Cashless society, Italy VS Sweden

Today cashless payments are nothing special in Sweden; it is often easier to pay in digital form than in cash. The Swedish evolution from a cash based society to a cashless society (also called the cashless revolution) began more than a decade ago. Sweden has taken a leading role in the cashless revolution, as most other countries has remained stuck in a vicious circle of costly physical payments. They look to Sweden for inspiration and best practice. Similar to how the change from a gold standard to fiat money occurred progressively in the 20th century, so the use of physical cash will disappear in the next couple of decades. As countries around the world go through their own cashless revolution, they all tackle the same problems: tax evasion and risks related to the management of physical cash. Most problems with a cash based society are resolved when confronted with cashless technology, as exemplified by Sweden, yet the cashless technology platform brings its own challenges. The cashless revolution advances as the digital revolution advances, with the latter many times driving the former. Other countries can jumpstart their own cashless revolution, avoiding many mistakes, by considering the experiences of Sweden. 

Sweden - a global best practice 

Sweden, as an early adopter of cashless technologies, experienced first-hand what it means for a population to migrate from one technological platform to another. The country had to manage not just the adoption of specific innovations, but also the fundamental shift from one technological platform to another, as well as the public’s perception of the platform change. The journey was far from pain free. The true abandonment of cash really began subsequent to a number of violent robberies in the 1990s when strong and safety focused unions began to argue for its abandonment. The government played an active role by investing heavily in enabling technology such as fibre optics and provided a stable platform for competition between different payment systems. However, the perhaps most important role was that of the innovating companies whom early on realized the advantages of cashless technologies and competed to convince the Swedish population of the advantages of their solutions, which eventually lead to where Sweden is today. These innovative Swedish companies have since gained international acclaim for their innovative cashless solutions. Yet, the same companies must be wary of becoming complacent spectators of the changes in other countries. Instead, they should take an active part in facilitating the cashless revolution in other countries. Like for most major innovations, turning away from international markets means giving other innovators the potential to become market leaders. In this case, it means that the Swedish companies risk failing to realize their strategic advantage as early movers, which could lead to them falling in to the depths of obsolescence instead of reaching their full international potential. 

The situation in Italy

Italy’s economy is often seen as a laggard. In recent years, Italy has been one of the slowest economies to implement new technologies and one of the last to retire old ones. The adoption of cashless technology is perhaps one of its more notable examples. However, in the last years, signals of an imminent large-scale deployment of cashless innovations are becoming increasingly visible. While many technical and bureaucratic problems keep the country of Leonardo Da Vinci stuck in the swamp of physical cash payments – with all its costs and risks - more people are choosing to leave their cash in the bank and solve their payments with a plastic card or mobile phone. 

An active government support

The multitude of governments having governed Italy in the last decades were – and still are - well aware of the fact that the country is behind in the digitalisation process. Each government has tried some measure aimed at reducing the technological gap to other leading economies. First AgID (Agenzia per l’Italia Digitale) was established in 2012 with the aim of digitalizing the Italian bureaucracy and the country as a whole. In 2015, the then Prime Minister Matteo Renzi formed another “task force” with the aim of developing the right technology for digitalising and implementing it in the country as if it was done by a private tech giant on the market economy. Many members of the task force have a strong industry background and its leader, Diego Piacentini, left his role as vice-president of Amazon to lead it. The team has a three-year strategic plan in which it explains in detail its objectives and the specific strategy pursued to make Italians “fall in love” with the new technologies. Mr. Giuseppe Virgone, a member of the team says: 

Best practice in Italy

In some Italian cities, the above phrase can be said already. For instance, we find Italian best practices in the cities of Bergamo and Milan. Both cities developed complementary incentives and policies towards a wider utilization of cashless technologies in different spheres of public life. The results are clear: both cities obtained a steady increase in the use of cashless technology, lasting way beyond any promotional strategy. In Bergamo the turning point happened when, in 2015, national statistics showed that the digital payment utilization rate in the city was one of the lowest among mid to big sized cities in Italy with a mere 15% of payments being cashless. The situation was even graver than initially thought as those effectively not using cashless payment methods were young people, typically early adopters of cashless technology. The city administration, led by the innovation chief, formed a public-private team to encourage the use of cashless technologies. Thanks to many incentives financed by collaborating private institutions, Bergamo increased the usage of cashless payments to one of the highest in Italy. Further evidence of the advantages of cashless solutions is the decrease in unpaid traffic fines in the city, which reduced by 30% thanks to the introduction of several cashless payment solutions by the administration. 

A similar approach was used by the city of Milan; it was one of the first Italian cities to fully implement PagoPA (a web portal to pay debt to public administrations), allowing citizens to make all payments to the administration from their mobile phones. The secret ingredient in the Bergamo and Milan “recipes” is that public legislators adopted innovations making citizens’ everyday activities easier.

The approach is in line with economic theory stating that innovations will be widely adopted if they facilitate the everyday activities of consumers known in Italia as “economia senza scogli”.

The digitalising Italian government

The Italian government has a number of digitalisation initiatives highlighting its drive to digitalize the country and economy. The national Industry 4.0 technology plan and the investment in enabling infrastructure is a case in point. In 2017, the Italian government launched an ambitious tax incentive program, called Industry 4.0, to drive digitalisation in the manufacturing industry in Italy, one of the world’s most important manufacturing nations. An important part of the Industry 4.0 program is a much-needed 7 billion investment in a national high-speed fibre optics infrastructure covering 95% of the country within two years. 

An attractive market for international companies

Finally, another positive tendency highlighting the cashless trend in Italy is the increasing number of international actors in Italy. Apple has made Apple Pay available in Italy, when it is not, ironically, available in an integrated country such as Sweden. In 2018, Samsung pay is expected to be made available and a number of Swedish companies such as iZettle and Seamless are expanding into the country. 

Reflection/discussion

Sweden and Italy exhibits different behaviours to the digitalisation of services. The former has a population and a government that early on embraced the change, with a central plan that helped the deployment and the adoption of the technologies. While Italy, with a more cash inclined population and government, is slower in its embrace of the cashless revolution. One of the main Italian motivations against the cashless evolution, before the implementation of the PSD1 legislation, was that it was costly for end users to pay using a POS terminal as the merchants applied considerable interests to transactions. This fee was derived from high transaction costs imposed by banks and financial institutions. However, subsequent to PSD1 enforcement and even more so after the implementation of PSD2 European legislation, this is no longer the case, and yet many Italian merchants still prefer cash to electronic payments. How can this be? The reasons are many times more trivial than expected. Mr. Giuseppe Virgone explains that many merchants do not use POS or accept electronic payments because they are not aware of the actual cost of the transaction. For example, it is commonplace in Italy to believe that low value payments are not worth accepting because of payment fees, but in reality, the opposite is true. It is still common to see signs in Italian cafés and small supermarkets stating “we don’t accept card payments for amounts below XX €”.

In Sweden, it is normal to accept electronic payments for any transaction – by now even beggars can have card terminals or reference their phone numbers for mobile payments using a service called ‘Swish’. In Italy, the situation is the opposite; most merchants hide the POS or refuse to accept any kind of payment by card, even if they are required by law to accept card payments. However, a recent study by Il Sole 24 Ore, a leading Italian economic newspaper, shows that the amount of POS terminals are on the rise. In the last five years, their numbers have risen by 58%, reaching over 2 million terminals. 

One of the main challenges in creating a POS accepting country is law enforcement and the local culture working against the digital utilization.

Some of the technological enablers for the cashless evolution are already present in Italy, even if a jeopardized situation on the countryside still exists with lacking infrastructure and a hostile culture to the cashless progression. Mr. Virgone states that, Italians, especially those less in touch with the international community, tend to see incentives to adopt a disruptive technology as some rogue plot aimed at giving the state wider control over their life. The implications for an ordinary Italian citizen are clear: tax evasion will be much more exposed to tax authorities if cashless payments are embraced. However, as economic laws will prevail over personal interest, as the cost of electronic transactions becomes cheaper than physical ones and other well-known advantages of cashless technologies become more noticeable, even the most anti-technological shop will eventually adopt the technology. The Italian state with support from the European Union continues to push towards a wide scale adoption of cashless technologies. In January 2018 the new European regulation regarding payment services (PSD2) will have to be adopted by every member state, and in a “static” country such as Italy, it will give some respite to providers of alternative peer to peer transfers.  In fact, one of the main purposes of PSD2 is to encourage new players to enter the mobile payments market, removing the strategic advantage banks traditionally have had in terms of customers’ information management. Another legislative benefit of the PSD2 directive is that banks will be obligated to accept new players in the market, and share customers’ data with them if accepted by the customer. 

Swedish Fintech companies should take an active part and support Italy in its cashless journey. The current Italian situation should be an enticing one: a G7 country, and the 8th biggest economy in the world, is beginning to narrow the gap with more digitalized countries, moving towards the deployment of cashless systems.

Italy has a great entrepreneurial tradition, but years of recession combined with lacking digital infrastructure has left the country with virtually no domestic offers regarding deployment of unique domestic cashless systems. Sweden, on the other hand, with its forefront technology and its wide adoption of cashless technologies can offer technology and know-how to accelerate the Italian development. The Italian ruling class views the cashless development in Sweden appreciatively and aims at adopting the technologies too. Nobody has said that the technology and the enablers of Italy could not be the same ones as in Sweden.

If you have any questions about the information in this case study contact eric.marini@italia-svezia.com