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Summary VHD 320: Theme 4: Electronic Payment methods
Summarised document of theme 4 - electronic payment methods Includes: - Lecture notes - Class slides - Textbook - Practical examples and answers
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THEME 4: ELECTRONIC PAYMENT METHODSContents
STUDY UNIT 1: ELECTRONIC PAYMENT SYSTEMS:.............................................................................................. 1
1. INTRO:...................................................................................................................................................................1
2. THE SA PAYMENT SYSTEM:..................................................................................................................................2
3. THE NATURE OF THE BANK-CUSTOMER RELATIONSHIP IN CREDIT TRANSFERS:................................................3
4. ELECTRONIC PAYMENT SYSTEMS:........................................................................................................................4
Electronic Funds Transfers:...................................................................................................................................4
EFTPOS..................................................................................................................................................................5
STUDY UNIT 2: ELECTRONIC FUNDS TRANSFERS (EFTS):.....................................................................................6
1. INTERNET, MOBILE CELLULAR PHONE AND TELEPHONE BANKING (ELECTRONIC BANKING):............................6
Intro:.....................................................................................................................................................................6
The legal nature of electronic banking:...............................................................................................................7
2. FRAUD, PHISHING AND OTHER UNAUTHORISED ACTIVITIES:.............................................................................8
Phishing scams:....................................................................................................................................................8
Key-logging:..........................................................................................................................................................9
The banks’ approach:.........................................................................................................................................10
3. THE REGULATION OF EFTS:................................................................................................................................12
Introduction:......................................................................................................................................................12
ELECTRONIC COMMUNICATIONS AND TRANSACTIONS ACT 25 OF 2002:........................................................12
CONSUMER PROTECTION ACT 68 OF 2008:.......................................................................................................16
THE PROTECTION OF PERSONAL INFORMATION ACT 4 OF 2013 (POPI)...........................................................16
4. REVERSAL OF EFT PAYMENTS MADE IN ERROR:................................................................................................19
5. UNAUTHORISED USE:.........................................................................................................................................21
STUDY UNIT 3: PAYMENT CARDS:................................................................................................................... 22
1. ACCESS DEVICES:................................................................................................................................................22
Credit cards:.......................................................................................................................................................22
ATM transactions:..............................................................................................................................................25
STUDY UNIT 1: ELECTRONIC PAYMENT SYSTEMS:
1. INTRO:
In our contemporary economy, notes and coins are giving way to a variety of electronic
transfer of value systems that are facilitating innovative payment solutions in daily commerce.
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, The ever-increasing volume of paperwork associated with banking operations necessitated the
development of these electronic systems so as to facilitate the expansion of banking services
and the speeding up of methods of payment.
The use of electronic payment systems is actively encouraged by banks and other financial
institutions because they are cost effective and they easily facilitate transactions allowing for a
more competitive market through expanded customer choice.
Customers are equally eager to use these payment systems, as they save time, are easy to use,
cost effective and in most instances a far more secure payment option than carrying large sums
of cash.
2. THE SA PAYMENT SYSTEM:
The South African payment system facilitates both the exchange of money and the transfer of
value through an electronic system of debits and credits.
The customer (as the end user of a payment system) will either use cash or issue a payment
instruction to a financial institution when they wish to make a payment or have funds released.
o These payment instructions can be in a paper-based form (for example cheques, bills,
traveller’s cheques, documentary letters of credit, debit orders or stop orders) or it can
be in an electronic form (for example an electronic funds transfer (EFT)).
With a transfer of value system, payment usually has two basic steps that can either be
initiated by the debtor or the creditor.
o The party initiating the process will give a payment instruction to a financial institution
which holds the funds.
o The financial institution will transfer the funds to the beneficiary’s account at the same
or another financial institution.
o Where it is the debtor who initiates the process to transfer funds to the beneficiary
creditor (make payment) it is referred to as a credit transfer and the funds are
“pushed” through the payment system from the debtor to the creditor.
o Examples of this would include stop orders and internet banking payments. However,
where it is the creditor who initiates the process, an instruction is given to the financial
institution to collect payment from the debtor. This is referred to as a debit transfer
where the funds are “pulled” through the system into the creditor’s account.
o Examples of these types of transactions include the collection of a cheque or debit
orders.
With paper-based payment instructions, the instruction is completed on paper, in words and
figures and is authenticated by a signature.
o The completed document must, however, be physically transferred between parties
and/or their respective financial institutions to obtain payment.
o This is not so with electronic payment instructions where the instruction to transfer or
release funds is given via electronic means and authentication takes place through a
variety of electronic inputs such as passwords and account numbers.
The payment instructions received (either paper-based or electronic) are then given effect to
by the respective financial institutions, through a mandated system of electronic debits and
credits that result in a multilateral set-off of claims.
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, o This takes place in one of two ways, either there is a bilateral set-off between the
banks themselves (regulated by inter-bank agreements) or a batch of transactions are
routed through a clearing house system for a multilateral set-off between the banks.
o The South African clearing house agreements and inter-bank agreements that regulate
this system are confidential and not available to the public.
Therefore electronic transfers of value systems are not only used by customers or consumers
but also within the inter-bank clearing system.
3. THE NATURE OF THE BANK-CUSTOMER RELATIONSHIP
IN CREDIT TRANSFERS:
In general the relationship between a bank and its customer is a complex multidimensional
relationship that could include contracts such mandate, loan for use, depositum and deposit
taking.
The general consensus, however, is that the nature of the banker-customer relationship in
credit transfers is based on a contract of mandate.
o Each service provided by a financial institution to its customer will also have specific
terms and conditions of use attached to it (for example the terms and conditions for
using internet banking).
In terms of the general contract of mandate, the common law requires the bank to exercise
reasonable care and skill when performing in terms of their given mandate, to do so within a
reasonable time, in good faith and without negligence.
o The standard that banks will be measured against will be that of the reasonable bank in
similar circumstances and a failure to comply with these duties may result in a bank
being held strictly liable for its breach.
o This, according to Malan et al [Malan on Bills of Exchange, Cheques and romissory
Notes in South African Law (2009) paragraph 209], includes installing and maintaining
security systems that are in line with current business practices and available
technology.
o They also argue, in the light of international trends, that there is a duty on banks to
match account numbers with the names of beneficiaries.
The corresponding duty at common law requires the customer to draw up their payment
instructions with reasonable care.
o This is a duty confirmed in the South African Code of Banking Practice where
customers are required to take safety precautions when using cards, the internet, cell
phone and telephone banking and ATMs and to take due care when transacting.
The Code of Banking Practice is an agreement that South African banks subscribe to, wherein
they accept the jurisdiction of the banking adjudicator and agree to abide by the adjudicators’
rulings should there be a conflict between a bank and its customer.
o However, according to the Code’s provisions it is not enforceable in a court of law, may
not be used to interpret the legal relationship between a bank and its customer and
may not be used to establish a tacit contract, term or trade usage.
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