Learning Unit :3

Payment Systems
Lecturer : S Ndlovu

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Payment Systems

In this LU we shall look at the three different broad categories of payment

systems –
(i) Paper-based transfers;
(ii) Electronic funds transfers (EFTs); and
(iii) Payment cards.
their similarities and differences, and the contentious issues surrounding
some of the methods of payment.

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 Page 21 and 22 of the Module Outline and
Theme 1-5 on Learn

Chapter 7 & 8 of the textbook &

See next slide

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Prescribed Material

 Take & Save Trading CC & others v The Standard Bank of SA Ltd 2004 (4) SA 1 (SCA)
 Cambanis Buildings (Pty) Ltd v Gal 1983 (2) SA 128 (NC)
 Barkhuizen v Napier 2007 (5) SA 323 (CC)
 Nissan South Africa (Pty) Ltd v Marnitz NO 2005 (1) SA 441 (SCA)
 Pestana v Nedbank Limited 2008 (3) SA 466 (W)
 Consumer Protection Act 68 of 2008 (CPA)
 Electronic Communications and Transactions Act 25 of 2002 (ECTA)
 Protection of Personal Information Act 4 of 2013 (POPI Act)
 Code of Banking Practice
 Schulze, H Countermanding an electronic fund transfer 2004 JBL 84
 Schulze, WG E-money and electronic fund transfers. A shortlist of some of the unresolved
issues 2004 SA Merc LJ 50.
 Schulze, WG Electronic fund transfers and the bank's right to reverse a credit transfer: one
big step (backwards) for banking law, one huge leap (forward) for potential fraud: Pestana v
Nedbank (act one, scene two) 2008 SA Merc LJ 290.
 Schulze, WG of credit cards, unauthorised withdrawals and fraudulent credit cards
users 2005 SA Merc LJ 202

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You must be able to answer the following question!!

•Difference between payment mechanism and payment system;

•Explain the scope of the various acts applicable to payment systems in South Africa;
•Compare various categories of payment;
•Discuss the liabilities and/or risk associated with each category of payment;sz
•Discuss unauthorised /erroneous payments/transfers and the right of recovery;
•Advise on all the above with reference to concepts to a set of facts, legislation, case law and/ or journal articles;
•Define all terminology relating to paper-based transfers;
•Explain the rights and duties of all the parties in relation to paper-based transfers;
•Provide an overview regarding the discontinuation of cheque usage in South Africa;
•Apply the relevant legislation and case law to a set of facts;
•Define all terminology relating to the EFT;
•Explain the legal effect of an EFT, with reference to the relationship that arises between parties and their rights and
duties;
•Identify who bears the risk/liability in given circumstances;
•Argue whether or not the banks standard terms and conditions are in line with legislation and case law;
•Apply the relevant legislation and case law to a set of facts;
•Discuss the extent to which certain legislation plays a role in or regulates portions of EFTs;
•Compare different types of card payments with reference to the rights and duties of the parties;
•Apply the relevant legislation and case law to a set of facts;
•Explain all terminology relating to unauthorised/erroneous payments or transfers;
•Assess the lack of specific legislation to deal with problems relating to EFT transactions;
•Discuss the Code of Banking Practice guidelines that can be used to decide on matters of unauthorised transfers; and
•Discuss the extent to which certain legislation plays a role in or regulates aspects of EFTs.

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 Payment Payment
Mechanism System
Any machinery
facilitating the A payment mechanism
transmission of money facilitating a standard
which by passes the method of payment
transportation of thru a banking system
money
And its physical delivery from
the payor to the payee
Example being credit
Example being Credit or debit cards/debit cards and cash
transfers which can be paper
based or electronic

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 PAYSHARP PAYMENT SYSTEM
Launched 14 March 2023
https://www.youtube.com/watch?v=T9UUjRb9uow

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 National Payment System
(Also read page 78 -90 para 3.3.2 of the textbook)

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National Payment System

National Payment System(NPS)=is a set of instruments, procedures and

rules that enable funds to be transferred from one financial institution to another.
This includes all the systems, mechanisms, institutions, agreements, procedures,
rules and laws that come into play from the moment an end-user, using a
payment instrument, issues an instruction to pay another person or a business,
through to the final interbank settlement of the transaction in the books of the
central bank.

Regulated by National Payment System Act 78 of 1998( NPS Act)

the NPS Act provides the legal framework for the SARB’s management,
administration, operation, regulation and supervision of the payment, clearing
and settlement systems in South Africa.
 Sect 10(1)© South African Reserve Bank Act=mandates the Reserve Bank to
establish, operate, oversea and regulate payment, clearing and settlement
systems

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National Payment System

South Africa, consumers and businesses have a choice of more than 18 different
payment systems, ranging from low-value card transactions to high-value bond
exchange payments. These payment streams all form part of the NPS and are
managed by the Payments Association of South Africa (PASA), regulated
and overseen by the South African Reserve Bank(SARB).

Payment Association of SA(PASA) = is the management body currently

recognised by the SARB. It organises, manages and regulates the participation of
its members in the payment system.

• PASA was established in November 1996 to act as a payment system

management body for the banks that provide payment systems to customers.

In April 2019, the Payments Council replaced the National Payment System
Strategy Body. Acting as an advisory body to the SARB, the Payments Council’s.

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 Categories of Payment

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 Categories of
Payment

1.Paper Based 2.Electronic Fund 3.Payment cards

Transfers Transfers =Tangible PM
=Tangible PM =Intangible PM -Credit Cards
Negotiable -Credit Transfers -Store Cards
Instruments -Debit Transfers -Charge Cards
Stop Orders and Debit -Consumer-Activated -ATM Cards
orders EFT Systems

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 Remember ONLY CASH PAYMENT constitutes a LEGAL TENDER I.T.O S.A
Banking Law
However, Payment by means of cash is less practical in comparison to other
means of payment?
What do you think are the risks associated with payment by means of cash and
why are those risks not associated with other categories of payment?

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Recent Developments in payment systems in South Afica

City Press “Santaco in Eastern Cape to launch a cashless payment system in taxis”
https://www.news24.com/citypress/news/santaco-in-eastern-cape-to-launch-a-cashless-payment-system-for-
taxis-20230831( Assessed 2 September 2023)

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 1. Paper Based Transfers

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Paper Based Payments

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Paper Based Transfers

Negotiable Instruments
 Regulated by Bills of exchange act 34 of 1964.(BEA)
instrument that constitutes an obligation to pay a sum of money and that is
transferable by delivery so that the holder for the time being can sue in his own na
me.

 Examples of negotiable instruments include;

1. Bills of exchange,
2. Cheques and
3. Promissory Notes.

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1. Bills of Exchange

 Bill of Exchange
https://www.youtube.com/watch?v=QbMDlJHS1Yw

defined by the BEA as unconditional order in writing addressed by one person to

another, signed by the person giving it , requiring the person to whom it is
addressed to pay on demand or at a fixed or determinable future time, a sum
certain in money to a specified person or his order or to bearer.

 What are the various functions of a bill of exchange?

 Who are the parties to a Bill of Exchange
(See video above)

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2. Cheques

Cheques (watch this)

https://www.youtube.com/watch?v=Aq7q7tZ4Nug

Defined as an unconditional order in writing addressed by one person to a

banker signed by the person giving it, requiring the banker to whom it is addressed
to pay on demand a certain sum in money to a specified person or his
order or to bearer.
 Involves 3 parties:
a) Drawer- person who gives the written order to pay
b) Drawee- the banker to whom the order to pay is addressed
c) Payee/bearer- the person in whose favour the cheque is drawn
Bearer defined in BEA as the person in possession of a bill payable to bearer.

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 How do cheques work? (watch this)

https://www.youtube.com/watch?v=6IlXDDoSYIs&t=18

 Discontinued/ Reduction in the S.A Market ?

-Unanimous decision by the S.A Banks in 2001 not to accept cheques in excess
of R5million.From 2012 PASA further reduces the amount to R500k and the
RSB confirmed this.

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3. Promissory Notes

 Promissory Note( watch this)

https://www.youtube.com/watch?v=JUlKI16fKko
https://www.investopedia.com/terms/p/promissorynote.asp

 Defined by the BEA as an unconditional promise in writing made by one person

to another signed by maker of the note and engaging to pay on demand/fixed
date to a specific person.
 Serves to prove a debt and could be used as security/as an investment or to
obtain credit.

 Differs from cheque promise involves an undertaking to pay not merely

acknowledge of debt with an implied undertaking to pay…….. Proves a debt and
an acknowledgement to pay the debt.

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  How does a promissory note work-?
 the maker of a promissory note engages that he will pay and is
PRECLUDED/CANNOT DENY to the holder his duty to pay.
 There is a promise to pay so the person who has to pay cannot later deny
that he has a duty to pay the other.
 Can be used a security to hold someone liable to pay.
 Functions of a Promissory Note-
 serves to PROVE a debt and is used to ACKNOWLEDGE the debt.
 A promissory note holds the promisor liable to pay.

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 STOP ORDER VS DEBIT ORDER

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Stop Orders and Debit Orders

 Stop Order
 account holder mandates his bank to pay a fixed amount amount on a regular
bases to a specific 3rd party.
 Agreement between you and the bank
 Bank fails= can claim damages from the bank, however in practice a claim for
damages is often excluded as the stop order form signed usually contains a
clause in terms of which the mandator wound have no claim if the bank without
fault fails to make payment.
 Cambanis Buildings v Gal –nb 211 a stop order DOES NOT create a legal tie
between the account holder and the 3rd party or bank and 3rd party.

 Debit Order
 Similar to stop order but the debtor also authorizes the 3rd party to request
payment from the debtor’s bank
 Agreement between you and a third party. The debit order authorises the
third party to take funds from your account

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Rights and duties of parties involved in payment effect by means
of negotiable instruments?

 Cheques= s72B of the BEA there is a duty on certain customers of a bank to

exercise reasonable care in the custody of cheque forms and in the
reconciliation of its banks statements.
 This duty applies to any person who is required by law to have financial
statements audited in terms of Act 80 of 1991.
 Promissory Notes= Liability of a Maker= Meaning the maker of a promissory
note engages that he will pay according to its tenor and is precluded from
denying the holder the existence of the payee and his then capacity to endorse.

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 2. Electronic Fund Transfers

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Meaning of Electronic Fund Transfers(EFT)=
 Defined by the UN Commission on International Trade as funds transfer in
which one or more of the steps in the payment process that were previously
done by paper- based techniques are now done by electronic techniques.
 Schulze states that= an electronic fund transfers constitutes a novation of the
original debt.
 Payment by electronic transfer is an absolute NOT conditional form of payment,
in that the beneficiary accepts that money will in terms of transaction underlying
the electronic funds transfer be paid to him by the originators bank.
 EFTs includes services effected BY;
1. Non- Consumer Activated Systems=this is where banks activate the transfers.
Clearing Houses such as BankserveAfrica have such mandates.
2. Consumer Activated EFT systems such as ATMs/EFTPOS/telephones/banking
apps etc.
see next slide on Consumer Activated EFTs

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 Electronic Fund Transfer Point of Sale Transaction( EFTPOS)- computer
version of cash payment that allows retail payments to be effected by electronic
funds transfer. This is a speed-point!!!
 They constitute an immediate settlement of payment like cash!!!!!
o How does an EFT Point Of Sale transaction work?
• It is used in conjunction with a debit or credit card to effect payment.
• The bank is authorised to effect payment by swiping of the customers card
• and keying his pin number where it will no longer be possible to
counterdemand payment.
• 3 contracts come into existence= client + supplier/ client+ bank/ supplier +
bank

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o Banks Duty in EFTs=mandatory to act with diligence and skill when
transferring funds in an EFTPOS.
o Client’s duty=keep PIN a secret as will be liable for unauthorised transactions if
did not notify bank of loss and cannot revoke transactions in an EFTPOS
o Online vs Offline Systems of EFTPOS?-
 Online=money is electronically transferred directly from card holders
account to suppliers account.
 Offline=the payment instructions are stored on a magnetic tape/ disk foe
processing later.
- Not able to ascertain if there is sufficient funds=the contract between the
bank and supplier will authorise the supplier to accept purchase of EFTPOS
up to a specified limit and the bank undertakes to pay these amounts.
However if the purchase exceeds the supplier will have to get
authorisation from the bank.

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 Smart Card= a recent EFTPOS Plastic card the size of a convectional credit card
with a microcomputer chip embedded in it enabling it to store large
amounts of data and process information.
o Functions as electronic cash/ electronic debit/ credit card/ electronic
purse- (electronic purse is defined as any card or function of a card in
to which money is prepaid and which can be used for a range of
purposes.)
o Not limited to EFT but can be used to pay telephone call/ bus
fares/library book cards.
o Advantages= offers more security and allows offline transactions.
• How do you Effect Payment using a smart card?=smart card reader
to access data a pin then allows smart card to communicates by sending
a randomly coded challenge to the card.

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  Electronic money( E-Money) watch this
 Think of ewallets and cash send!!!!
https://www.youtube.com/watch?v=4xDDUlUJXUw
https://www.youtube.com/watch?v=F0O2ijwhIo0

 Defined as Monetary value represented by a claim on the issuer.

o The money is stored electronically and issued on receipt of funds, is

generally accepted as means of payment by persons other than the issuer
and is redeemable for physical cash/deposit into a bank account on demand.
o It has the advantages of being anonymous+ fast. The money is transferred
instantly available and a PIN/ signature/ verification is NOT necessary.
o Issued by BANKS, ITS NOT CYPTOCURRENCY!!!!!!!

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 Examples of e-money;
1. Prepaid software products=digital cash
2. Mobile money=e-money
3. E-money cards (electronic purses/E-Wallets)= SA Banking code defines
electronic purse as any card or function of a card into which money is
prepaid and can be used for range of purposes.
 ONLY S.A banks can issue e-money and have the following duties;
a) All legislation like Banks Act/FICA and NPS must be adhered to
b) Public must be made aware of conditions of use/liability of the bank and
extend you can claim for damages
c) Deposits must be held in a separate identifiable e-money account

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Electronic Fund Transfers can be divided into;

1. Credit Transfers= when the customer instructs his bank to pay another party.
2. Debit Transfers= the person who needs to be paid requests/claim money from
the bank of the person who owes him.
the transfer is initiated by creditor who instructs his bank to collect payment
and pull funds into his account.

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 REGULATION OF EFTs in S.A

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 At present, South Africa has NOT yet enacted legislation specifically regulating
the use of electronic fund transfer systems. BUT there is separate pieces
of legislation that apply generally to electronic fund transfers.
 Therefore the legal relationship between parties to an EFT is governed
by
a) Common law Principles of of Contract of Mandate =Interbank agreement
(contract between bank and customer). Because there is no one piece of
legislation banks can unilaterally the rules and conditions related to EFTs.
b) and the following pieces of legislation that have general application in
EFTs will be discussed;
1. Electronic Communications and Transactions Act 25 of 2002
2. Consumer Protection Act 68 of 2008
3. Protection of Personal Information Act
4. Code of Banking Practice

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1. Electronic Communications and Transactions Act 25 of
2002(ECTA)
 Does not define electronic transaction, but applies in respect of any
electronic transaction/ data messages.
 Objectives of ECTA are to develop safe and secure and effective
environment for consumers ands business when using electronic
transactions.
 Recognizes that a valid agreement will come into existence when concluded
by a data message.
 The ECTA facilitates and regulates electronic communications and
transactions and is thus pertinent to all mobile Apps.
 The ECTA will regulate things such as making sure the consumer is provided
with an opportunity to review the entire electronic transaction, correct any
mistakes, and withdraw from the transaction before finally placing an order
within the App.

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  A consumer has the right to a “cooling off period” in terms of which they
may cancel any order done through the App within 7 days of receiving the
goods or services, or within 7 days of concluding the contract.
 This can be done by the consumer without reason and without penalty, and
the only costs that may be levied on the consumer are the direct costs of
returning the goods.
 Any payment that was made by the consumer prior to the consumer
cancelling the agreement must be refunded within 30 days.
Duties of the Supplier and recourse for the client
 Contractual duty on the bank to provide systems that are secure
 S43(5)– in this case when making use of a mobile App, bank must utilise a
payment system that is sufficiently secure with reference to accepted
technological standards.
 Bank have a duty to make in for available to client on websites where goods
and services are offered and to provide customers with an opportunity to
review/correct/ withdraw from the electronic transaction

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  S46(6) =bank is liable for any delictual or contractual damages suffered by
consumer due to failure of providing secure methods.
 s43(5)= provides client with the necessary relief where a client suffered due
to fraud or phishing scams
 Section 20 provides for Automated Transactions( see discussion on
next slide)

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  Automated Transactions (section 20 of the ECTA)
automated transaction is defined as an electronic transaction conducted or
performed in whole or part by means of a data message in which the
conduct or data message of one or both parties are not reviewed by a natural
person in the ordinary course of such a business/ employment.
• it comes into existence where one of the parties makes use of an electronic
agent( compute programme)

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  A party using such an electronic agent is presumed to be bound by the
agreement irrespective of whether he reviewed its actions provided that
those terms were capable of being reviewed by a natural person
representing that party b4 conclusion of the agreement

 If a Natural person + An electronic agent interacts during creation of a data

msg and there is an error, what happens?
=the agreement is Void if the electronic agent did provide the natural
person with opportunity to prevent/ correct the error.
* But this notice of error has to be given as soon as practicable after
learning of it + took reasonable steps to return any performance received/
destroy it+ did not use or receive any material benefit/ value.

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 2. The Consumer Protection Act 68 of 2008(CPA)

This Photo by Unknown Author is licensed under CC BY-NC-ND

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 the CPA affects mobile Apps such as
1. the implementation of the App,
2. the advertising and
3. selling of goods and services via the App.
o A person who is launching a mobile App must be abreast of the various
requirements before blindly launching it to consumers.
o Courts must be able to scrutinize that the provisions of a bank customer contract
for unfair contract terms and non compliance with exemption clauses
o Unfair contract terms= s48
o Exemptions=s49

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o Ways in which the Consumer Protection Act also be used by a consumer as a
means of protection against a bank in relation to electronic fund transfers?
 It is thus essential that any and all mobile Apps be accompanied by
complete and comprehensive terms and conditions of use, which must be
provided to consumer.
 The terms and conditions must be in plain and understandable language
 It is of particular importance that these terms and conditions must comply
with the CPA in that they must not be unfair, unreasonable or unjust, nor
must there be prohibited terms as described in the CPA.

 Failure to adhere to these requirements will result in penalties being

imposed on the owner or developer of the App.

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3. Protection of Personal Information Act 4 of 2013(POPIA)

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o POPIA protects personal information processed by a responsible party, by
regulating the manner of processing.
o Section 19= responsible party secure the integrity and confidentiality of personal
information by taking reasonable, appropriate, technical and organisational
measures to prevent loss or unlawful processing of personal information by;
1. Identifying reasonable foreseeable risk to peoples personal information.
2. Establishing and maintaining appropriate safeguards against the risks.
3. Verifying the implementation of safeguards.
4. Continuously updating the safeguards.

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 Legal Effect of an EFT

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 Originators Bank
This is the customers
making payment by
EFT banks

In an EFT, 3
Intermediary
Banks are usually
involved & have Bank
specific duties

Beneficiary Bank
This is bank of a
person being paid by
EFT

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 Duties of the Originators Bank

NB – in a EFT the bank that effects the payment DOES NOT REPRESENT ITS
CUSTOMER BUT FUNCTIONS AS A MANDATARY
1. Common law duties of the bank
a) Reasonable care and diligence
b) Duty must be exercised with reasonable time
c) Duty must exercised Without negligence
d) Perfome its duties in good faith
e) Must facilitate payment without fraud
f) Ensure that payment is clear and unambiguous- Code of BC

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 If customer DOES NOT specify how transfer is to be made= bank can chose as
long as it exercises reasonable care and skill in making the choice.
 Customer Specifies the Type of Transfer To Be Done= use the method if
instruction is deemed to be of essence instruction
 the bank is NOT bound to use that method unless the specification is deemed
to be of essence instruction and the alternative method used is secure and
speedy as the initial instruction.

 Time of transfer= Not specified

1. Can be inferred from the chosen payment method.
2. Or the bank must make it within a reasonable time.
 Also remember the duties of the bank in terms of a bank-client relationship.
 And the Code of Banking obliges the banks to provide reliable banking and
payment systems services and take reasonable care to make those banking
services secure.

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 Financial Advisory and Intermediary Services Act(FIAS Act) code of
conduct=obliges a bank to take care to ensure all relevant services relating to
deposits are safe, secure and reliable.

Duties of the Intermediary Bank

 Can be sub-mandatory of the originator= no contractual relation then NO duty of
care,
 If appointed by the Originators bank= there's is a contract so the Duty of care
and skill applies.

Duties of the Beneficiary Bank

 Regarded as acting on behalf of/ agent of the originators bank when it receives
instructions from them.
 Read page 285- 288

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Paragraph 7 of the Banking Code

The Code of Banking Practice also imposes specific duties to customers in EFTs,
scan the code below

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Duties of Customers I.T.O Code of Banking Practice

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The Code

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 Advantages of Electronic Fund Transfers
vs other methods of payment
1. Payment can be affected without it being necessary for the creditor and debtor being in each
other’s presence
2. The payee receives money faster (between one and three days) compared to issuance of a
cheque, which takes between five to seven days to clear.
3. It is less expensive to pay by EFT than paying by cheque.
4. There are minimal administration duties such as applications for new cheque books, as
well as less stationery as there are no cheque books to hold.
5. there are no risks of replica cheque books being fraudulently produced and payments
effected through the practitioner’s account.
6. EFT payments effected in a controlled environment are safer than cheque issuance, as there
is no risk of a cheque being lost in the mail.
7. There is no risk of staff members writing out unauthorised payments and forging
signatures.
8. The payment system outrightly refuses to effect payment if funds in the account are
insufficient.
9. The banking system generates and maintains proof of payment that assists in resolving
disputes

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Comparison of Different Payment Systems

 Payment instruction in paper-based transfers vs EFT=

1. payment instruction in an electronic transfer is NOT given in permanent
form.
2. physical delivery of a document is not necessary to effect payment

 Risks associated with EFT which do not exist in other

methods of payments
1. Invalid payments may be made and/or payments made to incorrect
accounts.
2. EFT payment system may not be adequately secured.
3. Insufficient audit trail for payments.

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 3. Payment Cards

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 Payment card is defined by Law Insider as means a credit card, charge
card, debit card, or any other card that is issued to an authorized card
user and that allows the user to obtain, purchase, or receive goods, services,
money, or anything else of value from a merchant.

 Main types of payment cards?

1. Credit cards
2. Store and retail cards
3. Charge cards
4. Debit & EFTPOS Cards
5. Cheque Guaranteed cards

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 Credit Cards

This Photo by Unknown Author is licensed under CC BY-NC

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  What is a credit card?= a payment card issued by a financial institution
which is used to pay for goods and services and to obtain cash.
 Parties in a credit card;
1. Card issuer= your bank.
2. Card holder= you the credit card holder
3. Supplier= the stores that you are buying your goods from
 So 3 contracts come into existence between the above parties
 Tripatite Credit Card( 3 parties mentioned above) vs Bipartite = only 2
parties where there is no bank but the credit card is a store retail card.
 How does the function of a credit card differ from the functions
of other payments methods =it is implemented by way of direct payment
obligation.
• The Card issuer contracts with various suppliers to accept credit cards
subject to certain conditions and usually after deduction of a certain
percentage and the card issuer re-imburse card supplier for purchases made
by card holder
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 Most credit card and debit card transactions are affected by
means of the EFTPOS payment system, but there is
a difference between an;

a) EFTPOS Credit Card transaction

b) FTPOS Debit Card transaction

the difference is that EFTPOS Credit Card Transaction, the card holder MAY chose
to pay outstanding balance in full or instalments BUT with a EFTPOS Debit Card,
constitutes full and immediate payment to the supplier.

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 Legislation Applicable to Credit Card Transactions?,
1. Electronic Communication and Transactions Act
2. Consumer Protection Act and
3. National Credit Act.
 National Credit Act
• it Regulates interest rates, charges and fees that apply to credit cards
and Requires a credit provider to conduct a credit agreement.
• Regulations relating to Credit facility = also apply to Credit agreement
which includes;
1. An agreement where a credit provider undertakes to pay an amount as
determined by the consumer on behalf of or at the direction of consumer.
2. Agreement where there is a deferral in payment
3. Agreement where there is a fee, charge or interest imposed in respect of
a deferred payment.

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  Extent the NCA differs from other legislation which
regulates other types of payment cards.
1. A credit provider is required to conduct an assessment.
2. The provisions pertaining to a customer’s right to apply for debt review.
3. Rescheduling of his debts.
4. A credit agreement may be declared reckless by a court.

 Practice of Credit Cards in Inviting Prospective Consumers

1. NCA prohibits a credit provider from making an offer to enter into a credit
agreement where the agreement will automatically come into existence.
2. Credit provider may NOT make an offer to increase credit limit
automatically UNLESS there is a written agreement that the credit provider
can unilaterally do so.

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UNAUTHORISED /ERRONOUS PAYMENTS/TRANSFERS AND
THE RIGHT TO RECOVERY

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 In respect of EFT Payment Method, we will now look at the following and look
at what cases law determines;
1. When is payment considered COMPLETE in an EFT Payment.?
2. What is and when can you COUNTERMAND PAYMENT?
3. What the law says regarding ERRONEOUS PAYMENTS made by the bank
4. What the law says regarding FORGED AND UNAUTHORISED payments by
a bank
5. Can banks REVERSE FUNDS that were erroneously paid, if so when?

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 1. COMPLETION OF PAYMENT IN EFTs.

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 With legislation silent in this regard, how then does one
determine when payment by means of electronic transfer should be
considered complete?
 Because there is NO legislation it is usually best that parties determine their
rights and duties by agreement. However if Not then

 In Non Consumer EFTs(Bank-serve)= the completion is determined by

the rules of the Bank Serve system.

 In EFTPOS + EFT=payment is complete when the creditor acquires an

unconditional right to payment against his bank.

 In INTRA-BRANCH Transfers= payment is complete if

originator(customer paying) and beneficiary(customer to be paid) have
accounts in the same branch= payment takes place when bank
decides to make transfer unconditionaly. Meaning payment is complete
even before the actual credit was made to the beneficiary account and has
not been informed of the decision.

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  In INTER-BRANCH Transfers= accounts at different branches of the
same bank.
-Rules in the Intra branch also apply= when Bank decides to credit the
beneficiary's account unconditionally.

 In INTER-BANK CREDIT TRANSFERS= funds transferred between

accounts held at different banks. Eg A uses ABSA(Originator Bank) bank to
transfer to B using Nedbank(Beneficiary Bank)
-Beneficiary bank(Nedbank) receives payment instructions from the
originators bank (ABSA) and decides to make an unconditional credit to
the beneficiary's account.
-Beneficiary Bank has accepted payment on his behalf.
-Beneficiary bank(Nedbank) acts as agent of the beneficiary(B).

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 2. COUNTERMAND OF PAYMENT?

Meaning When can a customer decide to cancel/ revoke the EFT before completion
of that EFT?

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Remember because Time of delivery for EFT payment can either be a;
a. Bilateral transfer between banks= then delivery of EFT is immediate= cannot
countermand
b. If it has to be routed through a clearing system before the transfer is
transmitted to the recipients bank= then payment is delayed because of the
systems. This then allows/ gives the client a chance to revoke/ countermand
the payment instruction. What does the law say regarding this?

See next slide

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 Requirements for the originator’s bank to be under a duty to abide by its
customers notice of countermand/cancel of a payment order?
1. An instruction must be bought to the attention of the bank
2. The instruction must be clear, unambiguous
3. Instruction must be given at a branch where the originators keeps his bank
account unless agreed otherwise.
 Don’t overthink it, remember an Originators Banks refers to the customers
banks who is using an EFT to pay someone who will receive it in his Beneficiary
bank
A uses Absa, he owe B who uses Nedbank.
A= Originator
Absa = Originators Bank,
B= Beneficiary
Nedbank=Beneficiary Bank.

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 Principles relating to the availability of a customer’s right to
countermand?
1. Paying a customer in the Same Bank as Originator= countermand only possible
until the time when the funds have been transferred or credit given to the
beneficiary.
• If its another bank= only possible before the beneficiary bank accepts
payment from the originators bank.
• Acceptance may take place by returning an acceptance message or by
acting on the payment instructions which may occur prior to transferring
money to beneficiary account.

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  In the case of an instruction to pay a customer at the SAME BANK the notice
of countermand MUST reach the bank before payment into
beneficiaries account.
 Once authorisation for EFT has been given by a customer of a bank or
communicated to the terminal, the EFT CANNOT be countermanded.
 Where it’s an INTER-BANK only possible before the beneficiaries bank
receives instruction.

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 REVERSAL OF EFTs

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• In cases where payment is complete and the bank cannot countermand payment
can the bank reverse the payment?

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 The general principle regarding the reversal of credit transfers is that a bank
MAY NOT REVERSE a credit from a customer’s account WITHOUT that
customer’s authority.

 This principle emanates from the judgment of Take and Save Trading CC and
other v Standard Bank of SA Limited. The Supreme Court of Appeal held that
when a valid transfer is effected by a party into the recipient’s account, the
credit belongs to the recipient and the credit can only be reversed with the
recipient’s consent.
 Therefore a Bank may not unilaterally reverse an unconditional credit without
the beneficiary consent.
 Read the following article which criticizes the court in this regard: Schulze, WG
Countermanding an electronic funds transfer: The Supreme Court of Appeal
takes a second bite at the cherry (2004) 16 SA Merc LJ 668.

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 Circumstances which a bank is entitled to unilaterally
reverse an unconditional EFT WITHOUT the beneficiary’s
consent?
 Can do it without consent if there is a legitimate reason for the reversal like
beneficiary got money by way of;
1. Fraud
2. Theft
3. Mistaken identity
4. Where the credit entry is treated as provisional/ conditional
5. Wrong amount was transferred
6. Correct amount was transferred to the correct person but on wrong date
7. Wrong bank effected transfer
8. Wrong account was erroneously credited.

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  The Bank's Right to Reverse a Credit Transfer:

 Pestana v Nedbank Limited 2007 JDR 0353(W)- court of 1st instance

 Pestana v Nedbank Limited 2008 (3) SA 466 (W)- court aquo( P.M)
 Nedbank Limited v Pestana 2009(2) SA 189(SCA)- 3rd case where Nedbank
appealed the decision from the High Court and court confirmed the court aquo decision.

 Schulze, WG Electronic fund transfers and the bank's right to

reverse a credit transfer: one big step (backwards) for banking law,
one huge leap (forward) for potential fraud: Pestana v Nedbank (act
one, scene two) 2008 SA Merc LJ 290.

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Pestana v Nedbank
 Facts
- Nedbank was appointed as SARS agent.
- Pestana owed SARS money and Nedbank was required to collect money
when it becomes available to Pestana.
- Money was due to Pestana from one of its customers and Nedbank paid
Pestana forgetting the instruction/ their duty to SARS.
- Nedbank was later reminded by SARS and it simply reversed the account
from Pestana. Pestana then instituted action for reversal of the amount
because they reversed it without their authority to do so.

 Legal Question?
- Is a bank entitled to reverse funds without client’s consent?

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 Ratio Decidendi
High Court; 1st instance
 The court of 1st instance allowed the holder of the account in which the
money had been deposited to keep the money.
 It held that Nedbank was entitled to reverse the payment.
 Held that Nedbank was entitled to reverse the credit in the plaintiff's
account since the bank employee at the banks branch who had passed the
credit, did so erroneously or in the mistaken belief that there was no prior
claim on the money.
 It reasoned that had the SARS notice been complied with prior to the
instruction by Pestana, there would not have been any money left in the
account and consequently that the instruction could not have been given
effect to.
 Held that Nedbank could not be precluded from looking behind the true
state of affairs (ie, the erroneous transaction) and reversing a credit entry
previously made in the account of the plaintiff. Court ruled in favor of
Nedbank and Pestana appealed the decision.

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 Ratio Decidendi
• Appeal courts decision that was then confirmed by Supreme Court of Appeal
• The SARS notice did not freeze Pestana account and did not transfer/effect a
cession of the funds in Pestana’s account to SARS.
• Once the bank intended to pay the respondent unconditionally on behalf of
Pestana it could not intent not to accept payment on behalf of respondent.
• If payment to the respondent or crediting his account was unconditional it
followed that the bank COULD NOT unilaterally reverse payment.
 On the agreed facts and documentation before the court, there was no
suggestion that either Pestana or the payee was a party to a theft or a fraud
nor was there any other improper conduct relating to the money deposited
into Pestana's account.
 Neither was there anything from the facts suggesting that the transfer of
the money into the plaintiff's account was in any way conditional.
 Payment had NOT been made erroneously and Nedbank could NOT
UNILATERALLY REVERSE THE EFT.

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  Instead, there was a valid and lawful mandate from the bank’s client,
Pestana, to transfer money from his account to that of the plaintiff. Thus a
legitimate transfer had occurred.
 Schulze is of the view that, rightly so in our view, it was clear that the court
SCA in Pestana was faced with a case of fraud, but the way the case had
been presented before the court tied the hands of the court to decide on the
potential fraud, hence its decision that the credit should not be reversed.
 Court ruled in favour of Pestana.

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 Reversal of a EFT in the case where an amount has
been mistakenly transferred to an incorrect account

 Nissan South Africa (Pty) Limited v Marnitz NO and others,

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Nissan South Africa (Pty) Limited v Marnitz NO and others,

 Facts
 money transferred from Nissan’s account into a wrong account.
 It was not clear who’s fault it was regarding error.
 The payee’s estate was liquidated shortly, thereafter withdrawing the
money, fully aware that it had been deposited as a result of a mistake.
 Nissan then applied to the court for an order declaring that what was left in
the payee’s account did not form part of the insolvent’s estate.

 Legal Question
 whether a bank can unilaterally reverse a credit without the consent of the
recipient in such an instance?
 And considering that money could not be reversed what recourse did Nissan
have to reclaim the money?

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 Ratio Decidendi
the Supreme Court of Appeal held that;
 payment is a bilateral act and requires the meeting of two minds.
 Respondent had not become entitled to the funds erroneously credited to its
account.
 In circumstances where Nissan did not intend transferring the money into the
recipient’s account, there was no meeting of minds and therefore no valid
transfer of funds.
 In these circumstances, the recipient’s conduct in using the funds for its own
purpose’s amounts to appropriation and fraud.
 if stolen money was paid into a bank account to the credit of a thief, the thief
had no legitimate claim to the credit representing the money so paid into the
bank account.

 If money is paid through fraud or theft= bank NOT obliged to pay the money to
the customer on demand.
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 Hence, the court held that Nissan was entitled to claim from the account holder
that money which he had already withdrawn.
 The court was of the view that withdrawing money from one’s account while
knowing fully well that it did not belong to one was similar to theft.
 If money is paid through fraud or theft= bank NOT obliged to pay the money to
the customer on demand.
 Where money was stolen/erroneously transferred to a person not entitled to
receive it = thief not entitled= money could be reversed without consent of the
receiver.

 Concluded that an unauthorized payment effected by means of a EFT may be

reversed where the beneficiary consents and also without the beneficiary
consent if it transpires that the beneficiary was not entitled to the money .
Confirmed in Absa v Lombard.

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 What are the legal consequences on the rights and duties of parties, if
the originator’s bank transfers funds from its customer’s
account without the customer’s authorisation?
 Breaches its mandate and held contractually liable.

 What are the consequences if a customer gives a written instruction for

an EFT in a manner that facilitates fraud?
 The common law and B.C relationship =customer bears loss.
 Also remember the Duties of Customers in terms of B.C Relationship.
 Also refer to Para 7 of the Code of Banking Practice in the previous slides.

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Para 7 of the Code of Banking Practice
1. Customer must keep his pin, password and other means of ID and never
disclose it to employees of the bank.
2. Customer will be responsible for all transactions relating to additional cards.
3. Customer must help prevent fraud. By warning the banks timeously of suspicion
of fraud.
4. Must inform the bank ASAP if he suspects any fraudulent activities on his cards
or account.

Responsibility of Loss = customer will be responsible if for the loss if

Fraudulently and negligently that is not by keeping his pin confidential or not
reporting loss of card or theft timeously.

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 Wrong amount was transferred by bank?
• Originator must adhere to the mandate.
• Customer owes a duty to take reasonable care in preparation the mandate.
• If customer negligent in writting the mandate=bears the loss
• If not negligent then bank is liable. Can recover amount through unjustified
enrichment.
 Correct amount was transferred to the correct person but on wrong
date?
• If transfer done before date = breached mandate and will liable for any loss
suffered.

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 If a bank is not entitled
to reverse an unauthorised or erroneous payment, what other legal
recourse can one resort to in order to recover the amount paid?
 Claim through Common law remedy of Unjustified Enrichment
See para b on page 382.

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 The End

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