No small change: Italy pushes for a fee-free digital euro under €10

Italy has proposed exempting digital euro payments under €10 from merchant fees altogether, with an EU diplomat describing the plan as a merchant service charge cap of up to €0.02 for low-value transactions, such as espresso, with Italy open to a "net zero" fee for that band. The proposal is understood to have the backing of the European Central Bank and arrives as EU institutions negotiate the final terms of the Digital Euro Regulation, with the next round due on 10 September 2026.

If the proposal survives negotiation, the exemption would strip out one of the largest recurring costs small merchants carry on everyday transactions, and hand the ECB's own payment rail a pricing advantage that international card networks may not be able to easily match. The digital euro is planned to have legal tender status, which would give it great legal impact on the EU.

Small merchants, little espresso

While hidden from consumers, small merchants pay three to four times more in card fees than larger merchants, according to ECB analysis, because they lack the negotiating leverage large retail chains have with Visa and Mastercard. The €10 threshold targets the transaction band where that gap hurts those business with popular small purchases: morning espresso, transit fares, convenience purchases. A fixed processing fee sips a significant piece of an espresso sale, so removing that does much more for a cafe's margin than the same percentage cut applied to a €200 sale.

Negotiations going slowly (over coffee?)

The Digital Euro Regulation has been in trilogue since 13 July 2026, following the Council's position adopted in December 2025 and the Parliament's position adopted in mid-2026. The two institutions disagree on how merchant fees should be set once the digital euro launches.

The Council wants national-level caps with a firm ten-year limit on the transitional fee model before it shifts to cost-based pricing. The Parliament wants individual merchant-level caps benchmarked to comparable digital payments, an approach that could make the low-fee structure permanent rather than transitional.

ECB Executive Board member Piero Cipollone has described where the eventual cap will sit: higher than domestic schemes such as Italy's Bancomat or Spain's Bizum, but lower than international card networks:

the cap on fees that merchants will pay on the digital euro network will be lower than those charged by international payment networks, which are generally more expensive, but higher than those applied by domestic payment systems

Cipollone has also flagged that private payment solutions, not only stablecoins, threaten banks' existing role in payments, a framing that puts card schemes and the digital euro on a collision course.

Losing fees? A bitter aftertaste

The EU has taken merchant fees seriously since the 2015 Interchange Fee Regulation capped interchange at 0.2% for debit cards and 0.3% for credit cards, a change the European Commission estimated saved merchants €6 billion a year.

Retail group EuroCommerce argues those caps still leave merchants worse off than everyone else in the payment chain: merchants typically run on margins of 1% to 4%, payment service providers and banks on 20% to 40%, and the card schemes above 50%. EuroCommerce's own preferred digital euro model, a flat 0.1% fee capped at four cents per transaction online and nothing offline, is itself a fraction of what merchants pay today.

The scale of what is at stake is clearer outside Europe. In the United States, where interchange is largely unregulated for credit cards, merchant card processing fees exceeded US$187 billion in 2024 according to the Nilson Report, while the Merchants Payments Coalition puts total swipe fees at US$236 billion on a broader measure.

A digital euro that eliminates fees on the highest-frequency, lowest-value segment of retail spending is a big step to encouraging a true digital cash, rather than cards and intermediaries taking a clip on everyday transactions as the use of physical cash continues to call.

Where has this brew been tasted before?

India offers a live example of what a zero-fee, state-linked payment rail can do to card volumes. Since the government mandated a zero merchant discount rate on Unified Payment Interface (UPI) person-to-merchant transactions, UPI has grown to 85.5% of India's payment volumes in the second half of 2025. Debit card transaction volumes fell 67% over the same period, from 4.09 billion transactions in 2021 to 1.34 billion in 2025. Credit cards, which were never brought within the zero-MDR mandate and still charge merchants interchange fees, grew from 2.16 billion to 5.7 billion transactions over the same window. This is not a world where "cards are finished" - the interchange fees pay for the card benefits that consumers love, so people chasing points or benefits will have incentives to use cards for purchases, but for merchants, there will be a strong incentive to adopt and encourage the digital euro.

Planning for the perfect sip

Payment service providers, acquiring banks, card schemes and retailers operating in the EU should:

• model exposure to the sub-€10 transaction segment, where a fee-free digital euro would compete most directly with existing card and account-to-account rails;

• monitor the 10 September 2026 trilogue round and subsequent negotiations for the final merchant fee formula, given the material difference between the Council's sunsetting national-cap model and the Parliament's potentially permanent merchant-level cap;

• review card scheme and payment service provider contracts for clauses triggered by regulatory fee changes, particularly renegotiation and most-favoured-fee terms;

• assess digital euro acceptance infrastructure and integration requirements ahead of the ECB's targeted first issuance in 2029, contingent on the regulation being adopted this year; and

• track parallel merchant fee interventions in other markets where NXT Law clients operate, including Australia's surcharge ban and interchange reforms, to inform multinational payment acceptance strategy.

Europe is not alone in treating merchant card costs as a competition problem rather than a private commercial matter, though its methods differ. The United States caps debit interchange under the Durbin Amendment's Regulation II but leaves credit card interchange and scheme pricing largely to the market, a gap that keeps overall US card fees well above European levels. Australia's Reserve Bank has gone further within the existing card system, banning merchant surcharging outright from 1 October 2026 and flagging a materially lower interchange cap on consumer credit cards, after finding merchants paid roughly $1.8 billion in surcharges in 2024/25.

What sets the EU's approach apart, and what UPI's experience in India suggests should concern exisitng card networks, as it points towards a future where a genunine digital cash can move to make payments faster and lower cost. Whether European consumers and merchants adopt the digital euro fast enough to matter by the ECB's 2029 target is still an open question, but the fee design now being negotiated in Brussels is likely to influence how much small shops will welcome the digital euro with open arms and the hiss of an espresso machine.