How are government policies shaping a cashless society?
Where we are and where we need to go
Overview of digital transactions in Italy
Technology is gaining space in financial services, creating a new and challenging market that is continuously evolving even in a static country like Italy. Numbers are encouraging: the value of transactions rose to €270bn in 2019: a +11% growth from the previous year. The usage of digital tools is becoming more and more linked to daily purchases so that smartphones and innovative payment methods are playing a significant role.
Thanks to the disruptive entrance of foreign and local neo-banks and the effort of the Government and traditional credit institutions, Italy seems to be involved in a promising evolution that has already affected several counties in Europe. Italy needs to fill the gap with them and to combat its internal issues related to tax evasion.
What the peninsula calls for is cultural evolution: Italy is ranked as one of the 30 worst economies of the world for cash intensity (the level of cash dependency of a country). As a result of the last survey led by the Cashless Society, 9/10 of the Italians seems to be blind in front of the amount of the cash related costs, which is 150€ per year pro capita. The cash costs incidence on the GDP accounts for 0.44% (one of the highest in Europe).
Nevertheless, from the survey emerges that 88,2% of citizens are willing to use digital payment methods in those contexts with incentive for consumers (for example: POS in PA front offices, discounts on electronic purchases, tax breaks, sanctions on merchants, and tax credit).
Government policies
How to materialize the cashless revolution? A regulatory framework is essential to educate people and enterprises to digital transactions. About that, the Italian Government implemented two kinds of measures: the first block of policies affects the demand and the supply of electronic payments in the country, while the other one is focused on the electronic billing and Public Administration services.
As regards the former portfolio of measures, between 2019 and 2020, the Government issued a tax decree and a budget law to introduce some initiatives that could concretize the “Cashless Italy” plan. Among the different policies, the receipts lottery stands out. It’s a gamification tool that has already similarly taken place in other countries, such as China, South Korea, Portugal, and Greece. The lottery, which has been available from 1st July 2020, consists of receipts draws for those payments that have been effectuated cashless. Every Italian over18 can take part in this initiative and might win a prize from 20k to 100k euros. The game’s aim is to incentive both customers and merchants to avoid cash transactions.
Jointly to the receipts lottery, the Italian Government released last July another act which deals with concessions for vendors and professionals. Workers that belong to these categories and that achieve revenues under 400k euros could benefit from a tax credit equal to 30% of the commissions charged with the purpose of boosting the credit and debit card acceptance inside the shops. Still from 1st July, the authority has reduced the limit to the cash usage from 3k to 2k euros and another 1k€ cut will take place in January 2022.
The last proposal is contained in the decree enacted by the Ministry of Economy and Finance and regards the start of cashback applied to purchases by payment cards. During 2021 and 2022, people will have a refund equal to 10% of the amount of the acquirement effectuated with the card. The requirements are stringent: 50 transactions and at least 1500€ of disbursement per semester, so that Italians will not use digital payments for big purchases only, but also for small transactions. About this, the Government allocated 3bn€ to lead this innovation.
Simultaneously to 10% cashback, there will be a “super cashback”: a 3k euros prize that will be destined to the first 100k citizens who will effectuate the most transactions with cards. Acting on the aim to increase small digital payments, the major banks and card circuits are collaborating in order to considerably lower commissions on purchases up to 25 euros. The second category of acts, in force since 1st January 2019 concerns, among other things, the extension of the electronic billing to private transactions. This mechanism was already applied to negotiations with public entities, but now it involves also legal and natural entities.
In the B2B, the expansion of electronic invoices mostly affects the fuel sector, where now consumers have the obligation of paying with traceable means (credit, debit, pre-paid cards) to obtain the deduction of the cost incurred and VAT. In addition, combustible merchants could benefit from a tax credit equal to 50% of commissions on credit card transactions. The set of measures has an important impact on the fuel market: 6% of the total cash spent in Italy belongs to this sector. Digital technologies permit to reach efficiency and sustainability also in the public sector, redefining and managing the provision of public services innovatively.
“PagoPA” is a system that allows citizens to pay duties and taxes, utilities and services, stamps, tax bills, medical tickets, TPL and all kinds of effusion to the Public Administration. PagoPA generates perks not only for the Public Administration, which cuts accounting errors down and monitors payment times but also for citizens and firms. The service, in fact, guarantees saving of time, money and more transparency on commissions costs.
A look to the future: Regtech
In the cashless revolution, an essential role is played by enterprises, which constantly invest in compliance in order to be within the limits imposed by the authority’s regulation. In this context, RegTech is a tool that helps firms that are trying to enter in the digital payments environment. Through the exploitation of this technology, companies could be more efficient by reducing compliance costs and speeding up the control processes.
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2. https://www.ilsole24ore.com/art/fintech-fintech24-digital-payment-pagamenti-digitali-ACZLuX3
4. https://www.ambrosetti.eu/wp-content/uploads/Rapporto-Community-Cashless-Society-2020.pdf
