Payments are made using payment instruments. Cash, for example, is a payment instrument. So too are checks. However, digital payments are not one instrument but rather an umbrella term applied to a range of different instruments used in different ways. In this section, we provide some parameters for creating this definition.
Since there is no one standard definition of a digital or e-payment, you should settle on a clear and implementable definition at the start of any measurement exercise. The subject matter is complex, but there are two key dimensions of categorization that are most important:
1. The nature of the payment instrument: through which means—paper or digital—are the instructions carried.
2. The payer-payee interface: whether the payer, payee, or both use an electronic medium in a payment transaction.
DIGITAL VS ELECTRONIC PAYMENTS: WHAT’S THE DIFFERENCE?
Neither term has a standard definition; but both are generally used to mean the same thing—transfers of value which are initiated and/or received using electronic devices and channels to transmit the instructions. Hence in this manual they are interchangeable. Note that digitizing is often applied to processes other than payments: hence a government could digitize its accounting system, but still make payments by paper (check or cash). For more on e-payments.
The nature of the payment instrument
A key first step is understanding which instruments are even available, and on what basis, in your country and how they can be grouped according to their nature.
Digital payment instruments can be grouped together with respect to their underlying nature in two ways:
• Narrow choice- ‘Paper’ vs ‘non-paper’: Instruments which rely on a paper-basis for authorization, such as checks, traveler’s checks, and money orders, are regarded as ‘non-digital’ and all other instruments are regarded as ‘digital’.
• Broad choice - ‘Cash’ vs ‘non-cash’: Every instrument other than cash is regarded as ‘non-cash’ and therefore digital, since each usually takes a digital form at some stage in the transfer of value.
In reality, there is a spectrum between pure digital and pure physical in how most instruments other than cash are transacted over the whole transaction cycle. The choice of which definition option to apply will depend on the purpose. For example, if you are measuring to highlight the need to transition away from existing payment instruments due to, for example, cost, then you can make a case for focusing on the broader definition (non-paper instruments). However, if you want to highlight the potential of payment flows to be digitized, you may consider checks as much closer to digital than cash, therefore including them with ‘non-cash’ in the narrow definition. In an increasing numbers of countries, paper checks are truncated into a digital message on deposit, and since they require the payer to have an account, and are also traceable, they are less like cash in these attributes and more like account-based digital options.
Note, however, that technology is challenging the boundaries of all instrument-based definitions—for example, countries like Canada are considering the introduction of digital cash, where digital legal tender is transferred directly from payer to payee in a payment transaction, and where paper and metallic currency will become obsolete. Hence a ‘cash’ transaction could be ‘digital.
