The coronavirus pandemic has left Italy’s economy in a bad state, with the latest predictions foreseeing a -9% in GDP in 2020. At the same time, the online economy has limited the fall, leading to a +15% in the use of contactless payments and +80% of mobile payments compared to 2019. For the first time, Italy’s historic resistance to electronic transactions might be at a turning point. This is one of the reasons behind the country’s government decision to draft a plan in the direction of a ‘cashless society’, which is also meant to counter undeclared economic activity and tax evasion – a phenomenon that in Italy is worth 12% of the country’s GDP.
Even before the pandemic, Italy was not in good shape: it is at the 24th place out of 27 countries in the EU for number of digital payments, while about 80% of all transactions are still made in cash. Now, COVID-19 has provided a big push in the direction of an enhanced use of electronic money, also because it allows no contact with objects (currently for payments up to €25 ($29) there is no need to insert a pin code) and is therefore perceived as safer.
While consumptions levels in the country have generally decreased in the first semester of 2020 (-27% in April, now recovering by 0.8% increase in August), at the same time the number of digital payments has boomed, reaching €31.4 billion ($37 billion) with contactless cards and €1.3 billion ($1.5 billion) with smartphone payments, according to the Innovative Payments Observatory at Milan’s technical university Politecnico. In total, the volume of all card transactions in the country is worth €118.3 billion ($139 billion).
In order to capitalize on these results and push more towards electronic payments, the Italian government is about to implement a series of measures: the first novelty, called ‘cashback’ will allow customers to be refunded of 10% of all payment card transactions, up to a maximum of €1,500 ($1,700) per person every semester and €3,000 ($3,500) a year, until 2022. There is also a ‘supercashback’ prize of €3,000 ($3,500) for 100,000 citizens who will have used e-payments the most. Moreover, starting from January 2021, customers and retailers using electronic money in physical stores will be allowed to participate in a lottery with prizes between €5,000 ($5,900) and €5 million ($5.9 million), for a total of €300 million ($354 million).
“Sanctions alone cannot lead to a change in behavior, while now the effort is to try to find measures that allow both consumers and retailers to pay with a card”, said Ivano Asaro, director of the Innovative Payments Observatory.
According to a study by the Bank of Italy, the public cost to sustain the use of cash in the country is worth €15 billion ($17 billion), about 1% of GDP. This is why reducing use of paper money is essential in the government’s mind. Part of the strategy is also to lower cash payments from €3,000 ($3,500) to €2,000 ($2,300) by the end of 2021, and to €1,000 ($1,100) starting from January 1st, 2022.
While statistics indicate that Italians are increasingly keen to making cashless payments, on the other hand retailers are more skeptical about accepting either credit or debit cards from customers. In fact, according to a recent poll by Confcommercio, the Italian firms association, 67% of companies do not consider these payment methods convenient, mostly due to management costs and commissions. Many of them, the association explains, have tried contacting their bank to reduce their fees, but 60% of them were unsuccessful. And while 75% of them consider costs reduction a priority in order to push for card use development, a good 23% would also like fewer installation and management costs. That is why, according to Confcommercio, the government’s plan would also need to “define convenient conditions to all users of electronic payments systems, including retailers”.
The role of banks and digital payments actors in these operations is crucial in this regard. That is why news of the merger of the two Italian firms Nexi-Sia is even more meaningful in speeding up these services. Nexi, born in 2017, offers digital payment infrastructure to banks and public administrations, while Sia is known as a ‘payment processor’, meaning the supplier of the banking system infrastructure. While the official merger is yet to be signed officially (the two have so far signed a ‘memorandum’ agreement), together they are going to form the largest paytech group in Italy, which is going to cover most of the digital payment market (they already have 70% of it) and also become a leader at the European level in this field.
“This group will be the first in Europe by the number of retailers covered and card systems managed, with a capital worth €15 billion ($17 billion) and a presence in four continents, and it will be a protagonist in a crucially important sector and its future developments”, said Roberto Gualtieri, Italy’s minister of Finance. “The merger will contribute to the digital transition in an essential sector as the electronic payments, guaranteeing more speed, security and transparency to all firms, banking institutes, public administrations and citizens, in line with the commitment of the Italian government to incentivize the cashless transition”.
While the cashless strategy is certainly going to accelerate the visible economy in the country, there are also some risks to keep in mind. According to Mauro Bussoni, national secretary of Confesercenti, the Italian retailers’ association, “it is possible to evade tax also by using credit cards”, though he admits that “electronic payments are useful to modernize the country”.
Two recent studies by Verizon Business and Capgemini also point out complications with e-payments. According to Verizon’s Payment Security Report 2020, for instance, only 27.9% of global firms maintains full compliance with the Payment Card Industry Data Security Standard, due to a lack of long term strategy and commitment by company leaders. According to Capgemini and its World Payments Report 2020, in a time of transition between growing transaction levels and increasing competition, organizations are especially exposed to risks related to cybersecurity (42%), regulations (37%), operability (35%) and business (30%).
“The coronavirus pandemic has driven consumers away from the use of cash, pushing them towards contactless paying methods. This has generated a bigger volume of electronic payment data and consumers trust that companies safeguard their personal information. Payment security needs to be regarded as a company’s constant priority for all organizations that deal with payment data, as they have a fundamental responsibility towards their clients, suppliers and consumers”, said Sowmyanarayan Sampath, president of Global Enterprise di Verizon Business.
While these issues go beyond Italy, and will need to be addressed, experts in the country remain positive towards the ongoing change towards innovation. “Finally the government is taking the first steps in the right direction, with a complete and rich with incentives in this field”, concluded Valeria Portale, director of the Innovative Payments Observatory.