About digital and paper payment instruments

Our payment transactions are made with the use of payment instruments. A couple of examples of payment instruments are that of cash and checks. Digital payments are not considered as one payment instrument but fall under the umbrella category that is applied to a wider range of payment instruments that are used in various ways.

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Payment instruments 

When defining payment instruments, these would be either digital or paper. The very nature of that identifies such payment instruments is the payer-payee interface of which the transaction details are carried. For example, a banknote can be a one-dollar bill or a check can contain the details for encashment. Similarly, there are online payment transaction messages that are initiated by the payer to send the funds to the payee. This can be done, for example, through digital payment services like us.paxum.com. When it comes to digital money, the interface is that of using an electronic medium in making a payment transaction.

Physical or digital

There are purely physical or purely digital payment instruments in the payment systems. The whole transaction can be from physical to digital and vice-versa. From paper payment instruments, the payment flows into becoming digitized. In digital form, the money can be cashed out at ATMs or when withdrawing cash from a bank account. 

Paper checks

Paper checks are typically categorized as non-cash but are physical in form. In many countries, those paper checks are being truncated into a digital transaction message when deposited. Since to be able to deposit a check requires the payer to have a bank account, these checks are recorded and traceable. One of the attributes of cash is that is it less traceable and payment transactions can be made without keeping records.

Via electronic means 

When both the sender and the recipient use electronic means to be able to initiate and receive funds, it is considered as a purely digital transaction as it uses electronic interfaces. All payment transactions require two parties to conduct the exchange. Technology is making changes to the boundaries of payment instrument definitions.

Digital cash 

In certain countries such as Canada, there is digital cash that is considered to be a digital legal tender as it is transferred from payer to directly to payee through a payment transaction, and is viewed as a cash transaction. In countries such as Canada and other cashless societies, banknotes and coins may become obsolete in the near future. 

The combinations

There are various combinations of these two dimensions are creating a wider range of definitions. For a payment transaction to be considered as digital, the requirement is that either the payer or the payee is employing a digital medium for authorizing or receiving the payment. To narrow the definition of payment instruments, it would be paper or digital. Though millions of people still use cash for making payment transactions, it does seem that is should ideally become obsolete, as there are cost-savings when using money in digital form. However, there is still a need for having cash in case digital payments are not possible, like when there is a power outage at a retail store and they cannot process digital payments.