Reverse waterfall

Reverse waterfall is the twin of the waterfall, running the other way. Money flows into the digital euro account from commercial bank money, on demand, to make a payment succeed.

What it does#

When a user tries to pay more digital euro than they currently hold, the shortfall is automatically pulled from their linked non-digital euro account, converted into digital euro, and the payment goes through. The user does not have to top up first.

This is what makes the holding limit tolerable. A cap on holdings would otherwise mean users constantly hit "insufficient balance" on ordinary purchases. Instead, the balance behaves less like a wallet you must remember to fill and more like a card that draws on the account behind it.

Why the two together matter#

Taken as a pair, waterfall and reverse waterfall mean a digital euro account can sit at a low or even zero balance and still work perfectly:

• Balance too high after an incoming payment? Waterfall pushes the excess out.
• Balance too low for an outgoing payment? Reverse waterfall pulls the difference in.

The holding limit constrains the stock of digital euro a user holds without constraining the flow of payments they can make. That is the entire design intent, and it is why these two mechanisms are the first thing an integrating PSP should get right.

The dependency to be aware of#

Reverse waterfall only works if a linked account exists. For an individual the linked account is optional — so an individual who has not nominated one has no reverse waterfall, and their payments really are capped by their current balance.

For businesses a linked account is mandatory, which follows directly from a holding limit of zero: a business could not accept any payment at all without one.

A single transaction that combines a payment with a funding or defunding step in this way is called a combined transaction.