Round table on “Cash circulation and non-cash payments strategy” XXV INTERNATIONAL FINANCIAL CONGRESS BANK OF RUSSIA Round table on “Cash circulation and non-cash payments strategy” Enrica Teresa Vignoli Head of the General Cashier Directorate

Is it realistic the existence of a cashless payment system? CONTENTS: What are the strategic positions of Bank of Italy in cash management area? Trends of cash The Eurosystem position and goals The cash cycle in Italy – goals of the Bank of Italy Is it realistic the existence of a cashless payment system? Cashless payments in Italy vs. EU Drivers for change at EU level, the digital agenda, EU and Italian regulation 2

What are the strategic positions of Bank of Italy in cash management area? 3

Trends of Cash: Circulation of Euro banknotes in the Eurozone (quantities) End of year: Euro banknotes in circulation (millions of pieces) Change over previous year 2013 16,511.7 5.3% 2014 17,528.2 6.2% 2015 18,895.0 7.8% 4

Trends of Cash: Circulation of Euro banknotes in the Eurozone (value) End of year: Euro banknotes in circulation (millions of euros) Change over previous year 2013 956,184.8 4.8% 2014 1,016,538.1 6.3% 2015 1,083,430.3 6.6% 5

Trends of Cash: Circulation of Euro Banknotes in Italy (quantities) End of year: Euro banknotes in circulation (millions of pieces) Change over previous year 2013 3,059.6 6.8% 2014 3,214.4 5.1% 2015 3,371.2 4.9% 6

Trends of Cash: Circulation of Euro banknotes in Italy (value) End of year: Euro banknotes in circulation (millions of euros) Change over previous year 2013 144,671.9 -1.1% 2014 142,159.1 -1.7% 2015 142,027.4 -0.1% 7

Stop of the issuance of 500 euro banknote Decision of the Governing Council to permanently stop producing the €500 banknote and exclude it from the Europa series (4 May 2016). The € 500 would remain legal tender and could continue to be used as a means of payment and store of value Replacement by other denominations €200 (25%), €100 (50%) and €50 (25%) Impact on demand of other denominations 8

The Eurosystem position The Eurosystem is NEUTRAL with regards to the use of cash or non-cash payment instruments The Eurosystem has a SPECIAL RESPONSIBILITY for cash, as the only legal issuer of euro banknotes. The Eurosystem goals on cash are to promote: EFFICIENCY, SECURITY, AND RESILIENCE of the cash cycle. 9

The Eurosystem goals MONITORING RECIRCULATION AND DEVELOPING ANALYSIS OF THE CIT AND CASH PROCESSING SECTOR  security, efficiency, resilience PERIODICAL REVIEW OF THE USE OF CASH AND CASH INFRASTRUCTURE  resilience and efficiency PREVENT DISRUPTIONS OF CASH DISTRIBUTION DEVELOPING BUSINESS CONTINUITY PLANS  security, resilience DEVELOPING MORE COST-OF-CASH EXPERTISE AND ENHANCE SOCIAL COST ANALYSIS efficiency 10

The cash cycle in Italy – general overview BANCA D’ITALIA General Cash Department BdI’s Branches Recirculation 20% CIT (transport and cash processing) CIT (banknote transports) Recirculation 42% Banks that have outsourced cash processing Recirculating Banks Recirculation 38% counters ATM Cash-in Cash-out P U B L I C RETAILERS 11

Increase efficiency security and resilience of the cash cycle BANK OF ITALY’S GOALS: Keep the Bank of Italy’ share in the cash cycle Streamlining the branch network (internal efficiency) CASH- EDI and the Cash Tracing system (external and internal efficiency/ security) Enhance the monitoring of Cash handlers’ activity Implementing business continuity plans 12

The Cash-IT & CTS projects Exchange of coin stocks btw CH Bank y CIT x U A A2A on SWIFT A A Exchange of coin stocks btw CH BRF POC CIT x A CRF lodgement withdrawal CASH TRACING SYSTEM Bank y U STORAGE STORAGE Packaging OPENING SORTING Reconciliation 13

The monitoring of Cash handlers Critical area: 30 % Critical area: 19 % Score Judgement 1 Satisfactory 2 Mostly satisfactory 3 Partly satisfactory 4 Partly unsatisfactory 5 Mostly unsatisfactory 6 Unsatisfactory   YEAR 2012 2015 No. of CITs: 68 39 14

COBAN: Crisis management Committee Business Continuity COBAN: Crisis management Committee crisis procedures 15

Is it realistic the existence of a cashless payment system? 16

Prospects of cash CASH WILL BECOME LESS RELEVANT due to an unavoidable bigger share of payments made with innovative solutions. Not to forget that cash is expensive for society. BUT CASH IS HERE TO STAY 17

Number of per capita cashless transactions in Europe (2014) Source: ECB, sdw Italy’s lag possibly due to: Lower financial literacy Greater shadow economy 18

Non-cash payments: Italy/EU More recently also IT non cash payments have registered higher growth rates than in the past, especially in comparison with the EU payment statistics. Number of non cash payments – annual growth rate 2010-2012 2012-2014 2015 Italy 2.7% 5.6% 9% EU 4.1% 3.7% Source: ECB, BIS 19

Cashless payments by instruments in Italy 20

Relative importance of cashless payment instruments in Italy (2015) 21

Drivers for change at European level Efficiency Technology Integration Safety Competition Single Market Authorities aim for integration and competition as preconditions for the achievement of the effective European Single Market Market operators look for efficiency and innovation 22

1. Digital agenda for Authorities in the single market Higher efficiency and safety Higher confidence, higher transparency, faster transactions More integration, more innovation, more competition: positive spillovers on economic growth European strategy 2020 (promoting the econonomic growth based on knowledge and innovation) 23

1. EU Regulation PSD2: revision of payment service directive 2007/64/EC (PSD) IFR: interchange fee regulation for card-based payment transactions Goals: increasing the use of electronic payment instruments and competition between payment service providers and payment instruments 24

1. Recent ad hoc national legislation in Italy «Legge di Stabilità 2016» Extension of the obligation (existing for debit cards) to accept credit cards payments at POS (new «POS decree») Lower fees to accept cards payments below € 5 Interchange fee regulation: caps of 0.3% of transaction value for credit cards and 0.2 for debit cards New cash transaction limits: from € 1000 to € 3000 except for money transfer and PA payments 25

2. What solutions does the market offer? Wallet: a virtual space for the storage of data on payment instruments ; users that pay on e-commerce websites select the preferred channel . Faster/instant 24/7/365 payments: Fund transfers, “face-to-face” or “at a distance”, at any time of the day, immediate debiting and crediting for both, the payer and the payee. No need for specific devices at the point of acceptance ; a mobile phone or a computer are enough. Payment cards installed on a telephone device: cards data are registered on a telephone device and also make contact-less payments possible by offering the same functionalities as card payments. Blockchain - distributed ledger technology - virtual currency (bitcoin) 26

Future prospects of payment instruments Increase of innovative instruments due to technological developments that make them more similar to cash Yes but in what time? Difficult to predict. In Italy there could be a sudden jump in the trend What to do? How do we react? Need to merge knowledge to monitor the market on cash and non cash instruments and not to be caught unprepared 27

Thank you for your attention!