The Bank of Italy promotes the reliability and efficiency of payment instruments in order to preserve confidence in money and non-cash alternatives.
The development of new payment instruments, capable of exploiting the possibilities offered by information and communication technologies, modernizes the payment habits of private individuals, businesses and general government entities, improves the fluidity of transactions and supports economic growth.
The pursuit of these objectives is especially important in Italy, where the use of non-cash alternatives to money is less widespread than in other European countries. These objectives also underpin the initiatives taken by the monetary authorities to create the Single Euro Payments Area (SEPA) and to define a single legal framework for the provision of payment services in Europe under the Payment Services Directive (PSD).
Payment instruments permit the transfer of funds between various parties. The most common distinction is that between cash and non-cash alternatives such as cheques, bank transfers, direct debits, debit cards, credit cards, and e-money. The development of information technology has seen a rise in the frequency of e-payments made over the internet and m-payments made by mobile phone.
The availability of a broad range of payment instruments offers advantages in terms of flexibility of use, lower costs and greater security. To benefit from these advantages it is important to know the rules for their use and to compare the offers available in the market. It is advisable to read carefully the accompanying leaflets and brochures describing the products offered, follow the guidelines given by lenders, and know your rights and duties as a customer.
Cash (banknotes and coins) enables an immediate transfer of value between two parties and can be spent again immediately. Cash is generally used for small face-to-face transactions between two persons; broadly speaking, this guarantees the anonymity of the payments. Its status as legal tender means that cash must be accepted to settle any kind of transaction, except where the amounts involved exceed certain thresholds necessary to ensure traceability.
The euro is legal tender in Italy. Introduced on 1 January 1999, for the first three years it was used as a non-physical currency for cashless payments and accounting purposes before entering into circulation in physical form on 1 January 2002, when it replaced banknotes and coins denominated in lire. It can accordingly be used for payments of up to €1,000 but for sums above that amount non-cash alternatives must be used (see Article 12.1 of Decree Law 201/2011).
Non-cash alternatives to money
Non-cash payment instruments are provided by authorized intermediaries such as banks, payment institutions, electronic money institutions, and postal offices. They enable funds to be transferred from debtors to creditors through a structured process: the activation of a payment order, its processing within a circuit that exchanges payment data between service providers, and the settlement of the transaction.
In Italy there are two types of cheque: ordinary cheques and banker’s drafts. Ordinary cheques are paper-based notes of credit bearing a written order by a current account holder to their bank to pay a third party (or themselves) a sum of money, which can be paid on demand by the issuing bank. However, under supervisory provisions banks must take every care to avoid the dangers inherent in the improper or fraudulent use of cheques: these precautions – which envisage strict measures for identifying bearers and establishing their good faith – can make it difficult for individuals to cash cheques if they are not current account holders. If, instead, the bearer of the cheque has a current account, he or she can pay it into their account and the amount shown will be credited on settlement.
Banker’s drafts are notes of credit issued by a bank drawn on its own funds after the amount of the draft has been debited or paid for in cash by the payer. As with ordinary cheques, the bearer can request payment in cash, but the bank must take every care to prevent improper or fraudulent usage; the amount of the cheque can also be paid into a current account.
These are payment orders made by debtors to transfer a sum of money to a creditor’s account, usually by debiting the debtor’s current account. The maximum time it takes for the operation to be completed is one working day after the payment order has been accepted by the intermediary; paper-based transfers can take up to one more working day to process. Since 1 August 2014 national transfers in the euro area have been replaced definitively by SEPA Credit Transfers (SCTs).
Direct debits are orders given by creditors to transfer a sum of money to their own account by debiting that of the debtor; they are usually used for regular payments with predictable due dates (for example utility bills). Debtors give prior authorization of the debit by signing a contract with the provider or, in some instances, with their own bank. Since 1 August 2014 the bulk of direct debits has been made in SEPA format.
Typically laminated, bearing a microchip and magnetic strip, payment cards are issued by authorized intermediaries; they enable holders to withdraw money from automated teller machines (ATMs) and to pay vendors directly at the point of sale (POS terminals) by entering a personal identification number (PIN) or by signing a receipt. They can also be used to conclude e-commerce transactions over the internet. Other payment cards, used for low-value transactions, do not require holders to enter a PIN. Efforts are also under way at European level to standardize the use of these cards within SEPA. Payment cards can be credit cards, debit cards or prepaid cards (e-money).
Credit cards are issued by a bank or company on the basis of a contract, enabling holders to make purchases at accredited stores and withdraw cash at ATM machines, in what is effectively a cash advance charged at a particular rate of interest. The amounts spent are paid by the holder after the card has been used, generally on a monthly basis, in full or in installments; these are normally drawn on a current account but direct payments are also possible.
Debit cards are issued by a bank or other intermediary at which holders have an account. They enable purchases at accredited stores and interest-free cash withdrawals from ATM machines. The cards have monthly limits on purchases, and monthly and daily limits on cash withdrawals. Unlike credit cards, the amounts due are debited directly from the debtor’s account upon each purchase or withdrawal; if there are insufficient funds, the authorization will be denied. Customers can also pay bills, top up their mobile phones and access other services at ATMs.
Prepaid cards enable holders to make payments and withdrawals based on amounts previously deposited by the bearers at the issuing company. You do not have to be a current account holder to have a prepaid card. This kind of card can be reloadable or not reloadable. Payments and withdrawals are automatically debited from the sums paid in by holders to the issuing company until they are used up. If the cards are reloadable they can be topped up within the limits allowed by law and by the issuer. Prepaid cards can have their own IBAN and can be used to make and receive payments in the same way as an account, for example through bank transfers or direct debits.
There are also two kinds of prepaid cards, called "limited cards”, which can be used only: a) to acquire goods or services only in the premises of the issuer or within a limited network of service providers under direct commercial agreement with a professional issue; b) to acquire a very limited range of goods or services. This kind of cards can be issued by non-authorized intermediaries.
E-payments and m-payments
The spread of new information technologies has encouraged the development of online payment services called e-payments. These include diverse solutions ranging from traditional payment instruments used online to more innovative services, developed above all to facilitate e-commerce; similar solutions have emerged for making m-payments via mobile phones and tablets.
Among the innovations in payment instruments contactless cards are perhaps the most noteworthy. Holders do not need to physically insert the cards into any device but simply hold it up to a secure reader. More recently, mobile phones or tablets use near field communication (NFC) technology to enable payment by tapping the devices on a contactless payment terminal.
The use of non-cash alternatives is encouraged by financial inclusion policies which guarantee that all users have access to current or payment accounts and which facilitate the acceptance of e-payments by a broader platform of goods and services providers.
Financial inclusion plays an important role in the setting of global policies. In this context, the Committee of Payments and Market Infrastructures and the World Bank published a report entitled ‘Payment aspects of financial inclusion’ which examines the demand and supply side factors which affect financial inclusion in the field of payment systems and services and suggests measures that could be adopted to address these issues. To this end, the report sets out seven guiding principles: to support the work undertaken by authorities in increasing access to transaction accounts and augmenting the use of electronic payment services; to spread the message that the use of efficient and reliable payment services improves the wellbeing of individuals, households and businesses; to push towards increased efficiency, flexibility, integrity and competitiveness in the market for services in order to encourage inclusion and stability; to facilitate the creation of a regulatory framework based on an approach that is proportional to the risk involved in order to promote access to payment services.