Reducing cash transactions: the Italian Banking Association’s experience Tirana, 28.07.2008 Oscar Occhipinti

Reducing cash transactions: the Italian Banking Association’s experience

Tirana, 28.07.2008

Oscar Occhipinti

2

CONTENTS

1 The European and Italian scenario

2 ABI’s “War on Cash” project

3 Conclusions

3

Percentage (%) of cash transactions on card and other cashless payments

Italy Germany

92,6 90,381,2 78 76 69,2 74,4 67,1 71,6 64,8 64,8 58,8

3,9 9,113 8,1

12,3 11,7 16,9 11,6 15,9

6,615,8 18,1 14,9 17,8 17,5 20,6 16,7 18,3 23,6 25,33,11,63

5,8

2000 2004 2000 2004 2000 2004 2000 2004 2000 2004 2000 2004

Contanti Carte Altri

Belgium Holland UK France

CAGR

Reference: ECB – Bluebook 2006

-2,6 -2,5 -2,4-2,3-1-0,6

In Italy the replacement of cash with other payment instruments proceeds slowly, less than in other European countries...

1. The European and Italian scenario

4

... although growth of card payments is consistent

Percentage (%) of card payments

11,5

11,7

8,1

9,1

3

1,6

15,9

16,9

12,3

13

3,9

3,1

0 2 4 6 8 10 12 14 16 18

France

UK

Holland

Belgium

Germany

Italy

2000 2004

+16,7%

+7,1%

+12,5%

+11,1%

+9,7%

+8,4%

CAGR

Reference: ABI, ECB – Bluebook 2006; Banca d’Italia; Poste Italiane: Balance sheet 2004 and 2005; ABI; SSB 2005


5

Existence of a valid paymentinstrument alternative to cash

High fragmentation of the economic landscape

Cashless payments are not used in Italy mainly due to social and economic reasons ...

Cultural barriers Limited card acceptance by small merchants

Attitude to use electronic payments is weak

Modern payment instruments have never collected a sufficient critical mass

of clients

The Italian economic landscape is made of thousands of small merchants and not

of large merchants

Main causes for low

penetration of cashless instruments

Only 16.5% of merchants with less than 2 employees has a POS


6

The strongholds of cash

... while the reasons to prefer cash remain strong

• Widespread usage

• Transaction speed

• Anonymous

• No costs perceived

• Clear perception of spending amount

Reference: ABI


7

Cash is mainly used for low-value payments …

User Preference

Ticket Value

Low Medium High

Low

Medium

High

Debit card

Credit Card

Pre-paid card

CashPre-paid

card

Debit card

Credit Card

Credit Card

Debit Card

Pre-paid card

Cash

Cash


8

Average amount (€) of card payments in Europe 2003 - 2005

Debit Card – European average1

Credit Card – European average

Refernce: Blue Book August 2007

The growth index for debit cards is equal to 0,8%

The growth index for credit cards is equal to 2,1%

The growth index for the Italian PagoBancomat debit cards is equal to - 0,2%

... while cards are preferred for medium and high-value payments

1Italy, Spain, Germany, Belgium, Holland, UK

PagoBancomat - Italiy

49.6 50.1 50.4

68.3 69.071.2

63.1 62.7 62.8

2003 2004 2005


9

In Europe card transactions grow more than other cashless instruments ...


Reference: ECB Bluebook December 2007

1) Escluding pre-paid cards

Number of cashless transactions1) in EU25- Bln. trx; 2001-2006 -

38,4 38,3 41,2 44,3 46,4 48,7

25,323,0

21,018,9

17,214,9

53,3 55,560,1

65,369,4

74,0

2001 2002 2003 2004 2005 2006

Cards1)

Amount (€) of cashless transactions’1) in EU25- Bln. €; 2001-2006 -

401

340300

278277277

1,5

1,4

1,21,10,9 1,0

403341

301279278278

2001 2002 2003 2004 2005 2006

Other cashless

instruments

Cards1)

CAGR‘01-’06

11%

5%

7%

CAGR‘01-’06

11%

8%

8%

Other cashless

instruments

10

3,5 3,9 4,1 4,4 5,0 5,3

2,8 3,1 3,4 3,84,2 4,7

2,03,3

4,04,6

5,25,7

6,5

2,01,9

1,71,5

1,3

0,80,7

0,70,6

0,60,6

0,80,80,7

0,70,6

0,5

12,013,7

15,116,7

18,4

2001 2002 2003 2004 2005 2006

Number of debit card transactions1) per Country in EU 25

- Bln. trx; 2001-2006 -

CAGR‘01-06

11%

11%

9%7%

11%

Amount (€) of debit card transactions1) per Country in EU 25- Bln. €; 2001-2006 -

CAGR’01-’06

11%

13%

6%10%9%


14% 12%

9% 11%181 194 209 247 269

201 218255

286328

124

166

199213

230

255

288

162

181

121116

109103

93

37

3431

2825

23

5453

494645

35

660754

808888

996

1.100

2001 2002 2003 2004 2005 2006

Italy

Other EU25

France

SpainGermany

1) Excluding pre-paid cards

Italy

Other EU25

France

SpainGermany

UK

20,1

UK

… and the Italian debit card market shows one of the best overall increases across Europe in the number of transactions …


11

Number of debit1) cards per Country in EU 25- Bln.; 2001-2006 -

CAGR‘01-’06

6%

3%

-1%

3%


5%

-1%

38 40 42 44 46 56

54 59 63 66 6768

93 94 90 89 8988

33 33 33 33 323227 29 29 30 3031

97109 112 115 123

131

342369

387364 377

406

2001 2002 2003 2004 2005 2006

Other EU25

Germany

UK

France

SpainItaly

1) Excluding pre-paid cards 2) Population older than 15

8%

Number of debit cards1) per inhabitant2) in some EU Countries

- # cards/inhabitant older than 15; 2006 -

1,1

1,4

1,2

0,8

0,6

Spain

Italy

France

UK

Germany

… although the circulation of debit cards in Italy is not as widespread as in other Countries in the EU 25 …


1211/04/23

… and the number of POS in Italy is within the European average

POS utilization in Europe

Indice di utilizzo del POS tra punti che accettano

carte

100

25

46

47

63

29

86

0 20 40 60 80 100Percentage (%)


13

Reference: A.T.Kearney using ECB and ECR data 2007

# trx/cards and utilization of debit cards in some EU Countries- 2006 -

1) Population older than 15

GermanySpain

Italy

France

UK

# debit cards/ person1)

# trx / cards

Dimension shows overall number of debit card transactions

Car

d u

tili

zati

on

Card penetration

0

10

20

30

40

50

60

70

80

90

100

110

0,5 0,6 0,7 0,8 0,9 1,0 1,1 1,2 1,3 1,4 1,5

Number and utilization of debit cards in Italy compared to other EU Countries


14

CONTENTS


2 ABI’s “War on Cash” project• Overview• Non-regulatory measures• Regulatory measures• New products and services

3 Conclusions

15

Scope of the “War on Cash” project is to curb the use of cashP

os

sib

ile

ac

tio

ns

Non-regulatory measures

Regulatory measures New benefits for

merchants

Non-regulatory measures Regulatory measures Development of new

products and services

Merchant driven:Strengthen electronic payments’ acceptance

User driven:Incentivize use of electronic payments

Modern cashless instruments may produce new benefits

Dri

ve

rsS

co

pe Curb the use of cash by boosting utilization of cashless instruments

2. ABI’s “War on Cash” project - Overview

16

CONTENTS



3 Conclusions

17

The main non-regulatory measure adopted by the “War on Cash” project is a promotional-educational campaign on the use of cards

The “War on cash” promotional campaign

Value proposition: More cashless payments will reduce the use of cash and its costs

Scope

Multi-channel promotional and educational campaign developed by PagoBANCOMAT (Italian debit card) and VISA to:

Boost the use of debit and credit cards by stressing the advantages of such instruments compared to cash….

… also involving merchants

2. ABI’s “War on Cash” project – Non-regulatory measures

18

CONTENTS



3 Conclusions

19

ABI has identified a series of possible regulatory measures …

“War on Cash” project: proposed regulatory measures

Definition of a cap to cash transactions

Definition of a cap above which wages/salaries cannot be paid by cash

Credit transfers to citizens must be executed by Public Administration Offices using modern payment means (for example, pre-paid cards)

De-taxation of specific contributions (for example, health insurance or home restructuring) only if paid by electronic means

Reduction or cancellation of registration taxes on basic bank accounts

1

3

4

5

6

Obligation for professionals, merchants and Public Administration Offices not to accept cash for payments which top a determined amount

2

2. ABI’s “War on Cash” project – Regulatory measures

20

… some have been already adopted …

Law n. 248 of 4 August 2006

Specific bank accounts

Professionals (such as lawyers, dentists, etc.) are obliged to open specific bank accounts, which must be kept separate from their personal ones, in order to collect all the earnings of their working activity


21

… some others have been adopted and then cancelled…

Law n. 248 of 4 August 2006

Payments to professionals

Professionals (such as lawyers, dentists, etc.) shall not be entitled to receive payments in cash for amounts which top 1.000 €.Such limit shall then come down to € 500 starting from 1st July 2007 and then to € 100 by 1st July 2008

Law Decree n. 112 of 25 June 2008

Proposed cancellation of the above-mentioned provision


22

… some new other regulatory measures will possibly be adopted

Law Decree n. 112 of 25 June 2008

Non-cash payment of taxes

Tax officers will be entitled to collect tax contributions paid by cashless means, such as credit cards and cheques.


23

CONTENTS



3 Conclusions

24

The development of specific offers for small merchants may increase acceptance of cashless payments

Po

ss

ibil

e a

cti

on

s

Regulatory measures

Merchant awareness

New benefits for merchants

Merchant driven:Strengthening of

acceptance of cashless payments

Benefits deriving from cashless payments VS. Merchant dimension

Possible benefits

from cashless

payments

Merchant dimension

Small Medium Large

Increased acceptance by

small merchants would boost

overall usage of cashless payments

Possibile drivers Special pricing models (es. package

pricing) New technologies (es. CLess, Mobile

etc)

Commercial Driver

Infrastructural Driver

2. ABI’s “War on Cash” project – New products and services

25

M-Payment services, for example, can increase adoption of non-cash payments, representing a great opportunity for banks

M-Payment can reduce barriers to adoption of electronic money

Driver

Cash Electronic money

Cash, credit/debit card, ...

M-Payment

• Proximity Payment - Contactless

• Reduction of transaction time in payment execution

• No signature / PIN required

• Remote payment – Mobile Payment

• Increasing of purchase opportunities

• Developing of new payment services

Barriers: low penetration of POS, cost of services, ...

• New market opportunity

• Increase in purchase opportunities

• Increased adoption of electronic money instruments (i.e. credit/debit card, …)• Introduction of new, convenient and secure banking channel• Development of a value proposition that combines distinctive banking services such as M-

Banking (money transfers, stock trading, alerts, …) and M-Payment services• Increase in electronic money penetration

Direct impact

Indirect impact

2. ABI’s “War on Cash” project – New products and services

26

CONTENTS


2 ABI’s “War on Cash” project

3 Conclusions

27

Conclusions

Authorities’ iniziatives

Italian and European Authorities (EPC, European Central Bank, Banca d’Italia, ...) have identified the diffusion of cashless payments as a strategic driver towards modernization and internationalization of society. The SEPA start-up and the PSD publication have strengthened such commitment.

Clients’ needsClients (both users and merchants) claim safer, cheaper and highly accepted payment instruments. Furthermore, the rise of new needs (i.e. long-distance purchase, money transfer) suggest the development of modern payment instruments (i.e. mobile payments).

The role of the banking system

The banking system should play an outstanding role in the development of cashless payments, by promoting the use of current payment instruments and by developing new ones, capable of helping users eliminate barriers to their use.

3. Conclusions

28

THANKYOU FOR YOUR ATTENTION

Tirana, 28.07.2008

Documents

Reducing cash transactions: the Italian Banking Association’s experience Tirana, 28.07.2008 Oscar Occhipinti