The European Central Bank warns that stablecoins could drain bank deposits – here’s what that means

European banks are losing the installment payments war. First came mobile apps, which took over their fees and transaction data, then digital payments and startups took more control. Now the European Central Bank is warning that stablecoins could take the really painful thing: their deposits.

This was stated by Piero Cipollone, Member of the Executive Board of the European Central Bank message Friday at a banking conference in Rome, and framed Digital euro As a structural answer.

“Even payments with traditional debit cards are becoming less popular. In fact, mobile payments are on the rise, and already exceed one in ten point-of-sale transactions in Ireland, the Netherlands and Finland,” he said.

“When their customers use mobile payments, banks typically pay higher fees than those associated with debit cards, and often do not receive any information about the payment, so they lose fees and data,” Cipollone added. “If the use of stablecoins increases in the future, banks will also lose retail deposits.”

He was talking to executives at Italian cooperative banks who had their own reasons to be nervous: Half of Italy’s cooperative bank branches serve cities with fewer than 10,000 people, where loss of payment data could hollow out local lending business.

Stablecoins add a new layer to this problem. They are privately issued crypto tokens tied to a 1:1 fiat currency – almost always the dollar – that allow users to hold funds and move them entirely outside of the banking system. Think of it as a digital dollar that you keep in an app rather than a bank account. Even fintech companies like PayPal, Stripe, and others rely on the traditional banking system in one way or another.

The global stablecoin market is worth approximately $300 billion per Devilama datawhich is almost entirely denominated in dollars.

Cipollone worries that growing adoption of stablecoins may make cash deposits irrelevant. Mobile payments incur bank and data fees; Stablecoins could cost them the deposit base they rely on to make loans.

Deposits are not just a number in a ledger. They are the raw materials that banks use to extend credit to businesses and homebuyers. Lower deposits mean lower lending – and for small co-operative banks with weak margins and local customer bases, this is an existential problem, not a spreadsheet problem.

Ironically, the reform the ECB is proposing is a digital euro: an electronic form of money issued by the government and distributed through, rather than in place of, commercial banks. Under the current design, banks hold customer accounts, earn interchange fees, and retain transaction data. The ECB has already appointed 36 payment providers – including Deutsche Bank, UniCredit and Revolut – for a 12-month pilot program starting in the second half of 2027.

The obvious objection is that a risk-free, government-backed digital wallet can drain deposits just like a stablecoin. The ECB has guardrails in mind: a digital euro will pay no interest, removing the incentive to deposit large sums into it, and imposing limits will limit the amount anyone can keep in a digital euro account. The bank’s financial stability analysis concluded that the design does not pose any material risk to the bank’s liquidity.

Critics were not completely convinced, as the European Central Bank repeated Stablecoin warnings The market has not slowed down visibly. But the legislative mechanism is now moving.

According to Cipollone, negotiations on a digital euro are already underway and were approved on July 9, with the first session taking place four days later. Lawmakers aim to reach an agreement by the end of 2026. The first release is scheduled for 2029.