VHD NOTES

Theme 1: Payment and Role Players

Study Unit 1: The Legal Nature of Payment

• Chapter 6 of The Law of Banking and Payment in South Africa
• Vereins-Und v Veren Investments

Chapter 6: The Law of Banking and Payment in South Africa

What is payment? S v Harvey - Performance or satisfaction of an obligation OR

delivring what is due.

Harrismitch Board of Executors v Odendaal - Payment is the

delivery of what is owed by a person competent to deliver to a
person competent to receive.

Sharrock - Payment is the rendering of what is owed under a

monetary obligation by a person competent to render it to a person
competent to accept it.

Recognized forms of v Electronic money;

payment (Payment v Mobile Money;
Systems) v Virtual currencies
v Cash;
v EFTs
v Payment Cards
v Bills of Exchange

The Legal Concept of Money (currency) has been judicially defined by Standard
Money Chartered Bank of Canada v Nedperm Band Ltd 1994 (4) SA 747
(A) as: ‘That which passes freely from hand to hand throughout the
community in the final discharge of debts.’

The following requirements determine what constitutes ‘Money’ in

South Africa:
1. It is a means of exchange; and
2. It is a Unit of Account; and
3. Issued by the State; and
4. It is Tangible

In South Africa only Coins and Banknotes issued by SARB meet

these requirements.
 Funds in a Bank or Credit facility are widely accepted as the
equivalent to money for economic purposes and perform the
function of a medium of exchange, but they do not satisfy the legal
definition of money.

Foreign currency is also not money for legal purposes.

When can payment Payment can take place when:

take place? 1. Debtor gives the Creditor unfettered, unconditional right to
immediate use of the money.
2. It is a bilateral justice act.
3. There must be capacity to act/perform.
4. If the creditor refuses the debtor’s tender of payment – NO
payment takes place – but there are significant legal
consequences for the creditor.
5. If the creditor subsequently accepts payment, then payment
is retroactively validated.
The Medium of Unless otherwise agreed, payment of a money debt must be paid in
Payment ‘legal tender.’ That is the creditor is obliged to accept it if legally
tendered as per Esterhuyse v Selection Cartage (Pty) Ltd 1965.

As per section 17 of the South African Reserve Bank Act, the

following constitute ‘Legal Tender’ for payment of the amounts
indicated:

Bank Notes – Any Amount

Gold Coins – Any Amount

Other coins – an amount, per transaction, not exceeding:

v R50, where coins of a denomination R1, R2, or R5 are
tendered.
v R5, where coins of a denomination 10, 20 or 50 cents are
tendered.
v 50c, where coins of a denomination 1c, 2c or 5c are tendered.

IMPORTANT: Foreign currency is not considered legal tender as

it is not issued by the South African Government.
Vereins v Veren Keep in Mind:
Investments 1. German Supplier
2. German Bank
3. Blocked Account
4. SA Buyers
5. SA Bank (NEDCOR)
Facts
v SA Buyers wanted to buy a fleet of trucks from the German
suppliers and did not make payment immediately.
v SA Buyers instructed NEDCOR to issue a letter of credit in
favour of the German Suppliers.
 v NEDCOR communicated to German bank that they have a
letter of credit in favour of German Suppliers for $430’000.00
v The German suppliers forged documents (invoices) informing
the German Bank that they had delivered the goods.
v German Bank then payed an amount to the German
Suppliers.
v German Bank then informed NEDCOR that they had made
payment and instructed NEDCOR to pay them the amount.
The SA buyers became aware of this and said they had not
received the trucks and not to make payment.
v NEDCOR consulted with the SA Reserve Bank, and paid the
amount into the blocked account in favour of the German
Bank so that once the dispute was resolved the money can be
payed..
v NEDCOR then claimed that they had payed and that they had
extinguished their obligation.
v SA Buyers then applied to have the money released to them
because they were adamant that they had not received the
trucks, and the money was moved to another account that was
held by NEDCOR to be stored until such a time that the
dispute was resolved.
v The question in the court was whether NEDCOR extinguished
its obligation and DID it make payment.

Legal Question
Did NEDCOR extinguish its obligations and make payment?

Judgement
1. Court ruled that there was payment
2. Yes, payment is a bilateral act; but
3. If the act is unilateral and is then ratified by the other party;
4. Payment was deemed to have taken place.

The Amount of Validity requirements for Amount of Payment

Payment v For tender of payment to be valid it must be for the full amount
owing.
Ø The Creditor can insist on payment of the EXACT amount
and has not duty to provide CHANGE and is under no
obligation to accept payment in INSTALLMENTS.
Ø Parties are bound by the principle of Currency Normalism.
This means parties must pay the NOMINAL amount
agreed to in the contract and cannot take advantage of
fluctuating currency values to pay less or more and the
creditor carries the risk of such fluctuations.
Time and Place of Rules for Time and Place Respectively
Payment
TIME
 v Payment must be made at the place agreed to expressly or
tacitly by the parties.
v If agreed: Look to common intention and then interpret
accordingly. Parties may agree to a specific day, and in such
case the debtor has until the last possible moment of that day to
pay.
v If not agreed (tacit): Debtor must pay immediately. However, if
it is clear that they did not intend immediate payment, they
must pay in a reasonable time. Reasonable time is determined
on an ad hoc basis.

PLACE
v The Debtor must pay at the place agreed to expressly or tacitly.
v If no agreement, pay where legislation or other law says you
must.
v If the law says nothing and the time is fixed, debtor seeks
creditor.
v If the law says nothing and if the time is not fixed, the creditor
must seek the debtor.
v However, if the creditor demands payment within a specific
time then the debtor must seek them out and pay them.
v If the payment is tendered in the wrong place, the creditor can
refuse to accept it, or accept it and hold the debtor liable for
breach of contract.
v Therefore, in summary:
Ø Payment must be made in at the time and place agreed to
expressly or tacitly.
Ø Otherwise, use law, trade usage or common law is used.
Ø Give effect to intention.

Payment to and by a Payment by a third party

3rd person v Payment of a monetary debt involves no delectus personae (the
need to extinguish a debt yourself) a 3rd party can pay for a
debtor.
v Therefore, payment can be made by agent, surety, or
independent 3rd party.
v 3rd Party can make payment with knowledge or consent of the
debtor.
v Creditor cannot refuse the payment.
v FORMALATIES?
Ø 3rd party must make it clear that they are payment on behalf
of the debtor.
Ø Unconditional payment.
Ø 3rd party has right of recourse against the debtor.
Ø Parties can agree that 3rd party extinguishes the debt.
Ø 3rd party cannot be compelled to make payment(Surety?).
Ø But if 3rd party fails to pay you can hold the debtor liable for
breach of contract.
 Payment to a third party
v For the payment to discharge the debt:
Ø The payment must be made to a person competent to
receive it.
Ø If the agent or 3rd party is appointed by the Creditor, the
debtor may pay them although they are not compelled to
do so.
Ø Creditor can revoke the appointment of a 3rd party, and
Debtor must then pay the Creditor.
Ø Adiectus solutionis causa – Debtor and Creditor agree that
debtor must pay a third party, usually a creditor of a
creditor.
§ Debtor has contractual right to pay the adiectus
§ Creditor can revoke but must have good grounds for it,
such as where the debtor paying the adiectus will make
the creditor suffer a loss.
§ There is uncertainty about whether this discharges the
debt but the position is essentially that it will discharge
the debt to the degree that it enriches the creditor.
Receipt for payment The Debtor has the right to:
v A receipt.
v May withhold payment until a receipt is given
Appropriation of When a debtor owes 2 or more monetary debts:
payments v 2 Debts to same Creditor
v Pays an amount less than the sum of both debts

The following steps are applied:

1. Did the parties agree in advance about the application of
money? If yes, then court gives effect to that.
2. If no prior agreement, debtor or creditor can allocate a
division.
a. The division does not need to be express if the
debtor’s intention is clear from the circumstances.
b. If debtor makes no provision or it is unclear, then
the creditor can decide but it must be equitable and
the debtor must be informed in case they want to
make an alternative suggestion.

If the above provides no answer, look to residual rules:

1. Payment applied to most burdensome debt, being the debt
the debtor has the most interest in discharging.
2. If equally onerous – pay the oldest debt first.
3. If equal in terms of the chronological date, make
proportionate payments (each debt receives an equal
amount of the payment).
Payment in Full and Debtor denies owing full claimed amount:
Final Settlement
 v If a debtor denies owing the full amount claimed by a creditor,
they can tender payment of a lesser amount and then
accompany that with the words ‘in full and final settlement.’
v It must then be determined if the creditor can keep the
payment and sue for the balance.

Test
v Did they agree to a compromise or not?
Ø Compromise is an agreement between parties to settle a
dispute each party stepping back from previous position
and conceding something. It is a form of novation and has
the effect of replacing and pre-existing obligation but differs
because:
§ Concluded to settle a pre-existing debt;
§ Each part must concede something and step back from
previous position (increase liability or reduce claim);
§ Does not require valid existing obligation.
v So consider the following:
Ø Compromise disposes of a dispute and it means you can’t
fall back on the original claim.
Ø If the debtor provides an offer of compromise, then:
§ If creditor accepts the offer – compromise is concluded
and they cannot sue for balance of claim.
§ If creditor rejects offer – cannot keep payment and
must return it to debtor.

Set off The concept of Set-Off

Set-off is a method through which mutually owed debts are
extinguished and operates automatically ex lege. Set-off has the
same effect as payment and is seen as an equivalent to payment.

Example
John owes Bob R100, but Bob owes John R150. So after the
process of set-off Bob must only pay R50 to John.

Requirements:
1. Parties to set-off need to separate.
2. Parties must be mutually indebted.
3. Debts must be the same kind of debts.
4. Debts must both be due and enforceable.

NCR v Standard Bank – Inasmuch as bank’s have the right

to set-off ito the NCA, Bank must have Customer’s consent to set-
off amounts on Customer’s accounts. Customer must consent to
set-off and choose the account.
 Unit 2: The Role-players of the Payment System

1. Discuss the role of the Financial Sector Conduct Authority, Payments Association of
South Africa and the Banking Association of South Africa in the payment system;
2. Discuss the role of the South African Reserve Bank in the payment system;
3. Discuss the role of South African banks in the payment system.

The Role of the National Payment System

Financial Sector v This is a set of instruments, procedures, agreements, laws and rules
Conduct Authoirty, that enable funds to be transferred from one financial institution to
Payments the other.
Association of v The NPS comes into force when a user pays a business. Payment
South Africa and goes through the system into the books of the SARB.
the Banking v Financial Insitutions need arrangements to transfer funds between
Association of themselves, and on behalf of clients.
South Africa in the
payment systems Relevant Law
v Section 1 of NPS Act 78 of 1998 defines a payment system as:
Ø A system that enables payments to be effected or facilitates the
circulation of money an includes any instruments and
procedures that relate to the system.
Ø Enables parties to perform transactions efficiently.

Payments made consist of:

v Large-value payment systems: agreements between banks. Large
value sums of money.
v Retail payment systems: day-to-day transactions between financial
institutions businesses and clients.

How does one gain access to the NPS?

v Customers gain access when conducting transactions. That is, when
making payment.
v Market participants use the system or provide payment services to
customers.
v EFTs and cards.
v Third-party payment providers, clearing banks and settlement
banks.
Discuss the role of Section 10(c) of the SARB Act:
the South African Perform such functions, implement such rules and procedures and, in
Reserve Bank in general, take such steps as may be necessary to establish, conduct,
the payment system monitor, regulate and supervise payment, clearing or settlement
systems.
 Section 2 of NPS Act
SARB oversees and regulates the NPS.

Section 3 of NPS Act

Payment management body consists of: SARB, Banks, mutual bank,
co-operative bank, branch of a foreign bank & clearing payment
participant

Discuss the role of How do payments actually work?

South African v Customer presents card to retailer or online.
banks in the v Data is sent through a payment gateway, which sends details to
payment system. merchant’s bank.
Ø Data à Cardholder name + Account Number
v Payment processor uses info to notify cardholder’s bank of
transaction.
v Cardholder’s bank confirms whether there are sufficient funds for
the purchase to take place.
v Approved or declined based on available funds.
v If payment is approved, cardholder’s bank informs merchant by
communicating with the payment processor.
v Transaction is recorded and all parties are notified.
v Payment gateway is the middleman between customer &
merchant.
Unit 3 – The Bank-Customer Relationship in Payment
v Chapter 4 of Sharrock
v Everfresh v Shoprite Checkers Case

Classifying the The Bank

Bank-Customer v The Bank is a separate legal person (Juristic Person)
Relationship Ø Acquire rights and obligation, can sue and be sued.
v Branches are not separate legal entities, they are agents of the
incorporated bank.
Ø National Bank of SA Ltd v Liepner
v The Bank takes in deposits and provides loans to customers.
v The liability of the Bank whether in contract or delict is often
founded on the principle of vicarious liability.
v The must conduct the business of a bank as defined in the Banks
Act, and be registered as a Bank.

The Customer
v The customer is defined widely, and can include any person that has
dealing with a bank in the ordinary course of business.
v The term ‘Bank-Customer relationship generally has a narrower
meaning. It refers to the specific legal relationship generated by the
opening and operating of a bank account.
v Therefore, a customer is a person who has an account with the bank.
v Note:
Ø An agent can open an account on behalf of a principal and then
the principal is bound.
Ø Customer does not only mean person, as banks can be be each
other’s customers.

Classifying the Relationship

v The relationship is based on contract
Ø It is multifaceted in that is has characteristics of:
§ Loan for consumption (Mutuum);
§ Mandate (Mandatum);
§ Deposit (Depositum).
Identifying Loan
elements of the v If a customer deposits money into the bank, the bank will use that
Bank-Customer money to fund other loans and so forth. This makes it a loan to the
Relationship bank, and the customer gains a credit balance.
v Bank = Debtor.
v The opposite is the case where the customer lends from the bank.
v WHEN MONEY IS DEPOSITED:
Ø When money is deposited in the bank, the bank becomes the
OWNER and may use the money immediately.
 Ø Customer has a personal right to claim the money from the bank.
Ø Bank accounts to client.
§ Unless, the money was obtained by theft/ fraud.
Ø BANK AS OWNER AND CONSEQUENCES
§ Payment to customer/3rd party = Bank is paying out its own
money and then reimburses/ repays/ refunds itself from
customer account (debit).
§ If Bank pays out a cheque in circumstances where it was not
entitled to, bank and not customer must recover amount paid
from person to whom payment was made.
§ If Bank liquidated – money held – is part of insolvent estate.
Only concurrent claim for customer.

Mandate
The naturallia of the contract of mandate apply to some extent but there
are exceptions.
v The bank does not need to account for how it uses the customer’s
money.
v The bank does not need to keep their money and the customer’s
money separate.

Requirements for a valid bank-customer contract

The agreement is formed when the Bank accepts the offer to open an
account for the customer and the following requirements are met:
1. Consensus (offer and acceptance).
2. Authority of person representing bank (can be ratified + estoppel
is applicable).
3. Capacity to contract (customer, because bank will have it).
4. Authority to represent principal (if agent).
5. Agreement must be certain and capable of performance.
6. Agreement must be lawful.
7. Parties must have intention to create contract (animus
contrahendi).
8. Formalities complied with.
Examine the Mandate Duties
duties of the v Keeping records and accounting for the customers accounts with the
Bank bank.
v Repaying (on demand when requested) money in credit in customer’s
account.
v Receiving and collecting payments.
v Giving statement.
v As agreed:
Ø Duty to pay cheques/ collect payment on cheques.
Ø Issuing credit or debit cards.

Duties
1. Exercise reasonable care and skill.
a. Carry out its customers instructions correctly and make
sure that legislation has been complied with;
 b. Opening a bank account;
c. Giving effect to credit;
d. Financial advice.
2. Secrecy/ Confidentiality.
3. Act in good faith.
Examine the Customer Duties
Duties of the 1. Pay overdrawing, interest and bank charges as agreed and per
Customer regulations.
2. Exercise reasonable care in drawing up payment instructions – to
mitigate fraud.
3. Notify bank of any fraudulent activities.
4. Reimburse – refund the bank for expenses incurred in carrying
out mandate/ instructions.

The role of the Banking Code

v A voluntary code that sets out the minimum standards for services
and conduct you can expect from a bank with regards to the products
and services it offers.
v The banks submit to the jurisdiction of the Ombudsman for Banking
Services to mediate, make binding determinations based on this
Code and on the law where appropriate, and to make
recommendations in other circumstances including those based on
equity.
v A determination made by the Ombudsman for Banking Services may
be made an order of the court. If the Bank refuses the Ombudsman
can publish the recommendation and their refusal.
Identify when Termination can be made by:
the Bank- v Agreement whether express or tacit; or
Customer v Notice (both Bank and the Customer may give reasonable notice); or
Relationship is v Death/ Dissolution; or
terminated v Sequestration; or
v Insanity; or
v Dissolution of Bank.

Consequences
v Any credit balance must be paid to customer and any debit balance
paid to the bank.
v Rights and duties are terminated except for confidentiality.
v Bank’s duty of secrecy remains.
Everfresh v Facts
Shoprite There were two parties. Everfresh were currently leasing the premises for
Checkers Case shopping. The lease was valid from 2004 to 2009. Shoprite bought the
shopping center to develop it and they inherited the lease. Huur gaat
voor koop. There was a clause in that lease agreement that said: As the
lessee if you comply you can extend the lease for 4 years and 11 months.
Everfresh notified them that they want to extend the lease. Shoprite said
no because they wanted new tenants and claimed they were not under
any obligation. Shoprite made an action to evict Everfresh. High court
found in favor of Shoprite because there was no legal obligation to extend
the lease. Then it was appealed to the constitutional court. There they
 raised the argument that when parties negotiate an agreement they must
do so in good faith, and they have to be bona fide. Therefore, you must
extend the common law and develop it to enable us as parties to uphold
the values of the constitution. The judgement of the Consitutional Court
was divided (7 decided to dismiss the appeal and 4 decided to accept the
appeal).

WHY? The Constitutional court said that the argument of development

of the common law was brought too late and should have been brought at
the high court.

Principal
1. Good faith as a principle.
2. Disclosure of arguments at the beginning

When answering v What is the problem?

any questions v What are the principles?
remember v Apply to facts.
v Answer the question.
 Theme 2: Paper-Based Payment Methods

Unit 1: Paper-based payment methods

v Define paper-based methods and examples thereof.

v Explain the concepts of commercial paper and negotiable instruments.
v Distinguish between the different types of negotiable instruments.
v Discuss the validity requirements for a “bill of exchange” and “promissory note.”

Compulsory Reading
v Nagel et al par 30.01 – 30.08; 30.30 – 30.61
v De Rebus Article

Nagel et al Para 30.01 to 30.08

The law concerning bills of exchange deals with negotiable instruments.

Negotiable instruments are otherwise known as commercial paper. This
means that the paper has a far higher value than its actual intrinsic value.
But not all such documents are negotiable instruments, meaning
commercial paper is wider that negotiable instrument.

The term negotiable instrument has a dual meaning:

v The document and the rights it embodies may be easily transferred
from one person to another.
v Secondly, it means that any subsequent holder of the document
(transferee) who takes it in good faith and for value usually acquires
all the rights evidenced by the document, even though his
predecessor had a defective title thereto.

Bill of Exchange
v Section 2(1) of the Bills of Exchange Act defines a bill as:
Ø An unconditional order
Ø In writing
Ø Addressed by one person to another
Ø Signed by the person giving it
Ø Requiring the person to whom it is addressed to pay on demand
Ø Or at a fixed or determinable future time
Ø A sum certain in money to a specific person or his order or to
bearer.

Cheque (Definition only)

A bill drawn on a bank and payable on demand.
 Promissory Note
The most significant difference between a bill and a note is that a bill
contains an order to pay, while a note contains a promise to pay. The
Act defines a promissory note as:
v An unconditional promise
v In writing
v Made by one person to another
v Signed by the maker
v Engaging to pay on demand or at a fixed or determinable future
time
v A sum certain in money
v To a specific person or to his order or to bearer.
Define paper-based Paper-based payment methods:
methods and This type of payment system involves the use of physical documents to
examples thereof. transfer funds between accounts/ persons. These include:
• Cheques
• Bills
• Promissory Note
• Acknowledgement of debt
• Cash

Explain the Commercial paper vs negotiable instrument

concepts of Negotiable instruments = commercial paper
commercial paper
and negotiable Commercial paper = Has a higher value than the intrinsic value of the
instruments. paper itself. (R10 note is worth 10 rand but cost 50 cents to make).
• It is much broader than negotiable instruments.
• Not all commercial papers are negotiable.

Distinguish between Negotiable instrument has a dual meaning:

the different types • Document and rights it embodies may easily be transferred one
of negotiable person to another
instruments. • Subsequent holder of document who takes it in good faith and
for value acquired all rights evidenced in the document even
though the predecessor had a defective title thereto.

Acknowledgement of debt: A contract which both the creditor and the

debtor sign, in which the debtor acknowledges that they are indebted to
the creditor and for much as well as setting out the terms of paying off
the debt owed.

Bill: An unconditional order in writing addressed by one person (who

signs it) to another, requiring the person to whom it is addressed to pay
one demand or at a fixed or determinable future time , a sum of money
which is certain to a specific person or his order or to bearer. [section
2(1) of Bills of Exchange Act].

Cheque: A bill drawn on a bank which is payable on demand.

 Promissory Note: An unconditional promise in writing made by one
person to another signed by the maker engaging to pay on demand or
at a fixed or determinable future time for a sum certain in money to a
specific person or his order or bearer.

WE WILL BE ASKED TO DRAFT SOMETHING

(PROMISSORY NOTE?)
Prescription Section 11 of the Prescription Act:

v Debt arising from a bill of exchange or other negotiable

instrument (6 years).
v Unless otherwise provided by and Act or vote of parliament other
debts prescribe after 3 years.

Discuss the validity Bill of exchange:

requirements for a 1. Unconditional
“bill of exchange” a. Section 2(3) of the Bills of Exchange Act
and “promissory b. Cannot be conditioned on an uncertain future event.
note.” c. Eg. I will pay you when Simon becomes editor of
PDBY.
2. Order/promise to pay
a. Order is a direction to pay.
b. A promise is an undertaking to pay.
c. It must be in the imperative form.
d. Eg. “I promise to pay”, “I agree to pay”
3. In writing
a. Section 3 of Interpretation Act (includes all modes of
representing or reproducing words in visible form).
4. Addressed to one person by another
a. The person to whom the promise is made must be
named or indicated with reasonable certainty.
b. It may be addressed to more than one person but not in
the alternative [s4(2) of the Bills of Exchange Act].
5. Signed by the person giving it
a. Any mark or sign made with the intention to sign with
their own hand.
b. Agency is permitted.
c. Section 95: Company stamp is sufficient.
6. On demand or at a fixed or determinable future time
a. On Demand:
i. S8(1) says a bill is payable on demand if:
1. It is expressed to be payable on demand.
2. Or at sight.
3. Or on presentation.
4. Or if no time for presentation is
expressed therein.
b. Fixed or determinable future time:
i. Fixed future: If day which it falls due is
mentioned.
 1. 12(a): If it falls on a non-business day, it
will be payable on the next business day.
ii. Sec 9(1), date is determinable if:
1. At the expiration of a fixed period after
date or sight; or
2. On or at the expiration of a fixed period
after the occurrence of a specified event
which is certain to happen though the
time of happening may be uncertain.
7. A sum certain in money
a. Determinable ex facie the instrument.
b. Sec 7(1) a bill will be regarded as a sum certain in money
where the bill is required to be paid:
i. With interest.
ii. By Stated installments.
iii. By Stated installments and upon default in
payment of an instalment the whole becomes
due by virtue of a provision to that effect in the
bill; or
iv. According to a rate of exchange indicated or to
be ascertained as directed by the bill
8. To a specific person or his order or to bearer

De Rebus Article Promissory Notes

v General Remarks
Ø S87(1) Definition: A promissory note is an unconditional
promise in writing made by one person to another, signed by
the maker, and engaging 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.
Ø All the provisions of the Bills of Exchange Act apply to
promissory notes except for the sections mentioned in 93(3).
Ø As negotiable instruments, they will fall within the prescription
period specified in s11(c) of the Prescription Act.
v Requirements (similar to Bill of Exchange)
Ø Unconditional
Ø Promise
§ Cannot be anything less than an undertaking to pay and
must be in the imperative form.
Ø In writing
§ Ibid.
Ø Addressed by one person to another
§ Ibid.
Ø Signature of the promissory
§ Ibid.
Ø On demand
§ Ibid.
Ø A fixed future time or a determinable future time
 § Salot v Naidoo – Acknowledgement of debt to be paid ‘on
or before’ a certain date. Defendant pleaded prescription
but plaintiff argued that the acknowledgement was a
promissory note and therefore had not prescribed in terms
of s11 of the Prescription Act.
§ Court is Naidoo used the English case of Williamson and
Others v Rider (1962) to point out that ‘on or before’ a
certain date just made the time limited but did not make the
payment ‘fixed’.
• Weszak Beleggings Bpk v Venter - Agreed with this
judgement.
• Allwright v Gluck – goes against this narrative and
endorses a promise to pay “not later than” a certain date
as being a promissory note.
• THEREFORE THE LEGAL POSITION IS
CONFUSED AND TRY TO AVOID THIS
WORDING.
Ø A sum certain in money
Ø To a specified person or his order or to bearer.
v Conclusion
Ø An acknowledgement of debt is not a promissory note; but
Ø It is easily converted; and
Ø You should try make sure it does comply with the requirements
of a promissory note as this grants your client 3 extra years
before the claim prescribes.

Unit 2: The Demise of Cheques

v Overview of Cheques and how they operate
v Discuss the legal position of cheques in South Africa

How cheques Cheques are:

operate v One of the oldest payment instruments
v Bill drawn on bank payable on demand (negotiable instrument).
v Instructions by drawer to drawee (banks) to pay the beneficiary
(payee) on the face of the cheque on demand.
v Can be used as a payment instrument but is not a legal tender and
as such a creditor need not accept it.
Ø Tjollo Ateljees (Edms) Bpk v Small 1949
Ø Esterhuyse v Selection Cartage (Pty) Ltd 1965

Cheques as a Payment instrument:

v Distinguish between:
Ø The main contract forming the underlying obligation.
§ Contract of Sale
 Ø The auxiliary contract which is the cambial contract and it helps
to execute the underlying obligation.
§ Cheque

Bank Customer
v Drawer of a cheque is able to instruct bank to pay a cheque based
on bank-customer relationship between the drawer and the Bank.
v The Bank-Customer relationship is based on the contract of
mandate
Ø Bank agrees to execute cheque
Ø Provided the customer has sufficient funds or credit
v Bank also agrees to collect cheques on behalf of the customer.
v Section 73 of Bills of Exchange Act:
Ø The Bank’s duty to pay a cheque drawn by its customer is
terminated –
§ By receipt of countermand of payment; or
§ Notice of customer’s death or incapacity; or
§ Notice of the customer having been sequestrated or
declared prodigal.

Challenges in using cheques

v Cheques are no longer legal tender
v Cheques are not user friendly or easily comprehendible
v Limited protection and education of customers
v Time consuming ito depositing for collection and clearance for
payment.
v High susceptible to fraud.
v Can countermand despite receiving goods and services.
v EFT’s have taken over.
v Cheques are an expensive method of payment.
v Cheques use an outdated system.

The legal position Legal position

of Cheques in v 18 November 2020:
South Africa Ø Financial Sector Conduct Authority (FSCA); PASA and the
Banking Association South Africa (BASA) declared that from
the 31st of December 2020 the issuing, acceptance and collection
of cheques will no longer be accepted effective.
Ø The provisions of the Bills of Exchange Act regulating cheques
have not yet been repealed or amended, and as such there is
currently a disconnect between the legislation and the payment
system practice on the issuing, acceptance and collection of
cheques.
 Theme 3: Electronic Paymeny Methods

Unit 1: Electronic Payment Systems

Objectives:
v Explain how the South African Payment System works
v Differentiate between the NPS and EFT’s

Textbook:
v 32.01 – 32.17 + 32.23 – 32.28

Case Law:
v Take and Save Trading CC v The Standard Bank of SA Ltd
v Pestana v Nedbank Ltd

Explain how the The System

South African v Facilitates the exchange of money and transfer of value through an
Payment System electronic system.
works v Consumer pays with cash or issues a payment instruction to the bank
when they wish to make a payment or have funds released.
Ø A payment instruction can be paper-based or electronic.

Transfer of value
v Payment is initiated by either the debtor or the creditor.
v Initiating party gives instruction to a financial institution that holds the
funds.
v The financial institution will transfer funds to beneficiary’s account at
the same or other financial institution.
v Creditor transfer
Ø Debtor intiates
Ø Funds are pushed through the payment system
Ø Examples: Stop order & internet banking payments.

Debit Transfer
v Creditor initiates
v Funds are pulled through the system into the creditor’s account
v Examples: collection of cheques or debit orders.

Payment Instructions
v Paper based instructions
Ø Instruction is completed on paper in words and figures and
authenticated by signature.
v Document
Ø Physically transferred between parties and their financial
institutions to obtain payment.
 v Electronic payment instructions
Ø Electronically +Authentication by electronic inputs such as
passwords and account numbers.
Differentiate The National Payment System
between the v Payment instructions received are the given effect by respective
NPS and EFT’s financial institutions.
v Multilateral set-off claims (amongst banks for various instructions)
v Bilateral set-off between banks (inter-bank agreements)
v Clearing house for multi-lateral set-off between banks
v Confidential.

From textbook to explain the above

The payment instructions received (either paper-based or electronic) are
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.

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.

The South African clearing house agreements and inter-bank agreements

that regulate this system are confidential and not available to the public
(Rosen v Barclays National Bank Ltd 1984).

Nature of Banker- Customer Relationship (32.08 – 32.13)

v It is a complex, multidimensional relationship that includes contracts
such as mandate, loan for use, depositum and deposit taking.
v General consensus à In credit transfers it is based on contract of
mandate.
v General contract of mandate à Common law requires a bank to
exercise reasonable care and skill when performing in terms of their
given mandate, in a reasonable time and in good faith without
negligence. This includes the installation of security systems that are in
line with current business practices.
v The corresponding duty at common law requires the customer to draw
up their payment instructions with reasonable care. This is confirmed
in the South African Code of Banking.
v 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. This code is not
enforceable in a court of law.
v The code does, however, contain valuable safeguards for a customer
and the principles of the Code are often incorporated into the
standard-form contract for various services offered to the South
African banking customer.
EFT’s
v Exchange or transfer of value
v From one account to another
v One or more of steps in transfer process = electronically
v Transfer imitated of funds is initiated with an accepted access device
v Through an electronic terminal, phone, computer, magnetic tape or
similar device.
v For purpose of ordering, instructing or authorising a bank to
debit/credit an account.

An accepted device
v Access device à Means access to an account that initiates EFT.
v Accepted à Consumer uses device to for banking activities.
v Internet banking
v Point-of-sale transfer (POS)
v Includes further:
Ø ATM
Ø Transfers by telephone/ mobile phone.
Ø Direct deposit or withdrawals of funds using any of the above.

EFT Payments
v Complete when à Funds unconditionally credited to a beneficiary
account
v Resulting in discharge of underlying obligation
v If the bank account is credited with the payment amount à Prima facie
evidence of completed transaction.
v Standard Bank v Oneanate Investments
Ø Does not mean in a particular case one is precluded from looking
beyond such entries to discover the true state of affairs.
Ø Meaning: Even if the amount is credited you can still show that the
true events. It is must prima facie and can be rebutted.
v Vereins-und Westbank v Veren Investment
Ø Payee must acquire unrestricted right to immediate use of the funds
otherwise payment is incomplete.

EFT Reversals
According to Malan et al:
v Payment cannot be reversed or cancelled once complete.
v Standard form agreements:
Ø Once authorization for an EFT has been given by a client of a bank
and payment completed, the EFT cannot be countermanded or
reversed without first obtaining consent of the recipient.

Rules of an Erroneous EFT Reversal

v Banks may try to assist (Case law varies on this)
Ø Number of unresolved issues regarding the exact legal nature of
EFT payment.
 v Incorrect payment (wrong beneficiary or amount) à Payer can only
claim the amount directly from the recipient on the grounds of
unjustified enrichment.
v The Payments Association of South Africa (PASA) has rules for
reversals. The rules are as follows:
Ø Full amount of funds must still be available in the beneficiary
account; and
Ø The consent to reverse the funds/ debit the account must be given
by the beneficiary account holder.
Ø Preferred approach: Court interdict to preserve funds (freeze
account) + claim for unjustified enrichment.

Legal nature of EFT Payment

v Some authors are of the view that it is a conditional payment, subject
to the condition that the recipient is entitled to the amount. Therefore,
Banks should be able to reverse the transactions.
v Others argue that when the request is given to a bank to transfer an
amount and the Bank gives effect to that instruction it is an
unconditional payment and the Bank cannot reverse the transaction.
v The Bank is not liable where client knowingly made payment
erroneously.

Cases Pestana v Nedbank

v SARS had issued a garnishee order on the payer’s bank at one branch.
v Payer ordered his bank (but at a different branch that was not yet aware
of the garnishee order) to make a transfer of money to his father.
v Subsequent to the paying branch being made aware of the garnishee
order from SARS, they reversed the EFT to his father to give effect to
the order from SARS and rather made the payment to SARS.

Held: Consent on the part of the beneficiary is required for reversal to be

effected.

Schulze: In a case such as this where it is clear that fraud has taken place,
there surely rests a moral duty on the Bank to investigate and reverse
transfers and they should be justified in doing this.

Take & Save trading CC v Standard Bank and Pestana v Nedbank

Consent on the part of the beneficiary is required for any reversal to be
effected.

Trustees, Estate Whitehead v Dumas

Held that the bank becomes the owner of the money deposited or paid
into the customer’s account and does not hold money as an agent for the
customer and can use the money immediately for its own purposes.
Consent is required for withdrawl.
 Unit 2: Electronic Funds Transfers
Objectives:

v differentiate between debit and credit transfers;

v explain the banker-customer relationship in credit and debit transfers;
v identify, explain and apply the main legislative provisions that regulate EFT’s;
v identify the time of payment with an EFT;
v critically evaluate the current jurisprudence on the reversal of a mistaken EFT;
v explain what is meant by phishing;
v critically evaluate the current jurisprudence on the reversal of a fraudulent EFT;
v apply the abovementioned principles/law to practical scenarios to solve legal problems.

Textbook:
v 32.53 – 32.108 + 32.18 – 32.22 + 32.29 – 32.34

Debit vs Credit Debit Transfer

Transfer v Creditor initiates
v Funds are pulled through the system into the creditor’s account
v Examples: collection of cheques or debit orders.

An easy way to think about this, is that debit transfers reduce the
balance in the account, as it decreases existing money.

Credit Transfer
v Debtor initiates
v Funds are pushed through the payment system
v Examples: Stop order & internet banking payments.

This is the opposite to the above. There is now a higher balance on

the account, as you have increased your debt.

EFT at Point of Sale What is it?

v A machine
v That allows sellers of goods and services to accept payment
methods like cards.
v Customer à Debited
v Seller à Credited

How does it work?

v Supplier presents card to EFTPOS
v Cardholder:
Ø Choose account to pay from
Ø Provide pin
Ø Transaction # is allocated
Ø Details sent to bank
Ø Bank accepts or declines
Ø If accepted, Customer account debited
v It is a Debit Transfer, since the Creditor initiates and therefore
funds are pulled.

Remember:
1. Some EFTPOS directly transfer from account holder to
supplier.
2. Some EFTPOS store the details to be processed later.

The Legal Nature of EFTPOS

v There are three agreements created:
Ø Customer – Bank à Bank must fulfil orders of customer.
Ø Financial institution and supplier à Bank allows supplier to
use the machine to draw money.
Ø Customer – Supplier à Underlying obligation of purchase a
sale.
v Payment is complete when:
Ø Funds are unconditionally credited to the beneficiary’s
account.

Unauthorized Use
Covered by paragraphs 7.7 and 7.8 of the South African Code of
Banking Practice
v 7.7 à Protecting your account
v 7.8 à Responsibility for losses
Ø If the Customer has acted:
§ Fraudulently
§ Negligently, or
§ Without reasonable care
Ø And if the customer:
§ Did not inform the bank as soon as practicable after
discovering or believing that personal banking
information has fallen into improper hands and
unauthorized transactions are taking place.

Access Devices: credit cards

v Cards issued directly by a supplier (Think Woolworth’s cards)
Ø Card issuer (supplier) issues to cardholder (consumer)
Ø Card can only be used at designated stores.
Ø Supplier grants credit to consumer.
Ø NCA applicable.
v 3rd Party Credit Transaction
Ø Transaction involves consumer, bank and supplier.
Ø Bank pays seller.
Ø Consumer pays back the bank in instalments.

Legal nature of Credit Card Transactions

v They are a direct payment obligation scheme based on standard
contracts.
 v Supplier will accept valid credit cards, bank will agree to pay the
supplier.
v Supplier must pay a small fee for using the system.
v Purchases are subject to a predetermined credit limit.
v Cash may be withdrawn.
v Customer agrees to repay amounts on agreed terms.
v Cardholder is liable to bank on mandate and credit.
Ø Mandate: Bank agrees to honor instructions given by
cardholder for purchases.
Ø Via: EFTPOS, Manually or Internet.

Unauthorized Use of Credit Cards

v It differs from bank to bank
v Generally:
Ø Cardholder bears risk for loss, theft and compromised card
until bank is notified.
Ø Bank bears risk until the merchant is notified (So if someone
pays with a fake card, and the supplier is not alerted then the
Bank bears the risk)
Ø Supplier should get message of unusable card at EFTPOS.
Ø If supplier intentionally/negligently allows transaction to
proceed with a stolen card where they were notified, the
supplier suffers the loss.
Ø Cardholder can then dispute these purchases and they will
not be liable.
ATM Transactions General Nature
They are bank vaults for dispensing money, accessed using a PIN-
code, which are directly connected to the banks computer system.
They allow for withdrawals, deposits, inter-account transfers,
purchase of airtime, account payments, etc.

Legal Nature
v Similar to EFTPOS, but the legal nature depends on the service
you access.
v When card enters system with correct PIN, it is assumed to be
customer’s mandate.
v Therefore, cardholder bears risk until bank is notified.
Online Banking General Nature
v Internet banking essentially involves banking with your
cellphone, or any other device that can access the internet.
v Consumer is granted electronic access to banking services
through standard form contracts.
v You must pay the relevant fees, and have access subject to access
codes and security procedures.

Legal Nature of Electronic Banking

v Bank acts on the instruction that appears to be from the
customer.
v Customer cannot cancel or withdraw any instruction given.
 v Customer must safeguard access codes and tell bank if
compromised.
v Disputes can be referred to the Banking Ombudsman for
determination.
Identify, Explain and Regulation of EFT’s
Apply EFT v There is no definitive legislation in South Africa
Legislation v The South African Code of Banking Practice
v National Credit Act
v Consumer Protection Act
v Electronic Communications and Transactions Act

ECTA
v Section 4(1) à Applies to any electronic transaction or data
message
Ø Data Message Def à A data message is data generated, sent,
received or stored by electronic means and includes voice
where it is used in an automated transaction and a stored
record.
Ø Electronic Transaction Def à Not defined, but includes
transactions where the use of data, or electronic
representations of information is intrinsic to or an element of
the commercial or non-commercial transaction.
v Section 11: Data message is not without legal force or effect
v Section 22(1): Legal effect will be given to a contract concluded
by data messages.
v Includes all electronic transactions, debit and credit transfers or
EFTs.
v Section 20: In an automated transaction:
Ø a) an agreement may be formed where an electronic agent
performs an action required by law for agreement formation.
Ø b) an agreement may be formed where all parties to a
transaction or either one of them uses an electronic agent;
Ø c) a party using an electronic agent to form an agreement is,
subject to paragraph (d), presumed to be bound by the terms
of that agreement irrespective of whether that person
reviewed the actions of the electronic agent or the terms of
the agreement;
Ø d) A party interacting with an electronic agent to form an
agreement is not bound by the law terms of the agreement
unless those terms were capable of being reviewed by a
natural person representing that party prior to agreement
formation.
Ø e) No agreement is formed where a natural person interacts
directly with the electronic agent of another person and has
made a material error during the creation of a data message
and:
§ i) the electronic agent did not provide that person with an
opportunity to prevent or correct the error;
 § ii) that person notifies the other person of the error as
soon as practicable after that person has learned of it;
§ iii) that person takes reasonable steps, including steps that
conform to the other person’s. instructions to return any
performance received, or, if instructed to do so, to
destroy that performance; and
§ iv) that person has not used or received any material
benefit or value from any performance received from the
other person.

Consumer Protection Act

v S5(1): Act applies to every transaction occurring in South Africa
v Except: Banking services, related or similar financial services that
constitute advice or intermediary services.
v Section 48: Supplier may not make use of unfair, unreasonable
or unjust contract terms.

Protection of Personal Information Act

v Aims to protect personal information processed by public and
private individuals.
v It ensures that the processing takes place according to
internationally accepted data protection principles
v Adequate enforcement to ensure compliance
v Condition 7 – Security Safeguards
Ø Section 19 à Security measures on integrity and
confidentiality of personal information
Ø Section 20 à Information processed by operator or person
acting under authority
Ø Section 21 à Security measures regarding information
processed by operator
Ø Section 22 à Notification of security compromises.
v Section 19 à Security measures on integrity and confidentiality
of personal information:
Ø 1) A responsible party must secure the integrity and
confidentiality of personal information in its possession or
under its control by taking appropriate, reasonable technical
and organizational measures to prevent
§ a) loss of, damage to or unauthorized destruction of
personal information; and
§ b) unlawful access to or processing of personal
information.
Ø 2) In order to give effect to subsection (1), the reasonable
party must take reasonable measures to:
§ a) Identify all reasonable foreseeable internal and
external risks to personal information in its possession or
under its control;
§ b) establish and maintain appropriate safeguards against
the risks identified;
§ c) regularly verify that the safeguards are effectively
implemented;
 § d) ensure that the safeguards are continually updated in
response to new risks or deficiencies in previously
implemented safeguards.
Ø 3) The responsible party must have due regard to generally
accepted information security practices and procedures
which may apply to it generally or be required in terms of
specific industry or professional rules and regulations.

I SUSPECT WE WILL HAVE TO APPLY THE ABOVE.

Phishing What is a Phishing Attack?

v Someone sends you a fraudulent email in order to try and steal
your banking details.
v For example, they might send you an email advertising cars and
ask you to “Pay now to receive 25% off” and ask for you to enter
your bank details.
v The car didn’t exist, the company didn’t exist. Now they have
your details and steal your stuff.
v Usually, targeted is your:
Ø Account number
Ø Password
Ø Pin
v Roestoff v Cliffe Dekker Hofmeyer Inc
Ø Held that money paid into the bank account of a bona fide
person cannot be claimed by a 3rd party using rei vindicatio.
Ø Essentially, the bank becomes the owner when the money is
transferred to the account and the account holder becomes
the creditor of that money and can claim it.
Ø For an explanation:
§ Bob gets pished by John who then pays the money over
to Alexander, who is a bona fide third party.
§ Alexander banks with Standard bank, and the money
enters his account. Standard Bank is the owner. The
stolen money of Bob has become mixed with the money
of Alexander.
§ Therefore, Alexander can take that money out whenever
he wants as a creditor of the bank and Bob cannot claim
it using rei vindicatio.
v This can also be achieved using “sim-swapping”.
Ø Fraudster gives the customer a new sim-card after their old
one breaks.
Ø They intercept the OTP’s and siphon off the money to
multiple accounts and then withdraw as quickly as possible.

Key Logging and how it is different to Phishing

 v Key-logging occurs when a hacker attacks the software or
hardware of a consumer, installing a keyboard program that
tracks all key strokes.
v This data is then saved and sent to the attacker who uses the data
to gain similar information that they would have gained from the
customer using Phishing.
Ø Software hacking involves hacking the computer and
initiating a download of the software.
Ø Hardware hacking is achieved through adding a modification
or other tool to the computer that appears as a normal
computer component. That information is collected and
then processed to gain access to the consumer’s banking
profile.

The Bank’s Using paragraph 9.3 of the Code of Banking Practice

Approach v Banks undertake to provide reliable banking and payment
systems; and
v Take reasonable care to make these services safe and secure.
v As per Para 9.3 they undertake the following actions:
Ø Checking bank statements and reconciling accounts regularly
Ø Keeping personal information secret
Ø Checking website security certificate before accessing site
Ø Changing passwords and PINs
Ø Obtain anti-virus
Ø Entering numbers correctly
Ø Ensuring Payments are made to correct beneficiary
Ø Do not store passwords in browser
v TAKE NOTE:
Ø Different banks use different banking security systems
Ø Fraud detection system = bonus loss mitigating tool (This
means it is not mandatory that banks have this).
Ø Banks cannot prevent phishing e-mails
Ø Bank has no duty to perform forensic analysis on customer’s
PC to establish phishing.

The Code of Banking Practice and Ombudsman

v Where bank can show that it sent the OTP the registered cell
number at the same time that fraudulent IP was active on
banking profile, it is proof customer divulged OTP and
confidential banking information.
v Bank doesn’t have a duty to perform checks on consumer
computer for phishing.
v Ombudsman will investigate compliance with FICA
requirements, for verification of identity and residential
addresses.
v A bank also cannot control Sim Card swaps.
v Greatest extent of Liability rests with the customer and not the
bank.
 Unit 1: Virtual Currencies
Objectives:

v Define the term virtual currencies;

v Critically discuss the legal position of virtual currencies;
v Identify, explain and apply the legal rules that apply/ do not apply to these
transactions;
v Explain the legal position regarding the regulation of cryptocurrencies in South Africa;
v Determine the risks and challenges associated with the use of cryptocurrencies.

Defining Virtual What is it?

Currency v It is a digital representation of value and it is traded digitally.
v It can be used as a medium of exchange, unit of account and a
store of value.
v It can be decentralized à Crypto Currency
v There is no central administrator.
v It is still possible for it to become centralized.
v It can be convertible.
Ø Can be exchanged and changed for fiat money and vice
versa.
Ø Bit Coin
v Centralized and specific to a particular community & is non-
convertible to fiat currency (this is for example the currency in a
video game, like World of Warcraft Gold which players can only
trade amongst themselves.

An analysis of Bitcoins
v Bitcoins were introduced in 2009 and Satoshi Nakamoto
following the events of the financial crisis.
v Bitcoin is not backed by any central government and remains
anonymous, operating in a peer-to-peer network.
v They are stored in a bitcoin-wallet and secured using
cryptography.
v Bitcoins are added to the network through a system called proof-
of-work and created through a system called mining.
Ø Mining is a computational process where new Bitcoins are
generated, by those performing the tasks called “miners.”
Ø Miners then are rewarded for creating new bitcoins.
v Bitcoins can be used to acquire goods and services.

Cryptocurrencies as a form of payment

The following is a summary of the articles on the Benefits and Risks
associated with the use of Cryptocurrencies.
 Benefits of Cryptocurrencies
General
v There is no need for 3rd parties to manage the transactions
because of the blockchain, which is a virtual ledger.
v The rules of Bitcoin are in the Protocol, which contain the total
number of Bitcoins.
v It is peer-to-peer electronic cash.
v Interest is growing.
v The amount of bitcoins are capped at 21million, accounting for
inflation. Thus, as interest grows, so does its value.

Specific ones to memorise

v It is a peer-to-peer cryptocurrency network.
v There is no master server.
v There is no central authority.
v All transactions are recorded on the public blockchain,
enhancing transparency.
v Bitcoin has lower transaction costs than credit/debit cards.
v Bitcoin does not require the disclosure of any personal data.
v It cannot be counterfeited or spent twice.

Risk associated with the use of Bitcoin

Specific ones to learn for the test
v They are irreversible and there is no center point for processing.
Getting money back when an incorrect payment is made, is at the
discretion and good will of the recipient.
v If the user loses their wallet information, it is gone forever.
v It is subject to high volatility.
Ø Parties to contract using bitcoin as payment, subject
themselves to higher risk.
v They cannot presently be regulated due to their nature.
v It is threatened by phishing and cybercrime.
v Due to the anonymous nature of bitcoin and other
cryptocurrency, money laundering and money laundering remain
concerns.
v Bitcoin mining has a large environmental impact, as a result of
the increased energy consumption.
Regulation of The Basics to take note of for memorization
Cryptocurrencies v They are Decentralised
v There are multiple cryptocurrencies
v Their value is very volatile
v Lack of central authority
v Lack of monitoring capabilities
v Lack of uniform definition
v Only SARB issues legal tender in South Africa and the SARB
Act mandates them to issue bank notes and coins.
v However, no such mandate exists for cryptocurrency.
v Individuals use different forms of payment regardless.
v SARB highlighted issues and risks regarding cryptocurrencies
SARB Risks Identified (Highlighted as NB in the SLIDES)

v There is a lack of a proper regulatory legal framework, which

substantially increases the risks associated with the enforcement
of the principle of finality and irrevocability in the payment
system;
v There is no regulatory protection that would compensate the
owner or user of a cryptocurrency for any loss that may be
suffered;
v Cryptocurrencies such as bitcoin are less susceptible to freezing
or seizure actions by law enforcement agencies. The
identification of relevant laws applicable to the contravention and
the gathering of evidence regarding a transaction can become an
unattainable task;
v Exchange regulations do not govern the transfer of
cryptocurrencies in and out of South Africa. Any cross-border
exchange can therefore not be authorised by SARB

Important Notes from the Adam & Ncube & Kabwe Article
Ncube & Kabwe Regulation and Challenges:
v The IFWG leads the charge in regulating Crypto Currencies.
v The IFWG targets CASPS (Crypto Asset Service Providers)
v The Goals of the IFWG generally are to:
Ø combating illegitimate cross-border financial flows
Ø money laundering/terrorist financing; and
Ø Ensuring the efficiency and integrity of financial markets.
Ø Additionally, it promotes financial inclusion efforts; and
Ø The advancement of technological innovation in a
responsible and balanced manner.
v On 29 November 2022, schedule 1 of FICA was amended to
include businesses dealing with cryptocurrency as accountable
institutions. This means:
Ø CASPS must comply with legislation.
Ø A cryptocurrency trader is now required to register with FIC
Ø Conduct customer identification and verification,
Ø Perform due diligence
Ø Keep records of client and transactional information
Ø Monitor suspicious and unusual activity
Ø Report cash transactions above the applicable threshold, and
Ø Report control of property that might be linked to terrorist
activity or terrorist organisations.
v Furthermore, CASPS must conduct:
Ø Risk-based approach to identification and verification of
customers.
Ø Conduct an AML/ terrorist financing risk assessment.
Ø They must acquire and hold beneficiary information and
originator information for every transaction.
Challenges to regulation by Kabwe
v The lack of a uniform definition makes it hard to decide what is
and is not cryptocurrency.
v Lack of monitoring capabilities
v The decentralisations of cryptocurrencies
Ø If you don’t know where a customer is, how do you enforce
national law?
v The lack of a central authority
Ø What vehicle do you use to enforce any authority that you
may have?
v High volatility
v Technical difficulties

Important Notes from the Adam Article on Regulation

v They are a global phenomenon
v They are seriously complex and lack proper definition
v The actions taken so far to regulate it include:
Ø Twin Peaks model with the FSRA Act, but there has been no
litigation on crypto so not that effective.
Ø The National Payment System Department has in
accordance with the Banks Act, defined “E-Money” as being
issued by a bank, so Crypto can’t be governed by “E-Money”
legislation.
Ø FICA amendment can be applied to crypto to combat money
laundering and funding of terrorism.
v The Actions planned:
Ø FSRA S3(1)(a) should be amended to include Crypto assets,
bringing it within the ambit of FSRA and the Conduct of
Financial Institutions Bill
 Unit 2: Mobile Payment
Objectives:

v Discuss the development of mobile money;

v Define mobile money;
v Critically discuss the legal position regarding mobile money;
v Explain the legal position regarding the use of mobile money as a payment method in
South Africa;

Mobile Payment Overview

What is a mobile payment?
Mobile payments is the provision of payment services through the use
of mobile phone to transfer funds from customer’s account to account
of third parties.

What is electronic money? (NOT the same as Mobile Money)

Electronic money is defined in the 2009 Position Paper as:

“monetary value represented by a claim on the issuer. This money is

stored electronically and issued on receipt of funds, is generally
accepted as a means of payment by persons other than the issuer and
is redeemable for physical cash or a deposit into a bank account on
demand” (own emphasis).

There are five characteristics to this definition, namely:

v Monetary value represented by a claim on the issuer;
v Money is stored electronically;
v Money is issued on receipt of funds;
v Is generally accepted as a means of payment by persons other
than the issuer; and
v Is redeemable for physical cash or a deposit into a bank account
on demand.

The Types of Mobile Payments

v Mobile Browser Payments à Customers visit website with their
mobile phones, use the eCommerce site and then go to shopping
cart and enter payment details into website to complete
transaction.

v In-App mobile payments à Similar to mobile browser payments.

Open the app and conduct purchases on the app itself.

v Mobile/Wireless Credit Card Readers à Businesses turn mobile

phones or tablets into point-of-sale systems for on the go credit
 card acceptance. Add credit card readers & pair them with mobile
devices. The card readers accept payments on the spot.

v Contactless Mobile Payments à Customer waves mobile device

across contactless reader that wirelessly captures payment
information. They use Bluetooth or NFC.

Types of Mobile Payment in South Africa

v The Types:
Ø FNB Pay
Ø Mastercard Click to Pay
Ø Snapscan
Ø Apple Pay
Ø Google Pay
Ø Samsung Pay
Ø Zapper
Ø PayShap

v Relevant Statistics
Ø 72% have bank accounts
Ø 10% have credit cards
Ø 64% have Internet
Ø 78% have smartphones

The Regulatory Overview (As Per Slides)

Framework of v A regulatory framework is necessary.
Mobile Payments as v This provides the rights and obligations of each party.
per the Lawack v To avoid risks associated with liquidity; disruption system can have
Article on the financial markets or on the economy.
v This is known as system risk.
v Currently, all mobile payments fall within the ambit of the NPS.

The Lawack Article’s expansion on the above

The Legal Framework consists of the following:
v South African Reserve Bank Act
v NPS Act
v Banks Act
v Exchange Control Regulations
v Financial Intelligence Centre Act
v South African Reserve Bank Position Paper on Electronic Money

The Concept of Systemic Risk and why Regulation is essential

If a payment system is insufficiently protected against risks such as
credit, liquidity and settlement risks, disruption within the system
could trigger or transmit further disruptions among its participants, or
generate systemic disruptions in the financial markets or more widely
across the economy. This phenomenon is referred to as “systemic
risk”.
 Position Papers
The Reserve Bank sometimes issues “Position Papers” to clarify its
regulatory stance. Although Position Papers do not have the same
legal binding power as directives, they are usually followed because of
the moral suasion powers of the Reserve Bank.

Regulatory Risks and Challenges

v Generally:
Ø Money laundering
Ø Consumer protection
Ø The roles of banks? Virtual or branchless
Ø Privacy
Ø Change in regulatory rules
Ø System security?
v Challenges as per article
Ø Developing technology may change the structure and
function of financial institutions.
Ø Mobile Banking can create new or worsen public policy
issues.
Ø Developing technologies challenge traditional methods of
safety and soundness of supervision by changing the nature
and scope of existing risks and possibly creating new risks
Ø The nature and scope of technological change may require
regulators to re-balance their emphasis on regulatory rules
and industry discretion.
v Areas of change in banking due to mobile banking
Ø As mobile banking becomes more widespread and complex,
the necessity for banks to assess and manage operational
risks will become more crucial.
Ø Security failure at a particular institution could not only cause
large losses for that institution, but could spawn a general lack
of confidence in electronic banking and mobile banking,
leading to reputational risk.

What is Mobile Overview

Money Definition of Mobile Money à Mobile money is a service that
allows customers to transfer money that is mobile-phone- based
(Baganzi & Lau 2017).

Relevant Characteristics of Mobile Money

v This is a service that allows customers to transfer money using
mobile devices only.
v No bank account is required.
v Facilitated by network providers independent of banks.
v Customers use electronic wallet.
 The Regulation of Mobile Money
v Currently there is nothing clear and scholars are divided.
v However, S11 of Banks Act says ability to deposit money is
reliant on a Bank Account. So only Banks can issue Mobile
Money.
v Therefore, Mobile Money isn’t really provided for and
legislation doesn’t support it and it is a constraining factor.
v Other relevant legislation:
Ø FICA
Ø RICA

Main Argument for introduction of Mobile Money

v People have access to mobile phones but not bank accounts.
v Thus, it increases the “banked” population allowing for better
sustained economic growth.
The Theoretical Social Theory of Money
Underpinnings for v Money is a social construct.
the provision of v Money is constantly re-negotiated.
Money v Thus, it is possible to negotiate with banks to provide socially
beneficial financial services.

Credit Theory of Money

v Money is viewed as debt related to future payments.
v Debt exists before money.
v Therefore money is borrowed from the bank on the guarantee
that the customer can repay the bank using proceeds from sold
goods and services.

Post-Keynesian Theory of Money

v Similar to Credit Theory.
v Highlights the flow of money into other vehicles of money.
v Companies borrow on the basis of securities.