Italy lay at the center of the incredibly lucrative trade between Europe and the Middle East, a status determined both by its geography and the role Italians had played in transporting goods and people during the crusading period. Along with the trade itself, it was in Italy that key mercantile practices emerged for the first time in Europe. From the Arab world, Italian merchants learned about and ultimately adopted a number of commercial practices and techniques that helped them (Italians) stay at the forefront of the European economy as a whole.
For example, Italian accountants adopted double-entry bookkeeping (accounts payable and accounts receivable) and Italian merchants invented the commenda, a way of spreading out the risk associated with business ventures among several partners - an early form of insurance for expensive and risky business ventures. Italian banks had agents all over Europe, which provided reliable credit and bills of exchange, allowing merchants to travel around the entire Mediterranean region to trade without having to literally cart chests full of coins to pay for new wares.
One other noteworthy innovation first employed in Europe by Italians was the use of Arabic numerals instead of Roman numerals, since the former are so much easier to work with (e.g. imagine trying to do complicated multiplication or division using Roman numerals like "CLXVIII multiplied by XXXVIII," meaning "168 multiplied by 38" in Arabic numerals...it was simply far easier to introduce errors in calculation using the former). Overall, Italian merchants, borrowing from their Arab and Turkish trading partners, pioneered efforts to rationalize and systematize business itself in order to make it more predictable and reliable.
Benefiting from the fragmentation of the church during the era of the Babylonian Captivity and the Great Western Schism, Italian bankers also came to charge interest on loans, becoming the first Christians to defy the church’s ban on “usury” in an ongoing, regular fashion. The stigma associated with usury remained, but bankers (including the Medici family that came to completely dominate Florentine politics in the fifteenth century) became so wealthy that social and religious stigma alone was not enough to prevent the spread of the practice. This actually led to more anti-Semitism in Europe, since the one social role played by Jews that Christians had grudgingly tolerated - money-lending - was increasingly usurped by Christians.
Much of the prosperity of northern Italy was based on the trade ties (not just mercantile practices) Italy maintained with the Middle East, which by the fourteenth century meant both the remains of the Byzantine Empire in Constantinople as well as the Ottoman Turkish empire, the rising power in the east. From the Turks, Italians (especially the great mercantile empire controlled by Venice) bought precious cargo like spices, silks, porcelain, and coffee, in return for European woolens, crafts, and bullion. The Italians were also the go-between linking Asia and Europe, by way of the Middle East.
The Italian city-states were sites of manufacturing as well. Raw wool from England and Spain made its way to Italy to be processed into cloth, and Italian workshops produced luxury goods sought after everywhere else in Europe. Italian luxury goods were superior to those produced in the rest of Europe, and soon even Italian weapons were better-made. Italian farms were prosperous and, by the Renaissance period, produced a significant and ongoing surplus, feeding the growing cities themselves.
One result of the prosperity generated by Italian mercantile success was the rise of a culture of conspicuous consumption. Both members of the nobility and rich non-nobles spent lavishly to display their wealth and their culture and learning. All of the famous Renaissance thinkers and artists were patronized by the rich, which was how the artists and scholars were able to concentrate on their work. In turn, patrons expected “their” artists to serve as symbols of cultural achievement that reflected well on the patron. The fluorescence of Renaissance art and learning was a consequence of that very specific use of wealth: mercantile and banking riches translated into social and political status through art, architecture, and scholarship.