Payment Instruments

Money (banknotes, coins, book money and electronic money) is transferred in payment transactions either in the form of cash or in the form of non-cash transfers of money. Cash payments are mainly associated with smaller amounts during everyday purchases by individuals, while non-cash transfers consist of simple, secure, reliable, quick and cheap transfers of money and management of this money at payment service providers, who enable these non-cash transfers based on the use of payment instruments. The term “payment instrument” is defined in the first paragraph of Article 16 in the Slovenian law by the Payment Services, Services for Issuing Electronic Money and Payment Systems Act (ZPlaSSIED).

There are paper and electronic payment instruments. With paper payment instruments the payment order is submitted to the payment service provider in paper form. These are mainly credit transfers based on the use of a paper payment order and cheques and direct debits when electronic records and electronic communication channels are not used for their execution.  Electronic payment instruments are instruments that grant the user (remote) access to funds held in a payment account by using an electronic device and/or electronic communication channels. They include credit transfers, which are based on the use of an electronic payment order, payment cards and also direct debits when electronic communication channels are used for the execution of payment.

Depending on who initiates payment, payment instruments can be classified as credit payment instruments, where the payer (usually the debtor) initiates the payment, which debits his/her own payment account or his/her own cash (credit transfers), or as debit payment instruments, where the payment is initiated by the payee (creditor) and debits the payer’s account on the basis of a mandate received in advance by the payer (debtor). With debit payment instruments payments are thus initiated by the creditor. Debit payment instruments include direct debits and cheques.

The most widespread payment instrument are payment cards, whose holders can use them for withdrawing cash at an ATM or for making payments at a POS terminal or online. There is a distinction between debit cards and credit cards in terms of the method of settlement. Debit cards allow the holder to execute payments whereby the card issuer immediately after each use debits his/her transaction account for the amount of the payments executed, while credit cards allow purchases or cash withdrawals up to a credit limit agreed in advance. There are revolving credit cards, where the card holder settles the liabilities in part at the end of the accounting period, and deferred payment cards, where the holder settles the liabilities in full at the end of the accounting period.