Theme 3, Unit 1 - Electronic payment methods

Question 1

What is the function of the South African Payment System ?

Answer 1

SAPS enables both money exchange and value transfer through an electronic system of debits and credits.

Question 2

What is the difference between a credit transfer and a debit transfer ?

Answer 2

• Credit Transfer the debtor gives a payment instruction to a bank to transfer funds to a creditor’s account, eg. stop orders, internet banking payments.
• Debit Transfer the creditor instructs a financial institution to collect funds from the debtor’s account, eg. cheque collection, debit orders.

Question 3

What are the different payment instructions ?

Answer 3

• Paper-Based are completed with words and figures, authenticated by a signature, and physically transferred between parties (e.g., cheques, bills).
• Electronic Payment Instructions fund transfers are completed electronically (e.g., internet banking, EFT).

Question 4

What is the difference between a multilateral set-off and a bilateral set-off ?

Answer 4

• Multilateral Set-Off banks can offset their obligations with each other through a clearing house, especially for batches of transactions.
• Bilateral Set-Off transactions between specific banks (e.g., ABSA and FNB) are governed by inter-bank agreements, often confidential.

Question 5

Discuss the bank-customer relationship.

Answer 5

• The relationship is governed by a contract of mandate, where the bank must adhere to its obligations.
• Customers must also take precautions when using electronic banking services, such as ensuring the security of their accounts and being diligent in their payment instructions.

Question 6

What is an electronic funds transfer ?

Answer 6

An exchange or transfer of value between accounts using electronic means.

Question 7

What are the types of EFT transactions ?

Answer 7

• POS (Point of Sale) Transfers (initiated when a cardholder uses a card at a terminal).
• ATM Transfers (using an ATM to withdraw or transfer funds).

Question 8

Discuss EFTPOS transactions.

Answer 8

• When the cardholder swipes or taps a card at a terminal, funds are debited directly from their account and credited to the supplier’s account.
• There can be an online EFTPOS system which refers to the direct transfer of funds.
• Also an offline EFTPOS system where funds are stored and processed later in batches.

Question 9

What is the legal nature of EFT transactions ?

Answer 9

• A transaction is complete once the beneficiary’s account is credited, and it is prima facie evidence of payment.
• While an EFT is generally irreversible once completed, it can be challenged in certain cases, such as payments made in error.
• Legal principles such as unjust enrichment apply if a payment was made mistakenly.

Question 10

Discuss reversals and errors in EFT’s.

Answer 10

• EFT reversal refers to the process of reversing or cancelling a payment that was made through an Electronic Funds Transfer (EFT) system.
• Reversals typically occur in situations where a mistake has been made in the payment, such as when the wrong amount is transferred, or when funds are sent to the wrong recipient.

Question 11

Under which conditions can EFT reversals occur ?

Answer 11

• Mistaken payment.
• Unjust enrichment.
• Failure to meet conditions for payment completion.
• Fraud.

Question 12

Discuss the unjust enrichment remedy.

Answer 12

• If a payment was made by mistake and the recipient is not entitled to the funds, the payer may have a claim to recover the amount based on unjust enrichment.
• The conditions for unjust enrichment are:
  1. The recipient has received a benefit (money) at the expense of another party.
  2. At the expense of another, the enrichment must come from the payer or their bank.
  3. The recipient’s possession of the funds is deemed to be without legal justification (e.g., they were mistakenly paid)..

Question 13

Discuss the failure to meet conditions for payment completion.

Answer 13

If the payment was not completed in the way the parties agreed (e.g., if there was a failure in the bank’s system), this could lead to a potential reversal.

Question 14

Discuss fraud.

Answer 14

If the payment was made as a result of fraudulent activity, such as identity theft or unauthorized transactions, the bank and/or payer may seek to reverse the transaction.

Question 15

What is the role of the bank in reversals ?

Answer 15

If a customer requests a reversal, the bank must assess the situation carefully, especially in relation to the legal requirements of payment completion.

Question 16

What are the consequences if the bank reverses a payment without the recipient’s consent ?

Answer 16

If a bank reverses a payment without the recipient’s consent, the bank risks a claim for unjust enrichment.

Question 17

What are the limitations and challenges of EFT reversals ?

Answer 17

• Reversals are easier to carry out if they are requested soon after the transaction, the longer the time passes, the harder it becomes to reverse the payment, especially if the recipient has already used the funds.
• EFT transactions are usually governed by the terms and conditions set by the bank and any applicable interbank agreements.
• Once the funds are credited to the recipient’s account, they have certain rights to the money, even if the payment was made in error, the recipient may not be legally obliged to return the funds unless there is a clear unjust enrichment situation or fraud is involved.

Question 18

Discuss the entitlement to funds and meeting of minds.

Answer 18

• For a payment to be legally valid and binding, there must be a “meeting of the minds” (mutual consent) between the payer and the recipient.
• If a payment was made mistakenly, the recipient has no right to the funds and they are obligated to return the funds because there was no valid meeting of minds.

Question 19

What are the rules of EFT reversals ?

Answer 19

• The full amount must still be available in the beneficiary’s account.
• The recipient (beneficiary) must consent to the reversal.
• If these conditions are not met, the payer can pursue an action for unjust enrichment to recover the funds.

Question 20

What is the duty of the bank in fraud and negligence ?

Answer 20

• If unauthorized transactions occur, the customer may be liable for losses if they were negligent.
• In cases where a third party receives stolen money, the original account holder may have difficulty recovering the funds from the third party, especially if the money has been mixed with other funds or spent.

Question 21

What are phishing scams ?

Answer 21

Fraudsters may send phishing emails pretending to be a legitimate financial institution and trick customers into revealing their banking credentials.

Question 22

What is the bank’s approach to fraud and security ?

Answer 22

• Banks are required to provide reliable and secure banking systems, but they are not always able to prevent fraud.
• The bank is expected to take reasonable care, but it cannot be held liable for fraud if the customer failed to take necessary precautions.
• Banks must ensure that security measures are in place to prevent unauthorized access to accounts, however, banks are not responsible for preventing phishing emails or SIM swaps that are beyond their control.