Patricia Flamini’s café does brisk business selling coffee, pastries and sandwiches in the heart of Rome, with prices starting at €1.20 for an espresso.
But she said her heart sank every time a customer tried to buy small pick-me-ups using a payment card — which gives the banks a cut of the sale price. “It’s almost offensive,” she said. “I make the coffee, I wash the cups, but [the bank’s cut] is more than I earn.”
Small business owners such as Flamini may soon be spared from accepting low-value digital payments if Italy’s new rightwing coalition government has its way. In her draft budget for 2023, prime minister Giorgia Meloni has proposed giving Italian merchants the right to refuse digital payments for transactions below €60. The government also intends to raise the ceiling for legal cash transactions from €1,000 to €5,000.
Meloni, who heads the far-right Brothers of Italy party, has previously criticised Italy’s decade-old push to promote digital payments as an “illegitimate gift to banks” and a “hidden tax” on small businesses and families. In the run-up to her victory in September’s election she vowed to push back.
“It is no longer tolerable to burden the economy with a hidden tax . . . for the purpose of fattening the banks, spying and profiling every habit of the citizens,” she wrote in a Facebook post in July.
But while many small businesses have welcomed the move, it could meet resistance from Brussels, which advised Rome to promote greater use of digital payments as part of its €200bn, EU-funded Covid recovery plan, in order to accelerate growth and put its strained public finances on a stronger footing.
Within Italy, some analysts and opposition politicians have expressed dismay at what many see as a retrograde step. “It’s a mistake that will increase tax evasion,” Carlo Calenda, leader of the centrist Azione Party, said. “It’s designed to satisfy small businesses that work mainly with cash to avoid tax payments.”
Valeria Portale, director of the Innovative Payments Observatory at Politecnico di Milano’s school of management, said she was surprised at the plans. “I don’t how it is possible to encourage cash instead of digital payments in 2022,” she said. “This is a problem not only for tax evasion. You also need a well-developed digital payments framework to develop new, modern services. It is a path to modernity.”
Italy is among the lowest 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 size of the average such transaction in Italy is €47.50 — one of the highest in Europe, reflecting the tendency to use cash for smaller purchases, according to Politecnico di Milano’s innovative payments observatory.
Italy’s shadow economy was estimated at around €183bn in 2019, the equivalent of around 11.3 per cent of gross domestic product. Of that, tax evasion in otherwise legal activities is estimated to account for €90bn.
But Italian digital payments — seen as a tool to reduce tax evasion — are growing. In the first six months of 2022, the total reached €182bn, a 22 per cent increase over the same period the previous year, the observatory said.
Successive Italian governments have tried to encourage the trend. In 2012, Italy made it theoretically mandatory for businesses to have point-of-sale machines for digital payments on their premises — although there was no penalty for non-compliance.
In December 2020, the coalition led by the populist Five Star’s Giuseppe Conte launched a controversial cashback scheme that offered a 10 per cent refund to consumers on all such transactions. The programme was criticised by the European Central Bank and subsequently scrapped by the then prime minister Mario Draghi’s government.
But Draghi tried to give teeth to the rules, decreeing that businesses that refused to accept digital payments could be subject to fines equivalent to €30 plus 4 per cent of the value of the transaction.
“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 of the high costs involved in accepting digital payments. Transactions valued at under €5 usually don’t carry any fee, but above that, they range widely. Bigger businesses pay 0.5 per cent to 1.5 per cent of the transaction value to payment providers, while small businesses have to pay more.
So far, Brussels has not commented publicly on Meloni’s plans. But in a statement last week the government said that “discussion with the [European] Commission are under way” and could influence the final policy.
Antonella Trocino, a lecturer in economics at Rome’s Luiss University, believes concerns about fees should be addressed other than by simply trying to reduce digital transactions.
“It could be that the fees on [card] payments . . . are a little higher than in other countries, but in that case the solution is to negotiate with the bank system and align [them],” she said.
Flamini said she hoped a solution would be found to lift the burden now borne exclusively by business owners.
“The banks don’t want to pay the transaction fee; we don’t want to pay the transaction fee and customers don’t want to pay the transaction fee,” she said, adding that Italy “wants to be modern [but] at someone else’s expense”.
Additional reporting by Giuliana Ricozzi in Rome
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