro is to “reduce reliance on non-EU payment providers” such as Visa, Mastercard, and other tech giants, and “increase Europe’s strategic autonomy.”
• Building Trust as a Public Good: The Digital Euro is being designed as a public good and a central bank-backed currency that is “as secure as cash but fit for the digital age.” For this to be achieved, security and utmost protection from fraud and cyberattacks are firm cornerstones for the whole project.

By investing in AI, the ECB is actively building a state-of-the-art layer of security from day one to meet the gigantic challenge of financial crime in the digital age, providing trust and the way forward for a successful, sovereign digital currency.