The Italian government recently proposed raising the legal limit for cash transactions from €1,000 ($1,052) to €5,000, as well as allowing businesses to refuse electronic payments for transactions below €60 without incurring any penalties. The aim was to address the issue of so-called hidden taxes on merchants (including interchange and merchant acquirer fees) as electronic payments become more prevalent. However, the ideas faced criticism from stakeholders including the Italian central bank, and the €60 proposal was subsequently withdrawn.

Despite this, it is worth examining the impact of the shift from cash to cards on merchants. According to GlobalData’s 2022 Financial Services Consumer Survey, 76.4% of Italian in-store transactions are made using electronic payment methods, with credit and charge cards (29.2%) and debit cards (25.0%) being the most common.

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Nexi is the leading merchant acquirer in Italy; it charges fees of 4.10% on credit card transactions and 4.19% on debit card transactions, in addition to a fixed fee based on the product being sold. Meanwhile, interchange fees from Visa and Mastercard range from 1% to 2% on all debit and credit card transactions. Taken together, these fees can significantly reduce the profits of small businesses, which is particularly problematic amid a cost-of-living crisis.

However, promoting cash payments can have negative consequences. Holding more cash rather than keeping their money in the banking system (where it is subject to the policy rate), individuals and businesses make it more difficult for central banks to achieve their desired level of economic activity and inflation – with inflation in Italy currently nearing 12%.

The need to promote real-time payment acceptance

In addition, access to cash is declining in the country. The number of ATMs in Italy fell from 47,678 in 2018 to 43,467 in 2022, partly due to branch closure programmes.

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Instead of focusing on cash vs. cards, the Italian government should consider promoting the adoption of real-time payment acceptance among merchants. Instant payments have lower fees, as they typically do not include interchange fees. They offer faster access to funds for merchants as well as improved security. This can prevent cash flow issues for merchants, especially if they are relying on those funds to pay their own bills or make additional purchases.

To increase the adoption of instant payments, the government could provide incentives for merchants to adopt the technology, such as tax breaks or grants. It could also educate merchants about the benefits of instant payments and offer support to help them implement the necessary equipment and systems. In addition, the government could work with financial institutions and payment processors to develop and promote instant payment systems, making them more widely available to merchants.

Neku Dibie is a payments analyst at GlobalData