study unit 5 part 2

Introduction to Electronic Methods of Payment

Money

• Used to fulfil payment obligations and discharge debts.

• Different countries use different currencies; each has its own fiat currency (official state money).

  • Example: South Africa – Rand.

• Forms of payment are evolving:

  • Cash is less common.

  • Digital payments via internet, mobile, or cards are now common.

• Factors influencing payment method:

  • Amount owed

  • Relationship between parties

  • Physical distance

  • Online vs. in-person transaction

  • Convenience

  • Security

  • Trust level

Traditional methods of payment

• Cash: Most well-known traditional payment method.

• Document-based instruments: Payment depends on possession of a document.

  • Bills of Exchange: Written instructions to pay a certain amount.

  • Promissory Notes: Written promises to pay a certain amount.

  • Both give the holder a personal right to payment.

  • Can be negotiable instruments.

  • Regulated by Bills of Exchange Act 34 of 1964.

• Common feature: Personal right of creditor linked to a value document.

• International use:

  • Documentary letters of credit function like bills of exchange for cross-border transactions.

  • Regulated by international banking rules.

    • Can exist in electronic format.

Modern Methods of Payment

• Reasons for rise: Globalisation & technological advances.

• Advantages: Easy, fast, cost-effective, multiple options.

• Risks: Certain security and operational risks exist.

• Types:

  • Debit Cards

  • Credit Cards

  • Electronic Fund Transfers (EFTs)

  • Electronic money (e-money)

  • Mobile money (m-money)

debit cards

• Payment immediately debits customer’s bank account.

• Works like cash payment – sufficient funds must be available.

• Three-party system: Customer → Bank → Supplier.

• Bank guarantees payment if funds are available.

• No credit is provided to the customer.

Credit Cards

• Issuer pays supplier; cardholder repays later → credit

• Regulated: NCA 2005, ECTA 2002; not Bills of Exchange

• Can withdraw cash; supplier payment guaranteed

• Pros: no cash, domestic & online use, encourages spending

• Cons: overspending, security risks

• Types: two-party, three-party

• Unauthorised use: liable until issuer notified; Diners Club v Singh → contract terms valid

two party credit cards

• Issued by large chain stores to account holders.

• Allow purchases on credit up to a limit.

• Parties involved: Issuer & cardholder only.

  • Regulated by: National Credit Act 34 of 2005.

three party credit cards

Three-Party Credit Cards (Ultra-Compact)

• Bank-issued; usable at any accepting supplier

• Parties: Issuer, Supplier, Cardholder

• Issuer guarantees payment up to limit; overlimit → interest

• Three standard contracts: Cardholder↔Issuer, Issuer↔Supplier, Cardholder↔Supplier

• Examples: traditional, petrol cards

EFT’s

• Electronic transfer of funds between accounts

• Methods: phone, mobile, internet, apps, ATM, POS

• Credit instruction: payer initiates transfer → bank debits payer, credits payee

• Debit instruction: creditor initiates transfer → bank debits payer, credits creditor

advantages of EFT

• Pros: save time, convenient

• Risks: unauthorised transfers until bank notified

• Safety: keep PIN/password safe, OTPs, SMS/email approvals, secure banking systems

• Contracts: standard terms limit bank liability (loss, service failure, hacking)

• Regulated: FIASA 37/2002

EFT continued

• Completion: EFT completes when beneficiary’s account credited; underlying debt extinguished then

• Wrong beneficiary:

  • By bank employee → bank can reverse

  • By customer → legal position unclear; depends if payment conditional or unconditional

• Case law:

  • Take and Save v Standard Bank 2004 → bank cannot revoke without beneficiary consent; claim via unjustified enrichment

  • Nissan v Marnitz 2005 → recipient not entitled → theft if aware and keeps funds; payment considered conditional

• General: bank reverses only with beneficiary’s permission; unjustified enrichment claims possible

E-Money

• Definition: Monetary value stored electronically; cards/wallets act as e-purse

• Uses: airtime, digital cash, gift/loyalty cards; sometimes redeemable for cash

• Legal tender: Only if issued by bank for funds & redeemable for cash/deposit (SARB)

• Non-bank issued: usable only in closed systems

• Regulation: contract between issuer & user; protections via ECTA, CPA, 2012 SA Banking Code

• Lost e-wallet: notify bank → bank refunds purchases after notification

• Payment intermediaries: PayPal, Google Wallet, ApplePay

• Virtual currencies: e.g., Bitcoin

mobile money

• Definition: Payments via cell/smartphones; value stored on phone

• Providers: Mobile networks + banks/stores (e.g., M-Pesa, MTN MoMo, FNB Mobile)

• Function: Deposit value → transfer to another mobile user → redeemable as cash

• Legal tender: Only if issued by bank

  • Regulation: Contract between user & issuer

Mobile money advantages

• Advantages: low cost, accessible without bank account, convenient, real-time access

• Risks: anonymity → money laundering, rapid transfers → hard to trace, lack of regulation/oversight