Classifying payment instruments: A matryoshka approach

The payments market is a dynamic market. Novel payment instruments are being launched at a fast clip. Unfortunately, a classification that adequately distinguishes all possible payment instruments by their most relevant characteristics is missing in the literature. In this paper a classification system is introduced that – just like a matryoshka doll – consists of multiple nested layers. The 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 idea is that a specific combination of features from each of the five layers ultimately defines a real-life payment instrument. Besides its comprehensiveness, the added value of the classification is that it reveals the true nature of a payment instrument, which on closer scrutiny may not be all that novel.