INPA Notes.

LU 3.

Test 2.

LO1: Differentiate between Payment Mechanism and Payment System

Payment mechanism

• Narrow concept: specific instrument or method by which payment is

effected.

• Examples: cash, cheque, credit transfer, debit order, electronic funds

transfer (EFT), card payment.

• Focus: means of discharging obligations.

Payment system

• Broader concept: overall legal, institutional, and operational framework

that enables transfer of funds between parties.

• Includes:

• South African Reserve Bank (SARB) as overseer

• National Payment System (NPS) Act 78 of 1998

• South African Multiple Option Settlement (SAMOS) system

• Rules by Payments Association of South Africa (PASA)

• Focus: infrastructure and regulatory framework that ensures efficiency and

safety of payments in SA.
LO2: Scope of Acts Applicable to Payment Systems in SA

1. National Payment System Act 78 of 1998 (NPS Act)

• Governs operation, management, and supervision of payment systems.

• Empowers SARB to regulate and oversee payment systems.

• Provides for designation of clearing and settlement systems.

2. South African Reserve Bank Act 90 of 1989

Establishes SARB.

• Functions: currency issuance, monetary policy, oversight of national

payment system.

3. Banks Act 94 of 1990

• Regulates banks as participants in payment systems.

• Authorises deposit-taking and payment intermediation.

4. Companies Act 71 of 2008

• Governs company law aspects of banks/payment providers.

5. Consumer Protection Act 68 of 2008 (CPA)

• Applies to consumer transactions; disclosure obligations in electronic

payments.

6. Financial Intelligence Centre Act 38 of 2001 (FICA)

• Anti-money laundering; Know-Your-Customer (KYC) duties in payment

system participation.

7. Electronic Communications and Transactions Act 25 of 2002 (ECTA)

• Legal recognition of electronic signatures, data messages, electronic

contracts.
LO3: Categories of Payment

1. Cash payment

• Immediate transfer of value; no intermediary risk.

2. Cheque payment

• Bill of exchange; governed by Bills of Exchange Act 34 of 1964.

• Involves drawer, drawee bank, payee.

3. Electronic Funds Transfer (EFT)

• Payment via electronic instructions; includes credit transfers and debit

orders.

4. Card payments (credit/debit cards)

• Involves issuing bank, acquiring bank, merchant, cardholder.

5. Real-Time Gross Settlement (RTGS)

• High-value interbank settlement via SAMOS system.

LO4: Liabilities and Risk per Category

Cash

• Risk: theft, counterfeit.

• Liability: bearer bears risk until valid delivery.

Cheque

• Risks: dishonour, forgery, alteration.

• Liability: Drawer liable if cheque dishonoured.

• Collecting bank liable if negligent in accepting defective cheque (ABSA

Bank v Fouche).
EFT / Debit Orders

• Risks: technical failure, fraud, erroneous instructions.

• Liability: Bank liable if it fails to execute mandate properly.

• Customer bears risk if fraud caused by compromised access.

Cards

• Risks: lost/stolen card, skimming, chargebacks.

• Liability:

• Pre-notification of loss: bank bears.

• Post-notification: customer absolved if timely notification.

RTGS / Interbank Transfers

• Risks: systemic risk, settlement failure.

• Liability: SARB rules; finality of settlement protects against reversal.

LO5: Unauthorised / Erroneous Payments and Right of Recovery

• Unauthorised payments:

• Occur when bank pays without mandate (e.g., forged cheque, hacked
EFT).

• General rule: bank strictly liable to re-credit customer (Nedbank v

Pestana).

• Erroneous payments:

• Mistaken transfer (wrong account).

• Action condictio indebiti: right to reclaim unjustified enrichment.

• Limits: if recipient bona fide and changed position, recovery may fail.
 • ECTA: recognises electronic instructions, but banks must ensure
authenticity.

LO6: Advising on Application (Facts + Law + Cases)

Key Legal Principles for Advice

• Mandate principle: bank must act strictly within customer’s instructions.

• Finality principle: once settlement occurs in SAMOS, generally

irreversible.

• Condictio indebiti: basis for recovery of mistaken payments.

• Negligence test: whether bank/customer contributed to loss (see ABSA v

Fouche).

Case law to use

• ABSA Bank Ltd v Fouche 2003 (2) SA 176 (SCA): bank’s duty to honour
mandate strictly.

• Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA): bank strictly liable for
unauthorised payment.

• Standard Bank v Oneanate Investments 1998 (1) SA 811 (SCA): clearing

system & bank liability.

Journal articles

• Analyses of SARB oversight and systemic risk.

• Commentary on digital payments & liability under ECTA.

LO7: Terminology relating to paper-based transfers

🔑 Core Concept: Paper-based transfers = payments effected through negotiable
instruments, primarily cheques, governed by the Bills of Exchange Act 34 of 1964.

Key Terms

• Bill of Exchange - A written, unconditional order by one person (drawer)

directing another (drawee, usually a bank) to pay a certain sum to a specified person
(payee) or bearer.

• Cheque - A special type of bill of exchange, drawn on a bank, payable on

demand (s 73 BofE Act).

• Drawer - Person who creates the cheque (usually the bank’s customer).

• Drawee - The bank on which the cheque is drawn.

• Payee - The person entitled to receive payment of the cheque.

• Bearer cheque - Payable to the holder (whoever possesses it). Negotiable

by mere delivery.

• Order cheque - Payable to a specified person or their order. Requires

endorsement to transfer.

• Endorsement - Signature by payee on back of cheque to transfer rights.

• Crossed cheque - Two parallel lines across face. Must be paid through a
bank account, not over the counter → adds security.

• Special crossing - Specifies a particular bank through which payment must

be collected.

• Collecting bank - Bank that receives cheque for collection on behalf of its
customer (the payee).

• Presentment - Act of delivering cheque to drawee bank for payment.

• Dishonour - Refusal of drawee bank to pay cheque (e.g., insufficient

funds).
 • Cheque card system / Guarantee card - Historic arrangement where bank
guaranteed payment of a cheque within a limit.

• Stale cheque - Cheque not presented within 6 months (banks usually

refuse to pay).

LO8: Discontinuation of cheque usage in South Africa

Background

• Cheques long served as a dominant paper-based payment instrument in

SA.

• Gradual decline due to fraud risk, inefficiency, cost, and growth of

electronic payments.

Timeline

• 2012–2019: Cheque usage fell sharply; <0.1% of total payments.

• 2020: SARB, PASA and commercial banks announced phase-out of

cheques.

• 31 December 2020: Cheques officially discontinued in SA.

Reasons for Discontinuation

1. Fraud & security risks

• High incidence of forgery, alteration, and cheque kiting.

2. High processing cost

• Transport, clearing, and manual handling expensive vs electronic

systems.

3. Slow settlement

• Clearing cycle several days, unlike instant EFT/RTGS.

4. Technological alternatives
 • EFTs, debit/credit cards, mobile payments, and real-time clearing systems
(RTC).

5. Decline in usage

• Minimal demand from public and businesses by late 2010s.

Legal/Regulatory Adjustments

• Bills of Exchange Act remains in force (covers bills/promissory notes), but

cheques no longer processed in banking system.

• SARB circulars and PASA rules confirmed the cessation of cheque

clearing.

LO9: Terminology relating to EFT

• Electronic Funds Transfer (EFT) - Transfer of funds initiated electronically

(via ATM, internet banking, debit order, credit transfer).

• Credit transfer - Payer (originator) instructs bank to transfer funds to

payee’s account (e.g., salary payments).

• Debit order - Payee initiates instruction to collect funds from payer’s

account (requires payer’s mandate).

• Stop payment instruction - Payer instructs bank to cancel/revoke debit

order mandate.

• Beneficiary / Payee - Person receiving funds.

• Originator / Payer - Person instructing their bank to pay funds.

• Originating bank - Bank receiving payer’s instruction.

• Beneficiary bank - Bank that credits payee’s account.

• Clearing - Process by which banks exchange payment instructions and

calculate net positions.
 • Settlement - Final discharge of payment obligation between banks,
typically via SAMOS (RTGS system).

• SAMOS (South African Multiple Option Settlement system) - SARB’s

RTGS system used for final settlement of EFTs.

Automated Clearing Bureau (ACB) - Entity processing bulk electronic payment

instructions (e.g., BankServ Africa).

LO10: Legal effect of an EFT

• Mandate principle

Bank acts as agent of its customer; must execute instructions strictly within mandate
(ABSA Bank v Fouche 2003).

• Discharge of obligation

Debt is discharged only once the payee’s account is credited (not when payer gives
instruction).

• Interbank relationship

• Originating bank ↔ Beneficiary bank: obligations governed by clearing &

settlement agreements.

• Customer ↔ Bank relationship - Customer (payer) owes duty of correct

instruction; bank owes duty of proper execution.

• Legal finality - Once settlement is effected in SAMOS, payment is final and

irrevocable.

LO11: Risk/Liability in EFTs

1. Erroneous instruction by customer (payer error)

• Payer bears risk (wrong beneficiary details).

• Recovery only via unjustified enrichment (condictio indebiti).

2. Bank error (execution outside mandate)

 • Bank strictly liable → must re-credit account (Nedbank v Pestana 2009).

3. System/technical failure

• Allocation depends on clearing/settlement agreements.

• SARB rules generally protect finality once settlement achieved.

4. Fraud / hacking

• If caused by compromised customer credentials → customer may bear

risk (if negligent).

• If bank failed security duty → bank liable.

LO12: Banks’ Standard Terms vs Legislation & Case Law

• Banks often include exemption clauses in terms and conditions (e.g.,

“bank not liable for unauthorised EFTs unless gross negligence proven”).

• ECTA (Electronic Communications & Transactions Act 25 of 2002) -

Electronic instructions recognised as legally [Link] banks must prove
authentication/security.

• Case law = ABSA v Fouche – bank must follow mandate strictly, cannot
rely on vague exemption clauses.

= Nedbank v Pestana – bank strictly liable if it executes without mandate (cannot

contract out of basic duty).

• Consumer Protection Act (CPA) - Clauses that are unfair, unreasonable,

or limit consumer rights may be void.

• Standard bank terms often conflict with mandate principle and CPA
fairness, and courts are reluctant to allow banks to shift all risk to customers.

LO13: Application to Facts

When faced with a problem question:

1. Identify transaction type (credit transfer, debit order, etc.).

 2. Check mandate: Did bank act within instructions?

3. Allocate liability:

• Customer error → customer risk.

• Bank error → bank liability.

• Fraud/system error → depends on security + negligence.

4. Use case law:

• ABSA v Fouche (mandate).

• Nedbank v Pestana (unauthorised EFTs).

• Standard Bank v Oneanate (systemic clearing).

5. Cite legislation: NPS Act, ECTA, CPA, FICA (if AML issues).

LO14: Legislation Regulating EFTs

• National Payment System Act 78 of 1998 (NPSA) - Governs clearing &

settlement, SARB’s supervisory role.

• Electronic Communications and Transactions Act 25 of 2002 (ECTA) -

Legal recognition of electronic instructions; Authentication, non-repudiation, electronic
signatures.

• Banks Act 94 of 1990 - Authorises banks to provide payment services.

• Consumer Protection Act 68 of 2008 (CPA) - Applies to consumer EFTs:

unfair terms void, disclosure required.

• Financial Intelligence Centre Act 38 of 2001 (FICA) - AML compliance for

EFTs; Customer identification, reporting of suspicious/large transactions.

• South African Reserve Bank Act 90 of 1989 - SARB = ultimate overseer of

NPS, ensures systemic stability.
LO15: Compare different types of card payments (rights & duties)

1. Debit Card

• Nature: Linked directly to customer’s bank account; funds debited

immediately.

• Parties:

• Cardholder (customer)

• Issuing bank

• Merchant

• Acquiring bank (merchant’s bank)

• Rights & Duties:

a) Cardholder: Right to have bank execute authorised payments; duty to

safeguard PIN.
b) Issuing Bank: Must honour valid transactions within mandate; duty to
secure system.
c) Merchant: Must deliver goods/services; comply with card network rules.

d) Acquiring Bank: Processes merchant claims, forwards to issuing bank.

2. Credit Card

• Nature: Issuer grants cardholder revolving credit facility; cardholder

reimburses later.

• Rights & Duties:

a) Cardholder: Right to use credit line; duty to repay according to credit

agreement.
b) Issuing Bank: Advances payment to merchant; bears interim risk of
default; must comply with NCA (National Credit Act).
c) Merchant: Must accept valid card transactions; cannot surcharge unless
permitted.
 d) Acquiring Bank: Same as debit card context.

3. Charge Card (less common, e.g. Diners Club, Amex)

• Nature: No revolving credit – balance must be settled in full monthly.

• Rights & Duties:

a) Cardholder: Obligation to repay entire balance monthly.

b) Issuer: Obligation to pay merchants upfront.

4. Prepaid Card

• Nature: Value preloaded; customer spends until funds exhausted.

• Rights & Duties:

a) Cardholder: Right to use prepaid value; no repayment obligation.

b) Issuer: Must honour up to loaded amount; duty of disclosure under CPA.

Risk & Liability (general principles across types)

• Lost/stolen card: Before notification → customer often liable (unless

bank’s negligence). After notification → bank bears risk.

• Unauthorised transaction: If bank failed to authenticate → bank liable.

• If cardholder negligent (e.g. shared PIN) → cardholder liable.

• Chargebacks: Consumer protection mechanism; cardholder can reverse

unauthorised/fraudulent charges.

LO16: Apply relevant legislation & case law to facts

Legislation

• NPS Act 78 of 1998 → regulates card transactions as part of payment

system.

• Banks Act 94 of 1990 → governs banks’ authority to issue cards.

 • National Credit Act 34 of 2005 (NCA) → applies to credit cards (over-
indebtedness, reckless lending).

• CPA 68 of 2008 → ensures fair terms, disclosure of fees, prohibits unfair

contract terms in card agreements.

• ECTA 25 of 2002 → recognises electronic authorisation of card

transactions.

• FICA 38 of 2001 → KYC and AML compliance.

Case Law (use in problem questions)

• ABSA Bank Ltd v Fouche 2003 (2) SA 176 (SCA) → mandate principle
applies; bank must act exactly per customer’s instruction.

• Nedbank Ltd v Pestana 2009 (2) SA 189 (SCA) → bank strictly liable for
unauthorised payments.

• Standard Bank v Oneanate Investments 1998 (1) SA 811 (SCA) →

explains clearing/settlement duties.

• International comparative authority sometimes referenced: Lloyds Bank v

Brooks (UK) → cardholder liability for negligence.

LO17: Terminology relating to unauthorised/erroneous payments or transfers

• Unauthorised payment - Payment made without a valid mandate from the

customer.

• Examples: forged instruction, hacked EFT, stolen card transaction.

• Bank usually strictly liable (Nedbank v Pestana).

• Erroneous payment - Payment made by mistake (wrong beneficiary,

wrong amount).

• Remedy: condictio indebiti (unjustified enrichment action).

 • Mandate principle - Bank must act within the limits of its customer’s
instructions (ABSA v Fouche).

• Condictio indebiti - Action for recovery of undue payment made in error.

• Defence: recipient bona fide changed position (no enrichment).

• Finality principle - Once EFT settled in SAMOS, payment generally cannot

be reversed; recovery via enrichment claim.

• Chargeback - Reversal mechanism in card payment schemes for

unauthorised/fraudulent transactions.

• Stop order / stop payment - Instruction to bank to prevent payment

(applies to debit orders, not EFTs once processed).

LO18: Lack of specific legislation on EFT problems

• Current position:

• No dedicated “EFT Act” in South Africa.

• Legal principles derived from:

• Common law: contract (mandate), enrichment, delict.

PS Act 78 of 1998: system-level rules (not customer disputes).

• ECTA 25 of 2002: recognition of electronic transactions, authentication,

signatures.

• CPA 68 of 2008: fairness in consumer contracts.

• Banks rely heavily on standard terms & conditions (often limiting liability).

• Problems with lack of legislation:

1. Uncertainty – different banks handle disputed EFTs inconsistently.

2. Consumer protection gap – customers often left bearing losses unless

they prove negligence on bank’s side.
 3. Reliance on common law – enrichment actions slow and costly.

4. Comparative law – other jurisdictions (EU Payment Services Directive, UK

Payment Services Regulations) have specific EFT legislation with strict liability rules; SA
lags behind.

Exam point: Argue SA needs specific legislation to allocate EFT liability clearly and
uniformly.

LO19: Code of Banking Practice (COBP) guidelines for unauthorised transfers

• Nature: Non-binding industry code; issued by Banking Association SA.

• Role: Sets out ethical & operational commitments of banks to customers.

Relevant Guidelines:

1. Duty of security – banks must provide secure systems and advise

customers on safeguarding PINs/passwords.

2. Liability for unauthorised transactions:

• If customer not negligent (e.g., reports card lost promptly, didn’t disclose
PIN) → bank should bear loss.

• If customer negligent (e.g., shared credentials, delayed reporting) →

customer may bear loss.

3. Error correction – banks should investigate disputed EFTs and assist with
recovery where possible.

4. Disclosure – customers must be told about risks, fees, and dispute

processes.

Exam point: COBP not law, but courts may use it as persuasive authority in fairness
disputes (especially with CPA overlap).

LO20: Legislation regulating aspects of EFTs

1. National Payment System Act 78 of 1998

 • Governs clearing & settlement of EFTs; empowers SARB to oversee
systemic safety.

• Establishes SAMOS as RTGS system.

2. Electronic Communications and Transactions Act 25 of 2002 (ECTA)

• Gives legal recognition to electronic instructions.

• Authentication, encryption, electronic signatures.

• Prevents repudiation of valid electronic mandates.

3. Consumer Protection Act 68 of 2008 (CPA)

• Protects consumers against unfair banking terms.

• Relevant to EFT contracts (transparency, plain language)

4. Banks Act 94 of 1990

• Governs banks as institutions providing EFT services.

5. Financial Intelligence Centre Act 38 of 2001 (FICA)

• AML obligations; monitoring/reporting of suspicious EFTs.

6. South African Reserve Bank Act 90 of 1989

• SARB as overseer of NPS; ensures systemic stability.