February 7, 2023

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Meloni is pushing back Italy’s transition into the digital payments age

Patricia Flamini’s café in the heart of Rome sells coffee, pastries and sandwiches with prices starting at €1.20 for an espresso.

But she said her heart sank every time a customer tried to buy little pick-me-ups with a payment card – giving banks a discount on the retail price. “It’s almost insulting,” she said. “I make the coffee, I wash the cups, but [the bank’s cut] is more than I deserve.”

Small business owners like Flamini could soon be spared accepting low-value digital payments if Italy’s new right-wing coalition government has its way. Prime Minister Giorgia Meloni has proposed in her budget for 2023 to give Italian merchants the right to refuse digital payments for transactions under €60. The government also intends to raise the limit for legal cash transactions from €1,000 to €5,000.

Meloni, leader of the far-right Brothers of Italy party, has previously criticized Italy’s decades-old push to promote digital payments as an “illegitimate gift to banks” and a “hidden tax” for small businesses and families. Ahead of her victory in the September elections, she vowed to hit back.

“It is no longer acceptable to burden the economy with a hidden tax. . . with the goal of fattening the banks, spying on and profiling every habit of citizens,” she wrote in a Facebook post in July.

But while many small businesses have welcomed the move, it could face opposition from Brussels, which advised Rome to put its 200bn public finances on a stronger footing.

In Italy, some analysts and opposition politicians have expressed dismay at what many see as a step backwards. “It’s a mistake that will increase tax evasion,” said Carlo Calenda, leader of the centrist Azione party. “It’s designed to satisfy small businesses that work primarily with cash to avoid paying taxes.”

Valeria Portale, director of the Innovative Payments Observatory at the Politecnico di Milano School of Management, said she was surprised by the plans. “I don’t understand how it’s possible to encourage cash instead of digital payments in 2022,” she said. “This is not just a problem for tax evasion. You also need a well-developed digital payments framework to develop new, modern services. It’s a way into modernity.”

Italy is among the least adopters of digital payments in Europe: the average Italian consumer uses cards for 85 transactions per year, compared to the EU average of 155.9, according to the Bank of Italy.

Meanwhile, the average size of such a transaction in Italy is €47.50 – one of the highest in Europe, reflecting the trend to use cash for smaller purchases, according to Politecnico di Milano’s innovative payments observatory.

Italy’s shadow economy was estimated at around 183 billion euros in 2019, which corresponds to around 11.3 percent of gross domestic product. Of this, an estimated €90 billion is accounted for by tax evasion in otherwise legal activities.

But Italian digital payments – seen as a tool to curb tax evasion – are on the rise. In the first six months of 2022, the total reached 182 billion euros, up 22 percent from the same period last year, according to the observatory.

Successive Italian governments have attempted to encourage this trend. In 2012, Italy theoretically made it compulsory for businesses to have digital payment machines on their premises – although there was no penalty for non-compliance.

In December 2020, the coalition led by the populist Five Stars’ Giuseppe Conte launched a controversial cashback scheme, offering consumers a 10 percent refund on all such transactions. The program was criticized by the European Central Bank and subsequently scrapped by the government of then Prime Minister Mario Draghi.

But Draghi tried to give the rules a leg by decreeing that companies that refused to accept digital payments could be fined €30 plus 4 percent of the transaction value.

“It was really important to change the culture,” Portale said. “I don’t know how much [the penalty] was used but it was symbolic to push digital payments.”

However, businesses complain about the high costs associated with accepting digital payments. There are usually no fees for transactions under €5, but there is a wide range beyond that. Larger businesses pay 0.5 to 1.5 percent of the transaction value to payment providers, while small businesses have to pay more.

Meloni is pushing back Italy’s transition into the digital payments age

So far, Brussels has not publicly commented on Meloni’s plans. But in a statement last week, the government said that “talks with the [European] Commission are underway’ and could influence final policy.

Antonella Trocino, an economics lecturer at Rome’s Luiss University, believes concerns about fees should be addressed in a different way than simply trying to reduce digital transactions.

“It could be that the fees apply [card] payments . . . are slightly higher than in other countries, but in this case the solution is to negotiate with the banking system and adapt [them],” She said.

Flamini said she hoped a solution would be found to ease the burden, which is now being borne solely by business owners.

“The banks don’t want to pay the transaction fee; we don’t want to pay a transaction fee and customers don’t want to pay a transaction fee,” she said, adding that Italy “wants to be modern [but] at the expense of others”.

Additional reporting by Giuliana Ricozzi in Rome