Italy has been the first market in Europe to truly
embrace prepaid cards and they are now sending its payments market
into overdrive. Italian consumers’ interest in prepaid stems from a
traditionally cash-based society, concerns over security and a tax
levied on ordinary current accounts. Will Cain


Pie chart showing ITALY: Online spending – payment typesThe cards and payments
market in Italy is a market of paradoxes. It is innovative yet
conservative, enterprising yet political, dynamic yet passive.

On a more basic – and probably more
important – level, it is growing – and quickly. Recent growth in
Italian electronic payments is a result of a historical preference
among its consumers for making cash purchases and the recent
success of prepaid cards to persuade them not to.

With Italy still a predominantly
cash-based society – some estimates show 90% of spending is still
conducted in cash – prepaid is seen as a natural channel to
generate greater volumes of electronic payments. The number of
general-purpose prepaid cards in issue have grown 187% since 2005.
There are 24 prepaid cards per 100 adults in the country currently,
compared to 8.34 in 2005. According to CI/Mastercard
research, this number looks set to grow further.

The research indicates 28% of
Italian adult consumers are considering purchasing a prepaid card
in the next 6 to 12 months, a potential market of around 16.3m

The reasons for this growth and
consumer interest come down to Italy’s intensive cash usage,
government initiatives and the ability to avoid a duty stamp tax on
current account bank statements.

In most European countries, cash
tends to be the preferred payment option for transactions below €15
($20). In Italy it is considerably higher, at around €40. This area
of micropayments is the niche where the greatest gains in
transaction volumes and values are to be made in the next 10 years
and prepaid is particularly well placed to do this.

The government has also played an
important role in prepaid. Poste Italiane is the country’s largest
prepaid issuer, thanks to the Ministry of Finance’s decision to
distribute benefits through prepaid cards. It has around 4m of the
cards in issue.

Another feature of the Italian
market which may be driving prepaid growth is the existence of a
tax on current accounts. A duty stamp of €34.20 for consumers and
€73.80 for business accounts is currently applied per year. They
are charged quarterly through bank debits of €8.55 and €18.45
respectively directly from the current account. Prepaid cards do
not qualify for the same treatment because they are not linked to a
bank account. This has spurred interest among banks for IBAN
prepaid card products, which offer many of the same features of a
current account on a prepaid card.

IBAN cards operate in much the same
way as a debit account and, because the card is linked to an IBAN
number, the card can receive salary payments. The main difference
between an IBAN prepaid card and a debit card is that cheques and
overdrafts are unavailable and the product cannot be linked to a
savings account. The two largest banks in Italy, Intesa and
UniCredit, both have IBAN prepaid products. It is understood a
number of other banks are also looking to introduce them soon.

Banks have sought to build their
prepaid businesses in other ways too.

Mobile and prepaid top-ups are seen
as one opportunity. Banca Sella last year redesigned its website to
place a new emphasis on online banking, creating a stylish new
layout and offering new features including the ability to register
and top-up prepaid cards and mobiles.

The application allows customers to
use its internet banking site to view balances. It has also
recently added a function which allows users to top up the prepaid
cards of friends.

Prepaid top-ups, partly for mobile
phones, made up 20% of the bank’s online transactions in 2009, out
of a total of 3.4m transactions. It currently has the highest level
of online spending of any payments provider in the country,
including CartaSi, PayPal and Intesa, according to research from
Italian research company Casaleggio Associati.

This reflects how many consumers in
Italy prefer to make internet transactions on prepaid products to
avoid the risk of incurring fraud on debit or credit cards. Average
fraud levels on prepaid cards are 2 basis points on total
transaction values, compared to an average of 5 basis points on
other payment types.


Quote from Francesco Burelli, Value PartnersCredit cards

Significant progress is also being
made in the credit and debit card arena in Italy. Credit card
spending in countries across the US and Europe has been declining
relative to debit. Italy has so far proved an exception.
Transaction values increased 2.8% to €55.7bn in 2009, and are up
19.5% since 2005.

The number of credit cards per 100
adults has increased from 37.3 in 2005 to 39.5 in 2009, according
to CI estimates. Average credit card spending has
increased from €271.6 to €306.1, up 12.7%.

In 2009, the number of credit cards
in issue in Italy actually declined by 5.7% year-on-year, a result
of card issuers closing inactive accounts, according to Vincenzo
Romano, head of cards at Credem Bank.

“Following the crisis, we have
closed unused accounts to control risk, though credit card spending
has continued to rise,” he said.

This upward trend in credit cards
looks likely to continue over the course of the next year.
CI research shows 21.1% of Italian consumers plan to
obtain a credit card in the next 6 to 12 months compared with 20.4%
who said they were planning on a new debit card.

Industry experts say the growth of
credit card usage in Italy is because consumers are now relying on
credit cards to pay bills and balance their budgets at the end of
each month.

“Consumer credit and unsecured
lending is going up, and that is where the increased card usage is
likely to came from,” said Francesco Burelli, a consultant at
London-based Value Partners.

“It is also not to be forgotten
that Italy has one of the highest levels of cash usage as a
percentage of total cash spend in Europe – approximately 90% of
total spending. Some of the revolving card usage is not coming from
POS spending but from cash advances.”

Consumers have become largely
insensitive to charges for cash advances on credit cards, Burelli

Italy: Key statistics – growth in main payment cards issued indexed (base: 2005)Interest in credit cards
is not likely to result in significant improvement of margins in
Italian payments businesses, however. The majority of credit card
products in the country are not based on revolving revenue but are
set up like charge cards. They are linked to a debit account and
paid off in full at the end of each month.

As a result, Italian credit cards
are not seen as a particularly profitable area for banks to

They are instead focusing their
efforts on the prepaid and debit areas, where there is greater
opportunity to create new-to-bank customers and up-sell them higher
margin products like loans and insurance products.

The shape of the credit card
industry has changed dramatically in recent years. Istituto
Centrale delle Banche Popolari Italiane’s (ICBPI) acquisitions of
CartaSi and the processing and acquiring parts of Bankamericard
have redrawn the competitive landscape in the country

ICBPI now has a strong position on
providing centralised credit card services for smaller Italian
banks. Larger banks including UniCredit, Intesa Sanpaolo and Banca
Monte dei Paschi di Siena (BMPS) have started to develop their own
in-house processing and credit card service arrangements.

The ICBPI deals have created a
two-tier structure in the payments market. Direct issuers, which
include Intesa, UniCredit, Banco Popolare dell’Emilia Romagna,
Credem and Banca Popolare Di Milano, Banca Sella and Banca di
Credito Cooperativo, have the size and volume to operate

Smaller banks will have to rely on
ICBPI to manage their credit card services. A new business, called
Sicard, has recently set up to challenge ICBPI’s in the credit card
servicing market.


Quote from Vincenzo Romano, Credem BankDebit cards

Debit card spending in Italy
increased 3.6% between 2007 and 2008, with no data available for
spending in 2009. Across Europe, the 10-year trend has been for
debit card spending to steadily erode credit card spending.

That has been exacerbated by the
financial crisis in many countries, though in Italy, credit and
debit have improved almost in tandem. Electronic payments have
continued to grow across the board because of the high reliance of
cash in the Italian economy.

Average debit card spending per
card per month was €772 in 2008 in Italy, down from €804.34 in
2007. The number of debit cards per 100 adults in the country was
95.6 in 2009, according to CI research. This has increased
from 82.9 in 2005.

Around 28m of the 36.6m debit cards
in Italy are Bancomat branded, the country’s domestic debit scheme.
Bancomat is a non-profit entity set up by banks. It has 580
members, mainly banks and payments institutions.

The scheme faces similar challenges
to its domestic debit counterparts across the world, namely
competition from international brands and the increasingly
cross-border needs of card users.

The Single Euro Payments Area
initiative demands that cardholders should be able to make card
transactions across Europe, which presents a problem to domestic
debit networks like Bancomat.

The strategy to overcome this
problem has been to co-brand Bancomat debit cards with the
international brands of MasterCard and Visa. This solution solves
the problem for Bancomat of making its cards SEPA-compliant, but
exacerbates the competition it is facing from Visa and

Eighty-five percent of Bancomat
cards are co-branded with MasterCard’s Maestro debit brand and an
estimated 5% are co-branded with Visa’s VPay. Co-branding has
developed to such an extent that issuers are starting to question
the need for the domestic brand, and Visa and MasterCard-only debit
solutions are being introduced into the market.

In other markets, notably Canada,
domestic regulators have prohibited co-branding, partly for this
reason. Another challenge facing Bancomat is the increasingly
cross-border nature of Italy’s biggest banks. Both UniCredit and
Intesa Sanpaolo have sizeable operations in central and eastern

Italy: Italian consumer survey – which of the following are you actively considering purchasing in the coming 6-12 months?Instead of dealing with
multiple domestic debit schemes across the countries they operate
in, some commentators say it may make more sense for them to issue
Visa and MasterCard products and process the transactions in one
central location.

“Do the banks need this degree of
complexity when debit cards are a utility, a card to access your
account?” said one industry expert.

“The card has to be EMV compliant
and standard throughout, so do you need the headache of managing
five to seven different schemes in a patchwork across Europe?
That’s why some are asking why they need Bancomat.”

Supporters of the Bancomat scheme
say it offers some functions currently unavailable through VPay and
Maestro. The main advantages of the Bancomat network are its
extensive ATM network and the ability to top up mobile phones via
ATMs. The brand also has a strong hold in Italian culture, and
people often refer to the cards as “Bancomats” rather than debit

Security has also previously been
an issue on Bancomat’s predominantly magnetic stripe-based cards,
though this is being addressed through a migration to EMV.

The most recent Bancomat estimates
show around 84% of card acceptance devices are able to read chip
and PIN cards. This has seen a decline in fraud from a high of 7
basis points on total transaction values to 5 basis points in 2010.
Sixty-nine percent of Bancomat credit cards are now EMV-ready, 78%
of its ATMs and 41% of its debit cards.



CartaSi and

CartaSi was set up in 1986 by a
consortium of 16 of the largest Italian banks and is typical of
many similar interbank services organisations established across

It provides a full range of credit
card issuing services to its bank members, including call centre,
collections, merchant acquiring, fraud prevention and management
and card issuing.

An organisation of this type is
particularly important to the Italian market, which has a
fragmented banking sector with 788 banks. Many of these are
sub-scale and need to outsource much of the management of their
credit card businesses to CartaSi.

CartaSi was taken over by Istituto
Centrale delle Banche Popolari Italiane (ICBPI) in 2009, a similar
organisation, which acquired 79% of the company’s shares for

CartaSi has 6.5m cardholders in
Italy, mainly credit and prepaid, and issued 700,000 new cards in
2009. It has a network of 425,000 merchants and managed
transactions worth €43.6bn in 2009 on a “global” basis and €27.5bn
in Italy, giving it around a 40% market share of the country’s
electronic payments market.

The business has 34% of the active
credit cards in Italy and counts 2.5m e-commerce users among its
customers. This, however, is likely to change significantly now
some of its major shareholders – Intesa Sanpaolo, Unicredit and
Banca Monte dei Paschi di Siena – have divested their stakes in the

ICBPI has acknowledged these banks
will remove their business from CartaSi, and it has anticipated a
significant decline in revenues for the business in the years up to

ICBPI is reorganising its business
lines into three units as a result:

ICBPI may look to recoup lost
revenues in CartaSi by renegotiating its current agreement to use
SIA-SSB as its sole processor. ICBPI has a 50% stake in Equens
Italia, a joint venture with processor Equens.



Intesa has a total of 6.3m payment
cards in issue, including debit, credit and prepaid, giving it a
market share of around 10% of the entire payment cards market.

The bank is focusing most of its
current attention on the prepaid market, where it sees an
opportunity to grow transaction volumes and up-sell prepaid
customers into more high-margin products. One of Intesa’s strongest
prepaid products is its IBAN card, called Super Flash.


Italy: Prepaid card numbers and market share, 2007 UniCredit

UniCredit had total customer loans
of €115bn in Italy at the end of 2009. The figure declined from
€119bn at the start of the year. UniCredit offers credit, debit and
prepaid cards on Visa, MasterCard and co-branded Bancomat

The bank recently launched the
country’s first coalition loyalty programme with loyalty provider
Nectar. The Nectar Genius Card, an extension of its already
successful Genius prepaid card, enables users to earn points when
spending on the card.

The Genius card is an IBAN card,
similar to Intesa’s product. It was launched in July 2009 alongside
a big marketing campaign.


Deutsche Bank/Bank

Deutsche Bank bought the
BankAmericard in 2006 and subsequently sold of the processing
operations in two tranches to l’Istituto Centrale delle Banche
Popolari Italiane.

The first 49% was sold in October
2006 and a further 41% was sold in January 2007.

Deutsche Bank retained the
BankAmericard issuing operations and remains active in that

It offers six different types of
credit card, which are standard products offered through the
international schemes.

The most differentiatied are its
golf card, which offers reduced fees and accommodation at golf
resorts, and a so-called Day Card, which has insurance

It has a classic Visa product and
also offers services to affluent consumers through Visa’s premier
and platinum products and a MasterCard Deutsche Bank Black product.
The cards are on a loyalty platform called Value Club.


Findomestic (consumer

Findomestic currently has around
10% of the consumer credit market in Italy and is 50% owned by
France-based BNP Paribas and 47% owned by Banca CR Firenze.

It was set up in 1984 and launched
its first credit card products onto the market in 1992. The card
was modelled on Cetelem’s Carte Aurore, a credit card which enabled
customers to pay off loans in instalments.

Instalment-based credit cards,
through the Aura card, remains one of Findomestic’s main products
along with unsecured lending via its Credito Classico product.

They are issued through points of sale, car dealers (in the case
of personal loans), partnerships with banks and insurance companies
and through its domestic network of around 60 branches. The
majority of its new loans are originated through the latter


Italy: Prepaid card numbers and market share, 2005-2007