Payment instruments and payment orders

Money (banknotes, coins, scriptural money and electronic money) is transferred via payment transactions either in the form of cash or in the form of non-cash transfers of money. Cash payments are primarily associated with smaller amounts in everyday purchases by individuals. Non-cash transfers of money have an increasingly important role, as they provide for the simple, secure, reliable, fast and cheap transfer and the use of funds at payment service providers. Payment service providers enable non-cash transfers of money on the basis of the use of payment instruments. The term “payment instrument” is defined in the Payment Services and Systems Act (in Slovene).

Types of payment instrument

We distinguish paper and electronic payment instruments. Electronic payment instruments allow for the user (remote) access to funds held in his/her account by using an electronic device and/or electronic communication channels. Paper payment instruments are those for which a 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, cheques and direct debits when electronic records and electronic communication channels are not used for their execution. Electronic payment instruments include credit transfers, which are based on the use of an electronic payment order or a payment card, and direct debits when electronic communication channels are used for the execution of payment.

Payment instruments are also classified according to the criterion of the initiator of the payment. Credit payment instruments are those ordered by the payer (typically the debtor) and chargeable to his/her account or deposited cash. Credit payment instruments include credit transfers executed by payment service providers on the basis of submitted paper or electronic credit transfer orders. Debit payment instruments are those ordered by the payee (the creditor) and chargeable to the payer’s account, usually on the basis of an authorisation previously received from the payer (the debtor). In debit payment instruments, the initiative for payment comes from the creditor. Debit payment instruments include direct debits and cheques.

Payment instruments also include payment cards, whose holders can use them for withdrawing cash at an ATM, for payment at a POS terminal, or online. A payment card has a built-in electronic data medium that enables the user to make a payment at a POS terminal by charging it to the funds in his/her transaction account, under the condition that the user knows the unique identification code (PIN) or proves to be the eligible holder of the payment card by his/her signature. The use of contactless payment cards for payment up to a certain amount is generally not conditioned by entry of the PIN.

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 during each use the card issuer immediately debits his/her transaction account by 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, the issuer bank charging interest on the unsettled amount, and deferred debit cards, where the holder settles the liabilities in full at the end of the accounting period. According to the criterion of the issuer, payment cards are divided into those issued by banks and savings banks, those issued by major retailers, and those issued by firms whose sole activity is issuing payment cards.