Digital euro to cost EU banks 4-6 billion euros over 4 years, ECB estimates

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ECB selecting banks that want to take part in pilot phase

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ECB setup costs to reach around 1.3 bln euros, Cipollone says

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Banks to pocket fees, won't have to pay system costs to ECB

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Merchants will also have an incentive in terms of cap on fees

(Clarifies in paragraph 3 that ?the operational costs are on yearly basis, adds details on ?digital euro set-up, users in 4-5)

By Valentina Za

MILAN, Feb 19 (Reuters) - Introducing the digital euro could cost European banks between four billion and six ?billion euros ($4.7-$7.1 billion) spread over four years, a senior European Central Bank policymaker said on Thursday.

ECB Governing ?Council member Piero Cipollone also said the new digital-only central bank currency ?is estimated to cost ?the ECB around 1.3 billion euros to set up.

Operational costs for the ECB would then be about 300 million euros a year, he ?added.

Working with private contractors, the ECB is laying ?down the infrastructure for the digital euro which it will operate through accounts that euro zone residents will hold with the central bank.

European Union citizens outside the currency bloc will ?also be able to pay with digital euros ?if their national ?central bank strikes an accord with the ECB, Cipollone said.

The ECB is awaiting EU legislation to issue the digital euro, which it sees as a way to keep public money ?relevant in a digital economy, unify Europe's fragmented payments landscape and curb the role of non-EU ?providers to protect the bloc's monetary sovereignty and economic security.

BANKS WILL BE ABLE TO RECOUP COSTS, CIPOLLONE SAYS

"Estimates we've come up with based on indications we received from banks point to implementation costs of between 4 and 6 billion euros over four years: that is about 3% of what they spend every year ?on IT-system ?maintenance," Cipollone said.

He was speaking to an Italian parliamentary committee on banks ?on the digital euro project, which he oversees under his payments remit at the ECB.

Banks will be able ?to make up the costs through the fees they receive from merchants on the digital euro services they will provide.

It will be banks that give users the smartphone application needed to pay with digital euros.

Banks, however, won't have to deduct from the merchants' fees the costs they normally bear to remunerate private payments networks because the ECB won't charge for its network service.

The ECB is currently at work to select lenders that are interested in taking part ?in the pilot phase of the digital euro ahead of its official launch in 2029.

Merchants, in turn, will save money because there will be a cap on the fees charged on digital euro payments ?and the cap will be below what international ?firms such as Mastercard (MA) or Visa charge at present.

($1 = 0.8488 euros) (Reporting by ?Valentina Za; Editing by David Holmes)