SEPA unified European payments, but the infrastructure underneath it has not fundamentally changed in decades - and a new class of digital assets is exposing exactly how much ground public payment systems have lost on speed and programmability.
Key Takeaways
The Bank of Italy wants the EU to tokenize SEPA before stablecoins fill the gap.
64 institutions already settled €1.59 billion via DLT in ECB trials.
Bank-token volumes could reach $100-$140 trillion by 2030, per Citi.
The real competition now is stablecoins vs. CBDCs vs. tokenized deposits.
On May 4, 2026, Bank of Italy Deputy Governor Chiara Scotti put a concrete proposal on the table at the ECB: extend the Single Euro Payments Area into a tokenized format, or risk watching Europeans default to U.S. dollar-pegged stablecoins for everyday digital transactions because they are simply faster and more flexible than anything the eurozone currently offers.
Stablecoin market capitalization hit $322 billion in May 2026, and projections from ECB research suggest that adoption in high-growth markets like India and Brazil could push that figure toward $730 billion. For European policymakers, this is not an abstract concern about financial innovation – it is a direct challenge to monetary sovereignty, and the Bank of Italy is treating it as such.
Why the Current System Falls Short
The fundamental problem Scotti is trying to solve comes down to infrastructure. Today, moving money between European banks still relies on account-based ledgers where payment and settlement are separate steps, often involving SWIFT messaging and manual reconciliation between institutions. Tokenized money changes the model entirely: a digital asset on a shared distributed ledger settles instantly because the transfer and the finality happen at the same moment, what the industry calls T+0 settlement. A tokenized SEPA would apply that logic to a system that already handles enormous volumes, giving the EU a public-money anchor for digital finance rather than leaving the field to private issuers.
The proposal builds on infrastructure work the ECB has already done. Between 2023 and 2024, the bank ran a series of wholesale DLT trials that were larger in scope than most press coverage suggested. Sixty-four institutions, including Banca d’Italia, participated and collectively settled more than €1.59 billion across over 200 transactions, all in central bank money. That distinction matters: settling in central bank money means the counterparty risk that normally runs through correspondent banking chains is essentially eliminated. The trials demonstrated that the technology can handle high-value institutional transactions without sacrificing the safety guarantees that the financial system depends on.
Two Projects, One Direction
From those trials, the ECB extracted two immediate work streams. Project Pontes is the near-term track, a pilot designed to connect existing TARGET settlement infrastructure with distributed ledger platforms used by market participants, with a launch expected in Q3 2026. Project Appia is the longer play, a roadmap running to 2028 that looks at either a common ledger or a network of interoperable platforms for tokenized assets. A retail digital euro sits alongside both of these, with pilot programs beginning in mid-2026 and a projected issuance date of 2029.
What the Bank of Italy’s proposal adds to this picture is a different angle. Rather than building entirely new infrastructure, Scotti is asking whether SEPA itself – already one of the most successful financial interoperability projects in history – can be extended to include tokenized settlement. The argument is pragmatic: SEPA already has the network effects, the regulatory underpinning, and the institutional trust that any new tokenized payment system would need years to replicate. Tokenizing it preserves those advantages while adding the programmability and settlement speed that private stablecoins currently offer but public money does not.
Tokenized Deposits: The Commercial Banking Play
The commercial banking sector is not waiting for regulators to resolve the question. Tokenized deposits – digital representations of existing bank balances recorded on a distributed ledger rather than in a private database – are already moving from concept to product at several major European institutions. Unlike stablecoins issued by firms such as Circle or Tether, tokenized deposits sit within the existing regulatory perimeter, carry deposit insurance protections, and do not require users to trust a private intermediary with the full backing of their funds. For corporate treasury operations, where counterparty risk matters more than speed alone, that distinction is commercially significant. Last year Citi’s own analysis projected that bank-token transaction volumes could reach between $100 billion and $140 trillion by 2030, representing approximately 5% of large-value payment flows globally.
The efficiency argument for tokenization extends beyond settlement speed. Replacing static account numbers and card details with dynamic tokens – randomized strings that are worthless outside a specific transaction – cuts the attack surface for payment fraud substantially. Industry estimates put the potential fraud reduction at up to 40%, which on a payment system that processed €116 trillion in non-cash transactions in the first half of 2025 alone represents a material risk reduction for the financial system as a whole.
Public Money as the Non-Negotiable Foundation
Scotti’s framing of all this is worth noting for what it is not saying. She is not arguing that the private sector cannot innovate, or that stablecoins serve no legitimate purpose. Her argument, and the broader ECB position, is that the credibility of any monetary system ultimately rests on the institutions standing behind it, and that a digital finance ecosystem built primarily on private settlement assets introduces systemic fragility that public infrastructure can prevent.
The question facing European regulators now is whether they can move fast enough to make that infrastructure genuinely competitive, rather than simply safer on paper.
