How much does a payment cost? The reasons why pagoPA helps the State and citizens save money
The platform for digital payments made to the Italian Public Administration guarantees transparency and competition, with positive effects on commissions
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This post is the result of a conversation between the author and Domenico Gammaldi, the Central Co-Director of the Bank of Italy. Its purpose is to explain why each payment involves commissions sent to intermediary credit institutions and how the advancement of pagoPA can have positive effects on imports.
The pagoPA platform for digital payments allows citizens to pay for all public administration services online, quickly, securely and transparently. As more public administrations adopt pagoPA (as required by law), citizens can pay medical expenses, waste taxes (TARI), fines, university tuition and so on in just a few clicks.
pagoPA is a platform designed to be easy and quick to use for everyone, even for those less familiar with new technologies. The system doesn’t manage payments directly. It’s more like highly evolved e-commerce, relying on all possible intermediaries to allow people to pay as they wish, whether it’s through the Post Office, with a credit card, with their own bank account or even through services like PayPal and Satispay.
This way of managing digital payments made to the Public Administration is a choice that:
- guarantees pluralism, because it forces the Public Administration to work with all intermediaries;
- allows citizens to use the payment system they usually use and to choose commission costs with total transparency.
The price of a payment: the PA supermarket
Let’s take a step back. What happens when you pay for a money order at the post office? In addition to the price of the order, there’s generally a commission cost of about 1.50 euros that needs to be paid. This is the price for managing your payment.
But why does “managing a payment” cost anything at all? Let’s try to explain this with an example using the most common of payments: grocery shopping. In this case, the exchange is clear: you only pay for what you put in your cart, plus a little extra for the biodegradable bags. You’re certainly not paying more money to “manage the payment.” No, not a single penny!
But are you sure this is really the case? In reality, whether you’re paying with cash or by card, the supermarket has to bear a cost. In the case of cash, this is the cost of the cashier counting your money, of the anti-fraud system, of the armored vehicle that takes away the collections every night, of the insurance paid for by the store. In the case of a payment made by credit or debit card, it’s the cost of commission paid for each transaction and the financial intermediary managing payments through Pos.
Then where does this money come from, given that it doesn’t appear on the receipt? The answer is right in front of you… “inside” the box of peeled tomatoes and in the pack of pasta you just bought. The supermarket has, in fact, “smeared” the price of these payments across all the items on sale, as well as all other management costs. In short: the commission is there, but you can’t see it.
Until yesterday, or rather, before pagoPA, practically all payments to the Public Administration were made in cash. To make a payment, you typically had to pay in cash at the Inland Revenue Service Agency desk or with a money order at the Post Office.
In addition to being a waste of time for citizens, paying in cash costs the country system over 10 billion euros a year. That’s more than half a GDP point. This happens for the same reason it happens at the supermarket: cash payments imply high management costs related to moving banknotes, securing cashiers and operators, paying for insurance and anti-forgery systems. All these costs are often hidden, because they are “included” in the price of the product or the taxes we pay.
Commissions in the digital age
With pagoPa, we’ve decidedly entered the era of digital payments, for public services first of all. Does this mean that the cost of making a payment will be zeroed? No, but it does mean that the cost becomes transparent and that every citizen can now choose the most comfortable and convenient option — simply, clearly and immediately.
Commissions don’t disappear because even digital payments have a management cost, necessary for guaranteeing the security and reliability of any money transfer operation. For example, when you pay by credit card, you expect that:
- the transaction is successful and reaches the right recipient;
- the payment is valid, traceable verifiable and corresponds exactly to the amount you indicated;
There is a cost associated with all of this, related to:
- infrastructures and applications that deal with security, anti-fraud systems, traceability of operations;
- regulatory and insurance safeguards, which protect uses in case something goes wrong (i.e. reimbursements in the case of a stolen credit card);
- the staff handling all these operational aspects.
These costs are borne by intermediary institutions, which adopt ad hoc technologies for offering services that allow digital payments. This is why every time a credit card payment is made, the merchant pays a commission and we get charged a fee for using the card.
An efficient system for citizens, however, must ensure that commissions are kept as low as possible. How? Simple: through transparency and competition!
This is competition, beautiful!
When they use pagoPA, citizens can choose to pay through any authorized intermediary.
This is an exact approach, which the Digital Team worked on during the pagoPA project: all intermediaries able to manage a payment to the Public Administration made by a private citizen can be included among the pagoPA options. This arrangement gives citizens more choices and creates competition, even when it comes to commissions. Now you (and not the Public Administration) get to choose what suits you best:
- do you want to pay 1.50 euros for a postal order, because you find the system convenient? You can do it.
- have you decided to pay by credit card? Choose the bank that offers you the best commission.
- do you want to pay using your current account? Again, choose your bank and do it.
- do you prefer paying with PayPal, Postepay, Satispay? No problem, these services are available, too.
The choice is yours to pick the most comfortable system with the most convenient commission fees. For example, if you pay by credit card, you can choose the intermediary that offers you the lowest commission (they can vary a lot, from 3 euros to 50 cents per transaction).
Of course, for this system to work, there is one basic requirement: perfect transparency. That’s why, on the pagoPA interface, when you select which channel you use to make payments, the commission costs proposed by each intermediary are clearly indicated, without surprises.
The benefits that this system offers citizens have already been demonstrated by the facts: many commissions on the pagoPA platform are decreasing with respect to the previous period.
Why do commissions tend to decrease?
Transparency and competition work independently to lower fees. This “inertia” is also favored by other factors:
- European regulations on digital payments, effective in Italy on January 1, 2019, give precise limitations regarding the maximum amount that can be charged for a transaction (0,20 percent for debit cards, 0,30 percent for credit cards).
- the development and diffusion of new technologies makes it possible to simplify several operations linked to payment flow;
- the continued increase in the number and frequency of digital payments makes it possible to distribute costs across larger volumes, reducing the burden placed on each individual payment.
This last point is particularly important, insofar as it regards the PA. The dizzying speed with which the platform is spreading (which we shared with you in the post, “The growth of digital payments in Italy: the numbers of pagoPA”) favors reduced commissions for each individual payment.
Everyone wins in the end
Digital payments are a system in which everyone wins.
Citizens win because they spend less money on commissions and can rely on an efficient and transparent system.
The State wins because it can have a more comprehensive view of what enters their coffers and why, allowing them to better plan their expenses.
Intermediary institutions win, thanks to the exponential growth of digital payments made to the PA, which results in benefits for the entire ecosystem.
The country system wins because the development of a state-of-the-art digital system is an important driving force in the digitalization and economic development of Italy.