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Dirty cash: Italians could embrace digital payments amid coronavirus lockdown


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Dirty cash: Italians could embrace digital payments amid coronavirus lockdown

The new coronavirus outbreak could push Italians to embrace digital and mobile payments instead of cash, amid concerns about contamination from banknotes, according to market observers and insiders.

The entire country is in lockdown with schools, universities, museums and sports centers having closed in response to the crisis. Italy has so far been the worst-affected country outside Asia, with the total number of confirmed cases of the coronavirus topping 10,000 as of the morning of March 11.

Cash is king

Digital payments have been slow to catch on in Italy, which is among the 35 most cash-intensive economies in the world, according to The European House Ambrosetti, a Milan-based consultancy. Cash is at the heart of day-to-day economic life in Italy, making up 68% of transactions at point of sale by value, according to a 2017 research paper from the European Central Bank.

But N26 GmbH, a German-based digital bank that has around 500,000 customers in Italy, is already seeing indications of changing customer behavior as a result of the outbreak.

"In the last weeks we registered a slight increase in the number of mobile wallet transactions, and we expect this trend to continue, as more people adjust their everyday habits to reduce the risk of transmission," Andrea Isola, N26 general manager for Italy, said in an email.

Dirty cash?

Other countries with severe outbreaks of the coronavirus raised concerns about banknotes spreading germs. China has reportedly sanitized notes from affected areas to prevent contagion, while Iranian authorities are said to have told the public to avoid cash where possible.

For Roberto Mancone, CEO and founder of Milan-based financial technology and blockchain consultancy WhatIf, the outbreak could cause Italians to reconsider digital payments.

On any given day, there might be as many as 16 million espressos sold in bars and cafes in Italy, of which about 90% are paid for in cash — and each one of those transactions is an opportunity for germs to spread, according to Mancone. Using contactless payment methods instead could play a role in stopping contagion, he said.

"There should be incentives for both customers and merchants to use card or mobile payments, even for small transactions," he said in an interview.

This could include a temporary lowering of processing fees for card transactions for amounts of €5 or €10 or less, which means that small businesses would not lose out if more customers stopped using cash, he said.

Whenever a debit or credit card is used in a transaction, the issuing bank and the payment network — for example, Visa Inc. or Mastercard Inc. — take an interchange fee, a cost that falls on the merchant. This means that small businesses are often reluctant to accept cards for smaller transactions.

It is too simplistic to think that the coronavirus outbreak will lead the public to move away from cash, said Lorenzo Tavazzi, partner at European House Ambrosetti. Awareness of more modern payment methods in Italy is low, and less than half of interviewees in a recent study by European House Ambrosetti knew what a digital wallet was, he said in an email.

However, once the outbreak has died down, the case for strengthening Italy's digital payments infrastructure may start to become more compelling. This could shore up the country's ability to cope with events such as the coronavirus outbreak in future, Tavazzi said.

Note the risks

A Bank of England spokesperson told S&P Global Market Intelligence that while "notes can carry bacteria or viruses," the risk of "handling a polymer note is no greater than touching any other common surface, such as handrails, doorknobs or credit cards."

The European Central Bank said notes do not represent a specific risk.

"So far there is no evidence of the coronavirus disease having been spread via euro banknotes," a spokesperson said. "As with normal seasonal influenza and as on any other surface, respiratory droplets of a person infected with a virus deposited on a banknote could survive for a limited period. The probability of contagion with a virus via a banknote is very low in comparison with other surfaces," the ECB said

The World Health Organization was quoted by several media outlets as saying that banknotes could spread the coronavirus, though a WHO spokesperson told S&P Global Market Intelligence that these reports were incorrect.

Banca D'Italia SpA, the Italian central bank, did not respond to a request for comment.