The path towards digital payments

Thu, 27th January 2022

Despite paying in cash still being the most used payment method in Spain with figures way above the most advanced countries in the EU, digital payments are taking over. This growing trend which has been significantly driven by the COVID-19 pandemic is indisputable. However, besides the pandemic, regulation also plays a key role, as is shown by the new Law against Fraud.


Law 11/2021 came into force last summer to further limit cash payments This way, thanks to this new regulation, the maximum cash payment that can be made to purchase a product or service has been reduced from €2,500 to €1,000 (or its equivalent in foreign currency).

This new legislation stipulates that for anything above that amount, citizens in Spain must choose a digital payment method (transfer, credit or debit card, etc.). The fines set for infringing this tax measure affect both the payer and the collector. Both of them will receive a fine for 25% of the value that exceeds the established 1,000 euro limit.

The advantages of digital payments

Why are these types of regulation practices being imposed? There are 2 reasons. On the one hand, there is the transposition of EU law into Spanish domestic law regarding tax avoidance practices. On the other hand, the prevention and fight against tax fraud requires a comprehensive strategy with an appropriate legal framework including rules and operational measures.

Unlike cash, transparency is an inherent feature of digital payment methods. In fact, Spain is fully equipped in terms of digital payment and collection infrastructures. Therefore, taking advantage of these digital payment infrastructures would boost the Spanish economy and have an economic impact in terms of tax revenue as an approximation to the opportunity cost.

This is reflected in the Report on digital payment methods in Spain: challenges and opportunities which was drafted last year by the Payment Innovation Hub and Afi, in cooperation with Caixabank, Visa and Samsung. It states that digital payments would increase tax revenue on public earnings by between €1.6 and €3.2 billion per year.

This document aims to open up dialogue about approaching public policy iniatiatives that will boost the adoption of digital payments in Spain, as well as detect the challenges and opportunities offered by this transition. It is a guide to encourage an ecosystem of modern, safe and efficient digital payments.

Some of the main advantages given in the report to keep moving forward with digital payments are:

  • More resource efficiency so as to reduce the shadow economy
  • Improvement in the quantity and quality of the information for decision-making
  • A more dynamic economy

9/10 Spaniards prefer making digital payments

The study shows an analysis and diagnostic in terms of the infrastructure and user perception. Thus, Spain is ahead of the European average when it comes to the amount of cards in circulation and the point of sales terminals. Also, almost 9 out of every 10 citizens state that they prefer making digital payments so as to avoid making any unnecessary trips to make payments in person, as well as for speed.

Despite this, cash is still the most used method of payment, although its popularity has decreased significantly in recent years. This could be explained by behavioral factors, due to the misled perception about the supposed costs of digital payment methods which discourage their use on a daily basis, in particular when it comes to smaller transactions.

Lines of action

In order for Spain to take advantage of all this potential and continue along the path towards digital payments, the report mentions 3 routes:

  1. At the forefront of a regulatory framework that fosters digital payments

Taking into account Spain’s track record and that of other European countries, the most appropriate measures should not be focused on limiting the use of cashbut rather on encouraging and motivating the adoption and use of alternative digital payment methods, placing them on an equal footing in terms of acceptance.

Several European countries analyzed have already taken measures to promote the digital payments. The report shows evidence by analyzing the impact of policies implemented in other countries in order to model a proactive roadmap. For example, the cashless scheme implemented in Italy, as well as tax and monetary incentives for digital payments in Greece, France, Denmark and Ireland, among others.

  1. Opportunities with the public administration

As a result of the analysis of all the collection and payment methods offered by the public administrations, the general option is direct debits on both a regional and a national level. Furthermore, digital card payments are possible for most taxes, fees and public prices in 8 of the 17 autonomous communities in Spain. From the citizens’ perspective, 2 out of 3 individuals prefer to use remote payment methods instead of paying in person at the bank or at the public administration itself. Regarding the most common payment methods for self-employed people and small businesses when it comes to receiving payments, two thirds state that they receive them via bank transfers, 41% in cash, 36% via direct debit and a quarter via credit or debit cards.

Therefore, the majority assessment of the payment methods made available by public administrations to receive payments is that they are considered limited, slow, complex and cumbersome. This is proof of the opportunities and advantages that digital payments offer to foster innovation in the public sector.

Finally, within the current context of the pandemic and with regard to administrations’ disbursements to citizens, the report also concludes that it would be positive to explore other avenues beyond transfers on account for the disbursement of social aid, such as card-based programs that allow for rapid distribution, increasing the transparency of disbursements and subsequent evaluation by public agencies of program success.

In short, with the aim of contributing to the joint action of public authorities, financial institutions and payment systems, the study provides a guide to promoting the transition from cash to digital payments. Undoubtedly, payment services are an essential link in the infrastructure that drives the economy. Through digitalization and continuous technological development, digital payments offer citizens, businesses and public administrations (essential agents of the economy) features in their daily transactions that cash lacks: ubiquity, information, traceability, convenience, flexibility and efficiency.

The pandemic has been a turning point in that it has broken down the resistance to change that slowed the growth of these payment methods. But there is still a long way to go when it comes to encouraging a convenient, modern, safe and efficient digital payment ecosystem.

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