The road to a "cashless society" based on alternative payment methods to cash is still long. According to ECB statistics, in 2016 in the euro area transactions with payment cards or electronic money increased by 11,3% y/y (+8,4% in value) against cash withdrawals from ATMs or at the traditional branches which, in the main economies, showed only moderate changes both in terms of number and value.
The first survey on the payment habits of households in the Eurozone conducted by the ECB highlights the persistent preference for cash: in 2016, out of a total of 163 billion transactions, 79% were settled in cash and 19% with payment cards ; in terms of value, the respective shares are 54% and 39%. In Germany, Austria, Slovenia and in southern European countries, around 80% of transactions are settled in cash; in the Netherlands, Estonia and Finland, conversely, the frequency of use of cash amounts to between 45% and 54%.
In some Scandinavian countries and Australia, payments with virtual currency already exceed those in cash and in the next decade these countries could become real cashless economies. Alongside the advantages, such a scenario offers some critical issues, especially in terms of privacy protection. In Italy, alternative instruments to cash are still rather underused in comparison with the Eurozone: in 2016 there were 51 per capita card transactions per year, less than half of what was recorded for the EMU.
However, in Italy the dynamics are decidedly more lively: in the period 2013-2016 the average annual growth was 13,8% compared to 8,8% in the Eurozone. 86% of Italian household transactions are settled in cash (79% euro area) equal to 68% of the amount in value (54% euro area).
Numerous innovations in payment methods
Fifty years after the birth of the first ATM and with the ever-increasing diffusion and diversification of electronic means of payment, one often wonders about the future of cash. The issue has been on the table of the European authorities for some time: in January 2017, the European Commission, at the suggestion of the Ecofin Council, launched a consultation on the proposal to restrict payments in cash of significant amounts (and in cryptocurrencies) with the intent main goal of combating the financing of illegal or terrorist activities, protecting consumers and businesses from the risk of fraud, combating money laundering and tax evasion, reducing cash handling costs and production costs associated with issuing new banknotes and coins.
The ECB's decision to suspend the issuance of the €500 banknote from the end of 2018 is also a sign of its willingness to limit the circulation of large amounts of cash. Although some economies of the Union have already adopted limit thresholds, today there is still a lack of Community legislation that harmonizes the extent of the restriction in the various states. The indications received from the (few) respondents to the European Commission's consultation did not in fact turn out to be in favor of adopting a maximum amount for transactions. Germany, where around 80% of transactions take place in cash, was the last country in chronological order (beginning of 2016) to attempt to introduce a limit on the use of banknotes and coins; after trying to set a threshold for payments with cash at €5.000 (a rather high value), the Government gave up due to numerous dissenting voices and today there is no limit in the country as also in Austria, the Netherlands, Slovenia and in many other EMU countries.
Traceability of transactions, resulting in compromised privacy, is the primary reason against adopting a threshold. In fact, currently only a few countries have set a limit on cash transactions and the range is quite wide: from €500 in Greece to €1.000 in Portugal, Spain and France (lowered in the aftermath of the terrorist attack on Charlie Hebdo), to the €3.000 of Belgium and Italy (the only country where the threshold has been revised upwards, with the Stability law for 2016); in Slovakia the limit is €5.000.
A further contribution to the reduction of the circulation of liquid sums, but also to a mitigation of operations via ATMs and credit cards, could come from the implementation of PSD2 (Payment Services Directive 2, whose entry into force is expected from 18 January 2018). PSD2 is intended to encourage the development of digital payment services: thanks to apps installed on mobile phones, customers will allow authorized companies (TPP, Third party providers) access to some information that will allow payment through their current account . This is an innovation for which credit institutions have already begun working for some time to try to balance the advantage that new competitors will have, subject to less severe regulation than that envisaged for the banking system.
Cash does not lose its appeal
Despite the spread of new means of payment offered by technological innovation, most retail transactions are still settled in cash today. The surveys on the ECB's payment systems, while recording significant growth rates in the number of transactions concluded in the Eurozone using cards and electronic systems (+8,8% in the 2016 period), show a continuing attraction for liquid money. Data on withdrawals (both at ATMs and OTC, i.e. at the counter) show only moderate fluctuations in the main economies of the area: in 2016, cash procurement operations decreased by 0,3%, by 0,6% and 1,7% respectively in France, Italy and Spain.
In terms of the amount of withdrawals, the changes were equal to -1,3% and -2,5% for Italy and Spain, while the amounts increased in France (+1,6%) and Germany (+0,5% ). To overcome the limits of the indications that can be inferred from the aggregate data and from the average values referring to the whole of the non-financial private sector, the ECB has recently concluded the first sample survey on the payment habits of households only, which has made it possible to photograph the typology and amount of expenses but also to obtain a picture of the socio-demographic characteristics of the users. Respondents were asked to keep a daily diary of payments, withdrawals and top-up operations, information then integrated with a questionnaire relating to the offer of payment services.
The survey, referring to 2016, highlights how the use of cash is predominant in regulating household transactions: out of a total of approximately 163 billion purchase transactions at points of sale in the Eurozone, 79% were paid in cash for an amount equal to 54% of the total amounts while 19% of the payments were settled with the use of cards, equivalent to 39% of the value of the purchases made. Payments by cheque, direct debit, wire transfer and electronic order are used to complete the remaining 2% of purchase transactions. Even considering that cash is mainly reserved for expenses of limited amounts, the frequency of use is about four times that of cards.
It is not only the southern European countries that prefer cash payments but also Germany, Austria and Slovenia with around 80% of transactions made in cash; conversely, the Netherlands, Estonia and Finland stand out for having one of the lowest incidences of cash transactions with percentages ranging from 45% to 54% of total purchases. In terms of value, the highest share of cash payments is recorded in Greece, Cyprus and Malta (above 70%) while the lowest in the Benelux area, Estonia, France and Finland (below 33%).
The average amount of cash transactions is rather low: compared to an average value of €12,4, Cyprus, Luxembourg and Austria rank higher (about €18); the average amount of cash payments in Spain, Latvia, France and Portugal is below €10. The purchases made with cards are of a relatively higher amount: the average value of each transaction is just under €40 and varies from €15 in Latvia to €70 in Luxembourg. Checks, wire transfers and direct debits are instead used for higher amounts of expenses, a circumstance that confirms the extensive literature on the subject of payments which underlines how the amount of the expense affects the payment method chosen: in general, purchases up to €45 (i.e. 91% of expenses) are made in cash, beyond this threshold (i.e. 9% of expenses) cards are used.
The amount of cash one usually has available also contributes to the decision: on average, €65 is available in the wallet of euro area residents, an amount that varies between around €30 in Portugal and France and over €100 of Germans and Luxembourgers. Above the average value (between €80 and €90) are Greece, Cyprus and Austria. The socio-demographic evidence of those who hold and use cash the most is interesting: men have €12 more than women, the elderly have €43 more than young people, while the level of education seems to have no influence.
In choosing the means of payment, in addition to the amount of the purchase, it also determines the type of commercial activity where the purchase is made: in general, in all sectors well over half of the transactions are settled in cash as they are often daily expenses at retail outlets; however, payments relating to the purchase of durable goods, those made in accommodation facilities and at refueling points, escape this regularity. In considering the use of the different payment methods, the propensity to accept alternative instruments to cash should not be underestimated. In fact, cash and cards seem to be linked by a negative correlation: in countries where there is a willingness to receive card payments, the use of cash is more limited and vice versa in the case of poor acceptance of the cards by the recipient.
In general, all the determinants of use of both cash and cards tend to reinforce each other: the diffusion of a particular payment instrument in fact depends on its accessibility and usability; at the same time, supply is partly influenced by the characteristics of demand and consumer habits. Sweden, Denmark and Norway are already well advanced in the realization of the "cashless society", as well as Australia. In these countries, virtual payments already outnumber cash payments. Alongside the advantages, such a scenario offers some critical issues, especially in terms of privacy protection and discrimination against non-banking subjects.
Italy: the gap exists but it can be filled
The available statistics agree in underlining the delay of our country in the international comparison in the adoption of payment instruments alternative to cash. In the aggregated surveys in Italy in 2016, there were 51 per capita transactions with payment cards and electronic means, less than half the euro area average (105). However, in Italy the dynamics are decidedly more lively: in the period 2013-2016 the average annual growth was 13,8% compared to 8,8% in the Eurozone.
The evidence from the ECB survey also underlines the distance that still separates us from the customs recorded in the Eurozone: 86% of Italian household transactions are settled in cash (79% in the Eurozone) equal to 68% of the amount in value ( 54% euro area). In fact, we are among those who have more liquidity in their portfolio than the average of the inhabitants of the Eurozone (€69 vs €65).
However, the Italian market for alternative payments is full of potential as evidenced by both supply and demand factors: the number of POS installed (2,2 million) is higher than that of the main European countries and the diffusion of cards (above all prepaid) denotes the growing demand for flexible and multifunctional payment instruments. However, the high number of POS is underutilized: in our country each terminal carries out 1.230 transactions against almost 4.700 in the Euro area.
The demand for payments alternative to cash could be affected by the recent provision by the Italian Government aimed at reducing interbank fees on electronic payments such as ATMs and credit cards: they go from an average of 0,50% to a ceiling of 0,20% of the transaction value for debit and prepaid cards, and from an average of 0,70% to a ceiling of 0,30% for credit cards.
