Payment radar

Reinis Vecbaštiks, Modern Payment Expert, Latvijas Banka

Recent geopolitical developments have intensified the debate on the need for a digital euro and its role in reinforcing the strategic autonomy of the euro area in the realm of digital payments. Developments in the global economy, trade wars, and political decisions on economic matters have significantly heightened concerns regarding the euro area's dependence on card payment systems largely controlled by a limited number of non-European companies (in Latvia, Visa and MasterCard remain the dominant players in everyday transactions). Card payments have become the most prevalent method for in-person transactions, including in Latvia, with their usage following an upward path. Moreover, 13 out of the 20 euro area Member States lack local alternatives, while in 7 other Member States, existing solutions are unable to effectively compete with global players and extend services beyond national borders.

In the card payment market segment, including smartphone payments, where a handful of dominant players control the landscape and competition remains scarce, society and merchants find themselves in a disadvantageous position, facing both higher costs and limited choices. For example, merchant fees for accepting card payments doubled between 2018 and 2022. It disproportionately burdens small merchants whose digital payment acceptance fees can be as much as three to four times higher than those levied on larger retail chains.

The introduction of the digital euro would foster competition in the digital payments market, providing every euro area resident and merchant with a simple and efficient option for making and receiving digital payments. The digital euro would serve as a viable alternative to existing payment solutions, and combined with regulated fee caps, it would empower merchants by improving their position in terms of payment acceptance costs. The use of the digital euro by the public would be free of charge, fully embodying the principle of public good that applies to state-issued currency.

The digital euro would also open up new opportunities for European private payment service providers, enabling them to expand their services across the entire euro area. The European Commission's regulation for the digital euro seeks to grant it legal tender status, ensuring its widespread acceptance at points of sale. The legal tender status, combined with the free use of acceptance standards, would facilitate the establishment of a cohesive European payment network, effectively overcoming current obstacles faced by private providers in service development and deployment. This would offer end-users across the euro area a broader array of payment solutions.

This project would not only strengthen the European payments market but also enhance payment security and resilience in emergencies. By introducing the digital euro, the Eurosystem (consisting of the European Central Bank (ECB) and the national central banks of the euro area) seeks to provide the public with a reliable alternative to cash during times of crisis. The security of the digital euro is integrated both into every aspect of the payment system's development and core functionalities of digital euro. For example, the digital euro would be fully functional even without an internet connection. Moreover, if a payment service provider were to become unavailable, users could easily and securely transfer their access to another service provider.

Despite the Eurosystem's vision, the success of the digital euro's implementation will ultimately depend on how willing the public is to embrace and integrate it into their everyday transactions. While the digital euro holds the potential to offer a secure and efficient alternative to existing payment solutions, public opinion remains mixed and uncertain. A survey commissioned by Latvijas Banka and conducted in February 2025 reveals that only 26% of Latvia's population intend to use the digital euro, with 32% remaining undecided and 42% stating they would not use it.

The main reasons cited by those planning to use the digital euro include its convenience, free usage, innovation, security, and a desire to explore its potential. Conversely, the key deterrents cited include insufficient information, distrust in technology, a preference for maintaining cash as the primary form of payment, and satisfaction with the current payment solutions.

Therefore, for the digital euro to gain widespread adoption as a means of payment, it is crucial to raise public awareness and understanding of its advantages, as well as the objectives behind its implementation. This will be particularly challenging in Latvia, as we are already reaping, or will soon reap, many of the advantages that the digital euro will offer – far ahead of other euro area Member States. This is made possible by the development of instant payment infrastructure.

The implementation of the digital euro is a multifaceted and sensitive process, given that it touches on one of the most fundamental aspects of daily life – our money and everyday transactions. Consequently, the project is being implemented in a phased approach, with each phase spanning two years. Each phase is structured with clearly defined tasks and objectives, and only upon their successful completion the Governing Council of the ECB assesses the progress of the project and decides whether to proceed with the next phase.

The technical development of the digital euro within the Eurosystem and the formulation of the legal framework at the European Union (EU) level are advancing in tandem. The final decision on the issuance of the digital euro can only be made once the relevant regulation has been approved in the EU. The text of the regulation is presently under development, and any modifications to its content can also have a profound impact on the Eurosystem's proposal. Therefore, it is essential for the EU institutions to expedite the approval of the regulation, paving the way for the development and review of the final digital euro proposal by the Governing Council of the ECB. However, there is still a long road ahead before individuals and businesses can experience the digital euro in practice, a process that will unfold over the course of several years.

Edīte Grīnvalde, Payment Expert, Latvijas Banka

In an era where digital payments have become integral to daily life, their security and accuracy is of utmost importance. There are still instances where individuals make errors when providing payment information. Or, even more concerning, fraudsters may have tampered with the invoice details, redirecting payments to a fraudulent payee account.

Until now, verifying the recipient's name and account number has been both the responsibility and the discretion of individual commercial banks, with the choice to either perform or omit this step. In Latvia, some commercial banks have already implemented this verification process for both intrabank transfers and instant payments.

On 5 October 2025, uniform regulations for verifying the payee and account number will be enforced across Europe. These regulations will establish mandatory rules and standards for the compulsory verification of both the payee and account number prior to initiating any payment (hereinafter the "payee verification"). This applies to intrabank payments, traditional payments to customers of other banks, instant payments, and also payments processed at commercial bank branches or ATMs.

It should be noted that this procedure does not affect the execution of the payment itself. The payer receives an informative alert notifying them of a discrepancy between the account number and the intended payee. The final decision lies with the payer – whether to proceed with confirming the payment for processing or to halt and cancel it entirely.

However, even when the alert is received, misunderstandings can arise and "false negative" notifications are possible. This can occur, for instance, when an institution's name is abbreviated (SRS for the State Revenue Service or LSRTC for Latvia State Radio and Television Centre) or when a partial name is provided ("Jānis Bērziņš" instead of "Jānis Pēteris Bērziņš"). Currently, a solution is under development, with thorough consideration given to how payment service providers (commercial banks, payment institutions, electronic money institutions, etc.) can address and manage such situations.

What is the payee verification?

The payee verification is a process that payment service providers must complete before authorising any payment. This involves verifying the alignment of the specified payee's bank account number (IBAN) with their name or other identifiers, such as a VAT number or legal entity identifier. The payee verification is conducted prior to every payment, even if it is the 10th transaction to the same payee, or when repeating the payment as a standard credit transfer after an instant payment is rejected for any reason.

The purpose of the payee verification is to ensure that the payer has information about the verification result before authorising the payment, in order to minimise the risk of fraud and reduce the likelihood of errors.

The payee verification is designed to be swift and efficient. Before the payer starts the payment, their payment service provider promptly sends a verification request to the payee's service provider. Subsequently, the payee's payment service provider cross-references the provided information with its records and responds with a "match", "mismatch", or "close match" status. The entire process is designed to be completed in no more than five seconds. It should be reiterated that the verification result does not affect the payer's right to proceed with the payment using the original payee information provided. It remains the payer's own responsibility.

The primary advantages of the payee verification are:

• Enhanced security. Verifying the payee's details before processing a payment mitigates the risk of fraud. This is particularly crucial in combating payment fraud, where fraudsters deceive individuals by tampering with invoice details to redirect funds to a different payee's account.
• Enhanced accuracy. The payee verification helps ensure that payments are directed to the correct payee, minimising the risk of errors and reducing the need for costly, time-consuming payment reversals.
• Consumer confidence. Awareness that the payee verification is performed may boost consumer confidence in digital payments, motivating a broader adoption of online and mobile banking services.

Although the payee verification offers substantial advantages, its implementation presents challenges for payment service providers. The implementation of the service entails considerable technical solutions, including the need for standardised communication between all payment service providers throughout Europe, as well as the integration of the payee verification across all payment initiation channels.

Latvijas Banka will ensure the verification of the payee's name/company name against the specified payee's account number (IBAN). Moreover, beginning in October 2025, it will provide interested payment service providers from other European countries with access to its instant verification service.

The payee verification represents a crucial advancement in payment security. This will enable payment service providers to offer their customers – individuals, businesses, and organisations – a service that verifies the alignment between the payee's first name, last name, company name, or, where applicable, the alignment of the identifier with the IBAN before authorising the payment. This is an additional security feature designed to reduce the risks of fraud and human error in payment processing. As of October 2025, the Instant Payments Regulation will mandate that payment service providers offer this service prior to authorising any SEPA payment. However, their customers will retain full discretion in deciding whether or not to proceed with the transaction.

Aleksandrs Antiņš, Head of the Cash Technology Division of the Cash Department, Latvijas Banka

In 2024, 1304 counterfeit euro banknotes and coins were detected in Latvia, including 593 and 711 counterfeit banknotes and coins respectively. Although the number of detected counterfeits has grown by 4% in comparison with 2023 (1248 counterfeits were detected in 2023, including 655 and 593 counterfeit banknotes and coins respectively), the value of counterfeits has decreased significantly (by 30%). In 2023, the value of all counterfeits totalled 39 920 euro, whereas in 2024, it was 27 802 euro. Both those values should be considered insignificant, and the chances of ever coming across a counterfeit are low.

The decline in the value of counterfeits is attributable to a notably lower number of counterfeit banknotes, with a particularly steep fall reported for the number of detected 20 and 500 euro banknote counterfeits.

2 euro coins remain the most commonly counterfeited in Latvia (663 and 544 counterfeit coins in 2024 and 2023 respectively), followed by 50 euro banknotes (243 and 224 counterfeit banknotes in 2024 and 2023 respectively) and 20 euro banknotes (149 and 212 banknotes in 2024 and 2023 respectively). 8 counterfeit 500 euro banknotes were detected in 2024 (35 in 2023).

Overall, 554 000 counterfeit euro banknotes were withdrawn from circulation in the euro area in 2024, of which 75% were 20 and 50 euro denominations. 18 counterfeits were detected per million genuine banknotes in circulation, which remains lower than before the pandemic (23 counterfeits per million genuine banknotes were detected in 2019; the historical low was registered in 2021, when 12 counterfeits per million genuine banknotes were detected).

Overall, the number of euro counterfeits has increased, and the European Central Bank's experts explain this increase by the low numbers of counterfeits observed during the pandemic. Nevertheless, the total number and proportion of counterfeits remain low and so do the chances of ever coming across a counterfeit.

For more details about developments in counterfeits in the euro area, see https://www.ecb.europa.eu/press/pr/date/2025/html/ecb.pr250221~c0d1113d2c.en.html.

A survey conducted by SIA Latvijas Fakti in February 2025 shows that 59% of the respondents consider euro to be a secure and difficult-to-counterfeit currency, while 25% believe in the opposite. In August 2024, 57% of the respondents claimed that euro was a secure currency, while 24% thought the opposite.

Although the number of euro counterfeits remains low, timely preparations to introduce cash improvements are underway in the euro area countries. Currently, work is ongoing on the designs of the next, third series of the euro banknotes, and the population of the euro area, including that of Latvia, will be invited to express their opinion. The final designs will be selected and the decision as to when to produce and issue the new banknotes will be taken in 2026.