European Central Bank estimates show that 86% of low value payments in Italy are made with cash, while card payments account for most of the remaining 14%. This represents one of the highest rates of cash use in Europe. But 2020 may herald a big change for Italy’s cash lovers if the government follows through on plans, first reported last September, to introduce financial incentives to increase the use of card and electronic payments.
Under the new proposals, if customers pay by electronic means instead of cash they would be eligible for a discount of 2% on value added tax (VAT). Cash payments, on the other hand, would be penalised with a VAT increase of 1%, creating an overall discrepancy of 3% between both types of payment. A penalty on ATM withdrawals is also proposed: cash withdrawals from ATM’s above €1500 per month would attract a 2% tax.
While the government wants to improve the traceability of payments by encouraging higher levels of electronic payments in line with northern European countries, would the move adversely impact people who rely solely or mostly on cash for their everyday needs?
Italy’s ongoing love affair with cash could be linked to levels of computer literacy in the country, which remain comparatively low according to the European Commission’s Digital Economy and Society Index (DESI) Report in 2018, which identified Italy as having one of the lowest levels of internet use in the European Union.
While younger people may be more digitally-savvy, a growing share of Italy’s population (23% in 2019) is aged over 65 and remains vulnerable to financial exclusion. Cash remains a reliable option for low-value payments for good reason and guarantees financial inclusion for people without bank accounts and those who are not digitally literate. While no official statistics are available, between 10-15% of people in Italy could fall under the category of unbanked or underbanked and are likely to rely heavily on cash.
That’s a possible six to nine million people who could be left behind in this decade’s race towards a new payments landscape.