Despite all the disadvantages, Italians still love cash

A weekday Thursday evening in Rome, and no cash in your pocket. “Pay with a debit card? Prefer cash,” says the taxi driver, and promptly drives off. He’s no exception. In the past five months, police have handed out 1,000 fines to taxi drivers at Fiumicino International Airport alone for refusing digital payments, charging too high fares or breaking other rules.

Rome is a jungle when it comes to taxis. But throughout Italy, especially in the numerous, sometimes tiny shops, preference is often given to ‘cash in hand’, especially for smaller amounts. Cirillo has a small flower shop in the San Giovanni district of Rome, close to a large supermarket. “In principle, I do not accept a debit card for amounts under ten euros,” he says. If the customer really has no money in his pocket, he will drop to five euros, but he will not go any lower. “With the commission that I pay the bank for such a transaction, I have nothing to do with it.”

Gifts to the banks

Giorgia Meloni previously called such commissions ‘gifts to the banks’. Now that she is Prime Minister of Italy, her government wants to allow merchants to refuse digital payments up to sixty euros. That is a proposal from the draft budget. The Italian government also wants to allow cash payments up to an amount of 5,000 euros from next year, instead of the limit of 1,000 euros that takes effect on 1 January. Now the limit is still at 2,000 euros in Italy. “Both measures send a bad signal in the fight against black money and tax fraud,” says Valeria Portale, director of the Innovative Payments Observatory of the Politecnico di Milano, the Technical University of Milan. “Instead of slowing down digital payments, while such payments were on the rise in Italy, the government could negotiate with the banks about the commissions that are asked of merchants.”

Flower seller Cirillo asks five euros for a small plant of Christmas holly, and neatly taps the amount into his cash register. Paying cash certainly does not necessarily mean that the trader receives that payment undeclared. Whoever gives an electronic receipt to the customer passes the transaction directly to the Italian tax authorities. “But there is a clear link between cash transactions and tax evasion,” Portale emphasises. After all, that receipt is not always made. According to a 2016 study by its Observatory in collaboration with the Italian tax authorities, an estimated 33 percent of cash payments in Italy go unreported to the tax authorities. For digital payments, this is only 13 percent. The shadow economy in Italy was estimated at 183 billion euros in 2019, equivalent to 11.3 percent of gross domestic product (GDP). Tax evasion in Italy would run into the tens of billions of euros.

‘Modernization’

The predilection for cash money is not only alive among traders, but also among consumers. “Italy ranks 24th among the 27 European member states in terms of the number of digital payments per capita,” says Portale, referring to a study based on figures from the European Central Bank. Eight out of ten times that Italians pay digitally, they spend less than sixty euros.

Older Italians in particular feel distrustful of banks and digital payments. In Italy, for example, the stubborn and very risky habit of collecting a pension in cash at the post office still persists. Keeping cash in circulation also costs Italy a lot of money, according to Portale, more than eight to ten billion euros a year. It concerns the costs of printing money and money transport, and money lost through theft. “Paying digitally is safer, and is also a service. A credit card is indispensable if you want to order something online, and also much more convenient to pay a toll road in Italy,” says Portale. “It is a step towards more modernization.”

For all these reasons, she believes the Italian government should encourage digital payments, and digitalization in general. The European Union also expects the same from Italy. The intention of the Italian government goes against one of the priorities for Rome under Next Generation EU, the post-coronavirus reconstruction fund, of which Italy is the main beneficiary. Under the influence of ‘Brussels’, Meloni already seems to nuance the proposal somewhat. She wants to give smaller traders some respite, says the prime minister, but the amount of sixty euros is ‘indicative’ and ‘negotiable with Europe’. Italy’s budget law must be adopted before the end of this year.