Classifying Payment Instruments: A Matryoshka Approach

Abstract

The payments market is a dynamic market. Novel (electronic) payment instruments are launched at a fast clip, while others disappear after only a short lifetime. Unfortunately, a classification that adequately distinguishes all possible payment instruments by their most relevant characteristics is still missing in the literature. In this paper we introcuce a classification that - just like a Matryoshka doll - consists of multiple nested layers. Our classification has five layers, comprising the type of money, the core payment mechanism, the channels and networks involved, the form factor and authentication device used, and ultimately, seven generic payment methods. The core idea behind our approach is that a specific combination of features from each of the five layers ultimately defines a real-lfe payment instrument. Besides its comprehensiveness, the added value of our classification is that it reveals the true nature of a payment instrument, which on closer scrutiny may not be all that novel.

Keywords: electronic payment instruments, classification, money, technology

JEL Classification: E42