How the law defines a payment instrument
Article 4(14) of PSD2 defines a payment instrument as a personalised device or devices, or a set of procedures, agreed between the payment service user and the payment service provider and used in order to initiate a payment order. The UK's Payment Services Regulations 2017 define the term in almost the same words.
The instrument is not the money and not the account. It is the means by which the user tells the provider to pay: a physical or virtual card, the credentials of a banking app, a tokenised card in a phone wallet.
What PSD2 attaches to a payment instrument
- The payer and the provider may agree spending limits for the instrument
- The provider may block the instrument for security reasons or suspected fraud, if the contract says so
- The user must report loss, theft or unauthorised use without undue delay
- The issuer may not send an unsolicited instrument, except as a replacement
- A payer's loss from a lost or stolen instrument may be capped at EUR 50, unless the payer acted fraudulently or with gross negligence
Why the term matters to a product
Issuing payment instruments is a payment service in its own right, listed in Annex I to PSD2 next to acquiring. Whether a product gives its users a payment instrument therefore bears on which licence, or which licensed partner, stands behind it.
PSD2 leaves out instruments that can be used only in a limited way, such as one accepted only on the issuer's premises or within a limited network of providers.
Payment instrument or payment method?
- Payment method
- The commercial word for a way of paying offered at a checkout: card, bank transfer, wallet. A payment instrument is what one user holds.
- Payment account
- Where the funds are held. The instrument is how orders are given on the account.
- Financial instrument
- Shares, bonds and derivatives, under investment services law. The two terms are unrelated.
Where a payment instrument shows up in a platform
Modules that do the work
- Card issuingVirtual and physical cards, wallets and controls, on the issuer processor you choose.
- AuthenticationSign-in, passkeys and second factors for customers and staff, on your identity provider or ours.
- Accounts & IBANsCustomer accounts with their own IBANs, on the partner bank and the rails you choose.
Platforms that need it
Guides that go deeper
- BIN sponsorship: how to launch a card programmeWho does what in a sponsored card programme, what the BIN sponsor, Visa and Mastercard ask of a programme manager, the rules for crypto-linked cards, and where an EMI licence fits.
- EMI or payment institution licence in the EU, and the agent routeWhat an e-money institution and a payment institution may do in the EU, the capital each needs, safeguarding, passporting, and launching as an agent first.
Where it is written
The laws and standards this page's facts come from.
- Directive (EU) 2015/2366, PSD2, Articles 3, 4, 68 to 70 and 74 and Annex I (EUR-Lex)
- The Payment Services Regulations 2017, regulation 2 (legislation.gov.uk)
General information, not legal advice: what applies to you depends on your services and your market.