Paying it forward: is COVID-19 accelerating the transition to digital payments in ?

10 June 2020

On 25 March 2020, the European Banking Authority published its ‘Statement on consumer and payment issues in light of COVID-19’, in which it encouraged retailers to ‘facilitate consumers’ ability to make payments without the need for physical contact’.1 In May, the Italian National Institute for Insurance against Accidents at Work (INAIL) published a technical document in which it stated that ‘it is appropriate to privilege contactless electronic payments’.2 These two official statements, together with consumers’ fears of possible contagion via cash, may boost the use of digital payment solutions in Italy.3 Over the last years, digital payments have 1 European Banking Authority become increasingly popular in the ‘Bel Note: 1 Trabucchi, M. (2020), ‘PayPal lancia i (2020), ‘Statement on pagamenti a distanza via Qr code anche nei negozi consumer and payment issues paese’. In 2019, the total spent using digital in light of COVID-19’, March. fisici’; 2 SumUP (2020), ‘Fase 2, accordo tra SumUP payment methods amounted to €270bn in 2 Istituto Nazionale per e Croce Rossa Italiana: “Il tempo della gentilezza” Italy, registering a 11% increase compared l’Assicurazione contro gli diventa contactless.’; 3 Paysafe group (2020), ‘Skrill Infortuni sul Lavoro (2020), to 2018. Among card payments, contactless ‘Documento tecnico su ipotesi offers free money transfers to Italy’, March. di rimodulazione delle misure payments registered the highest yearly contenitive del contagio da increase (up by 56%). More innovative SARS-CoV-2 nel settore della payment methods, such as mobile Source: Sole24Ore, SumUp, Paysafe group. ristorazione’, May. payments and smart-object payments4, also 3 ‘Digital payments’ here refer Some of the policies recently enacted by the to card payments, contactless saw a significant increase in 2019, growing Italian government also seem to promote payments, mobile payments 109% compared to 2018; however, they still and smart-object payments. the shift to digital payments. For example, accounted for only 1% of digital payments.5 4 Smart-object payments are from July 2020, merchants whose revenues payments via objects such as and fees relating to the previous year did e-Watches and smart speakers. Despite these encouraging increasing not exceed €400,000 will be entitled to a 5 Osservatori Digital Innovation trends, in 2019 Italy was still lagging tax credit equal to 30% of the commissions del Politecnico di Milano behind other European countries. The best (2020), ‘Innovative payments: on electronic payments.8 This government collaborare paga’, Infografica performing countries, such as , Osservatorio Innovative decision is expected to further encourage Payments. Sweden, and , recorded more the use of digital payments, which have than 300 digital transactions per capita, 6 Asaro, I. (2020), ‘I pagamenti traditionally been hampered by commission innovativi in Italia valgono compared to 83 in Italy.6 oltre 3,1 MLD di euro grazie fees. a smartphone e wearable’, Osservatori Digital Innovation Against this backdrop, the COVID-19 crisis All these initiatives seem to have a positive del Politecnico di Milano, May. is likely to accelerate the digitalisation of impact in boosting cashless payments. We 7 Indemini, L. (2020), ‘Col payments. During the lockdown, many looked at two complementary measures coronavirus crescono I shops had already turned to innovative pagamenti digitali e triplica il to analyse the recent change in the numero dei consumatori online payment solutions to enable them to in Italia’, Il Corriere. continue to operate by offering home prevalence of digital payments in Italy: (i) the increase in the user base of digital payment 8 Garavaglia, R. (2020), delivery. This means, in turn, that butchers, ‘Pagamenti elettronici, 30% applications, and (ii) the percentage change di sconto sulle commissioni bakeries, greengrocers and many traditional ai negozianti: ecco come’, in the number of electronic payments being AgendaDigitale. shops (which used to predominantly made. receive cash payments) have dramatically 9 Retail&Food (2020), ‘Satispay increased their use of digital payments, sancisce l’alleanza fisico- The number of users of digital payments digitale’, June; Distribuzione reaching peaks of more than 350% in terms Moderna (2020), ‘Satispay seems to have increased exponentially in taglia il traguardo di 1 milione di of number of digital transactions compared utenti’, March. to before the crisis.7 This acceleration the first months of 2020. Consider the case of Satispay—a digital payment application 10 Data refers only to towards digital payments imposed by the that is rather popular in Italy. At the end of transactions conducted with COVID-19 crisis has been continuing during SumUP 2018, Satispay had roughly 500,000 users; phase 2 of the pandemic management. 11 Indemini, L. (2020), ‘Col by the end of 2019, it reached 700,000 coronavirus crescono I users, a 40% increase in one year. In Q1 pagamenti digitali e triplica il In particular, digital payments companies numero dei consumatori online have launched new initiatives that could 2020, however, Satispay reached 1m in Italia’, Il Corriere. users—is user base increasing by 43% in further facilitate the transition to digital. We just three months. Additionally, Satispay saw illustrate some of these in Box 1 below. a 30% increase in the use of its services, in particular for phone top-ups.9 Box 1 New initiatives in the Italian digital payments landscape The number of electronic transactions has also spiked.10 According to data collected In response to the unprecedented challenges by SumUP, food and grocery shops had posed by the COVID-19 crisis, many digital already seen various increases in electronic payments providers are launching new products payments during the lockdown period (see and services aimed at encouraging the adoption Figure 1 below).11 Such increases were of digital payments in Italy. followed by a drop in mid-April—probably due to the fact the people have amassed PayPal, a well-established digital payment enough stockpiled food and/or have company, has launched QR-code payments with returned to work (and so are spending less no commission until September 2020, allowing time at home). However, the second week merchants to conduct contactless transactions of phase 2 saw the highest percentage without purchasing additional hardware.1 increase in the number of electronic transactions for food and groceries—almost SumUP, a fintech company specialising in point- 40%. Given that the SumUP Observatory of-sale appliances (POS) and payment solutions follows SMEs, the trend suggests that small, for small and medium enterprises (SMEs), has traditional shops are making an important signed an agreement with the Italian Red Cross shift to digital payments, and this shift might for the supply of over 200 SumUP card readers have not occurred at such a rapid pace throughout the country.2 absent the COVID-19 crisis. Skrill, the online payments company behind Skrill Money Transfer, has removed all fees and foreign exchange charges for anyone using Skrill Money Transfer to send money to Italy.3 12 Salvioli, L. (2020), Figure 1 Percentage change in in the scheme unless they explicitly opt ‘Lockdown e riaperture: gli effetti sul commercio al electronic payments in the Italian food out. The presence of a default option has dettaglio in 6 grafici’, Il Sole 24 and grocery sector compared to the been proven to dramatically increase the Ore, May. same period in 2019—SMEs rate of participation in employee savings 13 Salvioli, L. (2020), schemes.16 ‘Lockdown e riaperture: gli effetti sul commercio al dettaglio in 6 grafici’, Il Sole 24 Similarly, the possibility of COVID-19 Ore, May. contagion via cash may be acting as an 14 Fortune Italia (2020), ‘Aumentano del 1.940% I ‘exogenous nudge’ (or ‘social default effect’), pagamenti digitali per estetica e boosting the use of digital payments as parrucchieri’, May. a ‘default option’. Moreover, opting out of 15 Oxera (2020), ‘How are digital payments is becoming more difficult, Italian consumers reacting to with both authorities and merchants COVID-19?’, April. 16 Thaler, R. H. and Benartzi, S. increasingly encouraging the use of digital (2004), ‘Save more tomorrow: payments to reduce the possibility of using behavioural economics to increase employee saving’, contagion. Journal of Political Economy, 112:S1, pp. S164-S187.

However, the fact that a relatively high 17 TuttiItalia (2020), ‘Indici proportion (roughly 23%) of the Italian demografici e struttura della popolazione’. Source: Salvioli, L. (2020), ‘Lockdown e riaperture: gli population is more than 65 years old may effetti sul commercio al dettaglio in 6 grafici’, Il Sole 24 18 Econopoly (2015), constrain the shift to digital payment.17 The ‘Tutela del risparmio, perché Ore, May. level of financial literacy is, in fact, relatively non possiamo fare a meno dell’educazione finanziaria’, Il low among this share of the population: Sole 24 Ore, December. Moreover, SumUP data registered an only 35% of individuals who fall in this 19 Gabanelli, M. and Magatti, increase of 97% in the number of digital bracket have a good level of financial M., ‘L’Italia sta pagamento payments for cafés, pubs and restaurants literacy, while the average across the major caro l’analfabetismo digitale. Le colpe e i rimedi.’, Il Corriere during the first week of phase 2 (18–24 advanced economies is roughly 45%.18 della Sera.

May).12 Handicraft saw an increase of 19% Moreover, the general level of digital literacy 20 Paysafe group (2020), ‘Over during the same period, but during previous among Italians is considerably below the half of UK consumers have tried a new payment method since weeks it registered peaks of 57%. Outdoor European average; roughly 45% of Italians the outbreak of COVID-19. and farmers’ markets, which traditionally have a good level of digital knowledge, New consumer research from Paysafe shows 84% of people make more use of cash, saw an increase in while the average in Europe is 55%.19 The are thinking about payments digital payments of 26% during the first week development of projects aimed at promoting differently in 2020’, May. of phase 2.13 However, barbers and the digital and financial literacy may help not 21 Boston Consulting Group (2020), ‘Retail Banking in the beauty sector recorded the highest increase only to accelerate a shift to digital payments, New Reality’, May. in digital transactions— up by 1,940% but also to promote more active and compared to the pre-COVID-19 situation.14 effective use of financial services by Italian citizens. Why are Italian consumers increasingly Oxera Consulting LLP is a limited using digital payments during the It remains to be seen which factor will prevail liability partnership registered in COVID-19 crisis, and will this trend in the medium and long run. Currently, no. OC392464, registered office: Park Central, 40/41 Park persist in the medium term? Italian consumers seem to be comfortable End Street, Oxford OX1 1JD, UK; in with using digital payments more frequently. , no. 0651 990 151, branch office: Avenue Louise 81, 1050 The data we have analysed suggests that More than half of the respondents to a Brussels, Belgium; and in Italy, REA no. RM - 1530473, branch the use of digital payments in Italy has survey run by Paysafe stated that they are office: Via delle Quattro Fontane significantly increased since the beginning ready to increase their use of contactless 15, 00184 Rome, Italy. Oxera Consulting () LLP, a French of the COVID-19 crisis. It is likely that this payments in the short term due to health and branch, registered office: 60 Avenue rapid change was prompted by the drastic safety concerns.20 Charles de Gaulle, CS 60016, 92573 Neuilly-sur-Seine, France and change in consumer behaviour triggered by registered in Nanterre, RCS no. 844 the spread of the virus. During the lockdown Meanwhile, the increased use of digital 900 407 00025. Oxera Consulting () LLP, a Dutch branch, period, government restrictions precluded payments seems to be part of a bigger registered office: Strawinskylaan 3051, 1077 ZX , The or limited consumers from buying goods in trend affecting the whole Italian banking Netherlands and registered in physical shops other than supermarkets and system; the COVID-19 pandemic has Amsterdam, KvK no. 72446218. Oxera Consulting GmbH is registered pharmacies.15 Many consumers switched to triggered significant changes in customer in , no. HRB 148781 B (Local online shopping for both essential and non- behaviours with respect to banking services, Court of Charlottenburg), registered office: Rahel-Hirsch-Straße 10, essential purchases, and they increasingly with more than half of the Italian population 10557, Germany. Although every relied on home deliveries for food. Both retail ready to increase their usage of online and effort has been made to ensure the accuracy of the material and the online shopping and food home-delivery are mobile banking.21 All these factors appear integrity of the analysis presented herein, Oxera accepts no liability services that are very well suited to digital to suggest that there is a great momentum for any actions taken on the basis payment solutions. for innovation in the Italian payment and of its contents. No Oxera entity is either authorised or regulated by any banking sectors. Financial Authority or Regulation An additional explanation for the increase within any of the countries within which it operates or provides services. in the use of digital payments during the Anyone considering a specific COVID-19 crisis may be found in the investment should consult their own broker or other investment adviser. behavioural economics notion of ‘nudging’ Oxera accepts no liability for any specific investment decision, which (or the ‘default effect’). This refers to must be at the investor’s own risk. reinforcements and indirect suggestions © Oxera 2020. All rights reserved. Except for the quotation of short that can influence the decision-making passages for the purposes of criticism process of groups and individuals. This or review, no part may be used or includes, for example, when a firm uses reproduced without permission. automatic-enrolment saving plans; employees are automatically enrolled