Voice of the Industry

How the pandemic affected the digital payments landscape in Italy

Monday 28 June 2021 09:16 CET | Editor: Alex Guzu | Voice of the industry

Marco Fava and Piergiorgio Fiorino from CleverAdvice discuss the effects of the pandemic on the Italian digital payments landscape

The Italian economy was hardly hit by the Covid-19 pandemic. According to the Bank of Italy, in 2020, overall consumption fell 11.7% with goods experiencing a 6.4% reduction and services a more severe 16.4% decline.

During this gloomy year, the use of electronic payments fell only slightly, with the value of goods and services settled with payment cards – the bulk of Italian e-payments – down by a mere 1.4%. The fall in consumer expenditure increased the share of card payments value to 26.7% of consumer expenditures, up from 24.1% in 2019.

The pandemic accelerated cash displacement

A deeper look at the data suggests that during the pandemic, electronic payments significantly displaced cash. In fact, sales of good and services including hospitality, durable and semidurable goods fell by 40.5%, 17.8%, and 8.7% respectively, while e-payments stood at 2019 levels, so the result was a decline in cash payments.

A key reason for this switch in behaviour is that the hard lockdown imposed in the spring of 2020 turned ecommerce from option to necessity, so many tried it for the first time – 85% of individuals who shopped online in March and April 2020 never made online purchases before. The number of e-shoppers accelerated by the pandemic was key in limiting the decline in online sales to under 1%. The dramatic 58% reduction in Travel & Tourism transactions – mostly of high-value – was offset by strong growth of online sales in sectors where sales are traditionally executed in-store including Food & Grocery (+63%), Pharma & Healthcare (+39%), and Beauty (+24%), while 77% of e-merchants acquired new customers. This boosted the share of ecommerce to 5.1% of total retail sales, up from 4,5% in 2019 and emphasised the role of ecommerce in supporting consumption.

Consequently, cash displacement increased and electronic payments grew by 3.4%. Electronic payments in Italy remain skewed toward payment cards with prepaid experiencing the highest growth at nearly 20%, at the expenses of credit card payments that decreased 5%. Because of the switch from face-to-face to online purchases, it should not come as a surprise that a research from CleverAdvice shows that over half of Italian cardholders feel safer in using a prepaid card online. Transactions per prepaid cards increased well over 8% YoY with higher peaks during lockdowns. Transactions per credit card decreased nearly 5% as higher-value purchases fell sharply in 2020, while payments per debit card fell 2.6%. Most Italians are not used to make online transactions via cards, because historically, their popular domestic scheme (pagoBancomat) cards could not be used online.

A couple of government measures further stimulated cash displacement and the use of electronic payments:

  • cashback: each F2F purchase paid with e-payment means accrues a 10% cashback up to EUR 15 for individuals that make 50+ F2F transaction per semester. In addition, each semester, the 100k heaviest users get a bonus of EUR 1,500;

  • tax credit: merchants with revenues below EUR 400k get a 30% tax credit of fees charged to acquire payment transactions with open-loop cards and other traceable means.

How digital payments behaviour changed during the pandemic

Digital payments value still accounts for only 6% of card payments – a lower level with respect to other European countries – but grew 12% in 2020 compared to a 1.4% decline in card payment value.

Despite over seven months of lockdown, in-store payments from smartphone or wearable devices nearly doubled in 2020 to EUR 3.4 billion while duties and fines paid remotely via a mobile device grew 30% to EUR 1.2 billion. Only payments related to mobility services – taxis, ride healing, public transit, and parking – experienced a decline.

These trends indicate an accelerated shift toward mobile payments as growth was much stronger than in the past. Paying from individual devices became more popular during the pandemic as it avoids touching anything that is not belonging to the individual and so perceived safer from a health perspective.

Post-pandemic outlook

As the restrictions are gradually being relaxed, people are welcoming the opportunity to purchase at physical stores again, and we expect a spike in in-store sales in the short term. But a more interesting question is what behaviours are here to stay and which ones are likely to fade away when the pandemic will be history. Here are some insights into what we expect going forward:

  • significant growth in ecommerce due to a gradual but steady increase in sales of travel and tourism services, and many products traditionally bought in-store that will partly continue to be sold online;

  • the increase in prepaid transactions partly due to their high usage online is likely to continue. We expect usage of digital prepaid products (i.e., wallets) to grow more than cards;

  • in light of the increased popularity of smartphone and wearable payments during the pandemic, this trend will likely continue, especially for lower-value payments;

  • most people are likely to return to physical restaurants and reduce purchases at take-aways and food-on-delivery;

  • 60-70% of remote working days are likely to gradually disappear resulting in more payment transactions at restaurant premises. But as remote working will partly remain in the foreseeable future – in particular at larger services companies – we expect transactions at smaller restaurants and fast foods not to return at post-pandemic levels for some time.

Moreover, many consumers that have turned into ecommerce customers during the pandemic will return to purchase at POS for several types of items including groceries, detergents, furniture, cosmetics, apparels, and sport equipment. However, they are likely to buy online more items than they were used to before the pandemic. It is not a change in trend but a return to normal life because touching objects and main street shopping are aspects that certain age groups may miss and cannot live without, since they are seen as more engaging experiences that ecommerce can't deliver. Consumer ethics is an additional rationale: 74% of individuals feel buying at a physical store has ethical and social value as it is a tangible benefit for the local economy.

Source: SWG interviews of 800 Italian adults on 9-11 June 2021

About Marco Fava

Marco Fava is Managing Director at CleverAdvice. With over 20 years of experience in the payments industry, Marco helps issuers in improving their Open Banking strategies and use case profitability, commercial payments strategy, customer journeys, digital onboarding, and conversion rates. Marco speaks regularly at conferences across Europe.

About Piergiorgio Fiorino

Piergiorgio Fiorino is a business analyst at CleverAdvice. He carried out competitive analysis that helped leading Italian payment services providers to get a deeper understanding of the market dynamics, with a particular focus on strategic processes implementation in online payments.

About CleverAdvice

CleverAdvice is an independent professional services firm focused on the payments industry and an active member of the European Payments Consulting Association (EPCA). Areas of expertise include Open Banking strategies and use cases, Digital onboarding, Customer journey, Strong Customer Authentication, Commercial cards and payments, Instant payments, Conversion at checkout, and Customer retention techniques.

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Keywords: digital payments, pandemic, ecommerce, merchants, online payments
Categories: Payments & Commerce
Countries: Italy
This article is part of category

Payments & Commerce