Retail payment systems

The meaning of payments in general

What are retail payments?

Retail payments are “everyday” payments between individuals – private persons, companies, government agencies – of relatively low value and typically not of a time-critical nature. For instance, retail payments are made by consumers to retailers, or to utility or telecommunication. Salary payments, tax payments and social contributions made by businesses also belong to this category.

Means of payment

A payment enables the transfer of funds from a payer to a payee. The payer and the payee can also be one and the same person. The most used retail payments in the euro area are payment cards, credit transfers, direct debits and banknotes and coins (cash). There are payments that require the physical handling of paper, such as cash and cheques, but an increasing number of payments can be done entirely electronically (e.g. mobile, online banking or contactless card payments).

How the most popular electronic payment instruments in Europe work

Credit transfer 

 A credit transfer is a payment initiated by the payer. The payer sends a payment instruction to his/her payment service provider (PSP), e.g. a bank. The payer’s PSP moves the funds to the payee’s PSP. This can be carried out via several intermediaries.

Direct debit

A direct debit is a transfer initiated by the payee via his/her payment service provider. Direct debits are often used for recurring payments, such as utility bills. They require a pre-authorisation (or “mandate”) from the payer. Direct debits are also used for one-off payments. In this case, the payer authorises an individual payment.

Debit card/credit card payment

Debit cards allow the cardholder to charge purchases directly to his/her bank account. 

Credit cards provide the cardholder with a certain credit limit, within which he/she can make purchases. The credit card holder must pay off the balance in full by the end of a specified period. Alternatively, he/she can pay off part of the balance. The remaining balance is taken as extended credit on which the cardholder must pay interest.

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