When we trade we exchange money for goods or services. Payment and delivery can occur at the same time or at different points in time.
Instruments and channels of payment
All payments essentially entail a transfer of money between two parties, a payment sender and a payment recipient. The way in which this transfer is made is determined by which payment instrument is used and which channel the parties choose to make the payment through.
For cash payments only the payment is finalised at the actual time of payment, when the payment instruments, that is to say, banknotes and coins, are exchanged. No intermediaries are required here. Credit transfers, money transfers, card payments, cheques and bank money orders are, on the other hand, all examples of payment instruments that initiate a transfer of funds between two accounts held by one or more intermediaries, usually banks. They are all therefore said to be account-based payment instruments. Such payment instruments can often be used in different channels. The payment channel states which route has been chosen to send the information on the transaction. A bank card, for instance, can be used for payments over the counter in the shop, payments via the Internet or by telephone.
Use of various payment instruments
Cash is mainly used in transactions involving small amounts and accounts for a large percentage of the total number of payment transactions. However, this percentage has declined in recent years to the benefit of card payments.
Sweden, like the other Nordic countries, has a largely giro-based payment system. In 2007, giro transfers accounted for a good 94 per cent of the total value of transactions and for 29 per cent of the number of transactions. The account-based payment instruments used the most are card transactions. In 2007 these transactions accounted for 62 per cent of the total number. The figure below shows how use of the most common account-based payment instruments has developed in recent years.
Figure: Use of account-based payment instruments in Sweden. Million transactions.
Source The Riksbank
Note: The decline in the total number of credit transfers in 2002 is explained by the fact that the credit transfers arising between two postal credit transfer accounts are no longer included in the statistics, as these are regarded as internal transactions within Nordea.
A more detailed description of the different payment instruments can be found in the publication The Swedish Financial Market (the chapter entitled The Financial Infrastructure). A more in-depth analysis of the use of cash in the Swedish economy can be found in Sveriges Riksbank Economic Review, 2001, number 4. An analysis of card payments in Sweden can be found in Sveriges Riksbank Economic Review, 2003, number 2. The banks’ costs and fees for various payment services are studied in the essay Do prices reflect costs…, Sveriges Riksbank working paper series, working paper no. 172. The links to these publications can be found below.