Waterfall

Waterfall is the mechanism that stops the holding limit from breaking payments. Money flows out of the digital euro account and into commercial bank money — hence the name.

What it does#

When an incoming digital euro payment would push a user's balance above their holding limit, the excess is automatically converted into commercial bank money and lands on the linked non-digital euro account the user nominated. The payment still settles. The user is not asked to do anything. The cap is respected.

Without it, the holding limit would mean incoming payments simply bounced once a user was near their cap — an unacceptable experience for something meant to work like cash.

It is optional for individuals#

An individual may allow automatic transfers to a linked account via waterfall if the online digital euro holding limit is reached. It is a functionality the user opts into by nominating a linked account.

For businesses it is not optional in practice: a business has a holding limit of zero and must always have a linked account, so every incoming payment waterfalls straight through.

The timing subtlety worth knowing#

Waterfall is not always triggered by the up-front validation check. Consider two incoming payments arriving close together:

• Transaction 1 arrives. The check asks whether it would breach the holding limit. It would not, so waterfall is not triggered.
• Transaction 2 arrives before transaction 1 has settled. At that moment the check again says no breach. But after transaction 1 settles, transaction 2 would breach the limit.

To guarantee the limit holds, an additional waterfall step is performed after settlement. If you are implementing the flows, this is the detail that catches teams out: you cannot assume a single pre-settlement check is sufficient.

The mirror image of this mechanism — pulling money in when the balance is too low — is the reverse waterfall.