Evolving consumer preferences and digital transformation are boosting European cashless transactions. The Covid-19 pandemic has accelerated this trend, exploiting a need for safer and more convenient payment methods both for remote and physical transactions. However, cash remains the preferred means for payments in Italy.
A guest blog by Marco Folcia, Sara Marcozzi, Tommaso Gheduzzi and Niccolò Polcri, PWC Italy.
Digital payments growth in Italy (nearly +15%, Cagr 2015-2019) is higher than the Euro Area’s and European Union’s growth rates (both nearly +12%)[1]. Nevertheless, Italy is still one of Europe’s countries with the highest cash usage rate: digital payments penetration is 14% of the country’s total payment transactions; far from best in class countries such as Sweden (more than 80%)[2].
Despite numerous macroeconomic and competitive indicators, Italy has an advanced payment market infrastructure, bank account penetration already at 94%[3] and card penetration at 1.9 per capita in 2019[4]. Moreover, regarding the merchant side of the payments landscape, Italy’s POS terminals penetration rate is one of Europe’s highest[5], at 59 POS terminals for every 1000 people in 2019, compared to 32 in the European Union[6].
Nevertheless, according to the key figures, customers and merchants are less eager to “switch to cashless” and adopt new digital payment instruments.
The Italian Government has approved regulatory measures with incentive programs that aim to increase the user adoption of cashless payments throughout the entire supply chain. Such incentives include but are not limited to cashback on card spending for consumers, fee reduction for micro-payments, and as of the 1st July 2020, a tax credit for transactions made by cards for merchants. These actions reduce the cost of managing cash, which is estimated to be around 10 billion EUR/year for the Italian economy.
Additional regulatory measures have been, or will soon be, implemented to discourage the use of cash (e.g. as of July 2020, the threshold for cash usage in a single payment was lowered from 3,000 EUR to 2,000 EUR, and will be further reduced on January 2022 to 1,000 EUR) and promote the usage of payment cards (e.g. 10% cashback – up to 3,000 EUR spending – for consumers using credit and debit cards for their purchases in stores – online shopping is excluded). Even though, the Italian Government is also implementing toolkits and tutorials to support the financial education of citizens; further initiatives should be undertaken to boost consumers’ bent for digital payments and improving their understanding of financial products and concepts and developing skills and confidence to become more aware of risks and opportunities of making electronic payments.
Despite the Government’s previously mentioned efforts, there is still room for improvement in terms of the merchant’s acceptance of electronic payments: tax advantages and cost of acceptance are the main levers that may be used to enable a digital payment ecosystem. As a last resort, to foster POS terminal usage, additionally, application of sanctions could pursue merchants to accept digital payments (for micro-payments in particular) offering equal opportunities to consumer willing to pay electronically.
Assuming a scenario in which Italy reaches a digital payments penetration at 80% (similar to bests in class in EU) and combining the actual governmental and private measures plus the levers of acceptance, it is expected that the Italian GDP would increase by nearly 1.5%[7]. Such a scenario would also imply a reduced shadow economy and a heightened financial education that resembles other advanced economies[8].
Moreover, the current pandemic scenario should speed up the adoption of digital payments, not only for remote transactions: for instance, in-store mobile payments saw a +80% year-on-year increase in the first half of 2020 (with a +97% for NFC contactless payments)[9], tracing the groove for a decisive acceleration.
A fast track to a cashless society could also be represented by the consolidation of the Italian payments market and the creation of new technological and digital innovation hubs which compete on a larger scale (e.g. Nexi and SIA transaction). Such events facilitate the penetration of electronic payments in Italy and contribute to the acceleration towards a cashless society, in favor of citizens, enterprises and Public Administrations.
Italian cashless payment decisions reflect Italy’s culture and available options pertaining to payment solutions and associated fees. The success of Italy’s journey towards becoming a cashless society is reliant on the active participation of consumers, merchants, and financial operators to achieve a cultural shift that enables long-term benefits for the Country.
A guest blog by Marco Folcia
Marco Folcia is a a Partner in the Milan office of PwC, with over 20 years of experience in advising Financial Services Institutions with a focus on business models, digital transformation, customer centricity, cards and payments. Marco is responsible for the FS Strategy & Operations Practice and EMEA Payments & OpenBanking Leader.
[1] The perimeter includes payment card and e-money transactions. PwC analysis on ECB, Payments Statistics, 2020
[2] ECB, The use of cash by households in the euro area, 2017; Risbank 2018
[3] Based on the latest available paper of the World Bank, The Global Findex Database 2017, 2017
[4] Including both cards with payment function and e-money function. ECB, Payments Statistics, 2020
[5] ECB, Payments Statistics, 2020
[6] Other notable initiatives have been provided in this space in order to foster the market infrastructure: (i) introduction of obligations for merchants, with several reforms during last years, in order to accept debit and credit cards, increasing the penetration of POS terminals; (ii) launch of PagoPA in 2016, a unique digital payment infrastructure that allows to make payments to the Public Administration and participant private companies enlarging the acceptance channels and simplifying the entities administrative process; (iii) introduction of Bancomat Pay in 2018 to allow domestic network cardholders to pay and to send money in real time through smartphones broadening the card payment channels.
[7] PwC analysis on macroeconomic information
[8] E.g. financial knowledge of the Italian sample scores 3,5 out of a maximum 7 points, compared to a G20 average of 4,3
[9] Osservatorio Innovative Payments, Politecnico Milano, 2020
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