SECTION D – METHODS OF PAYMENT
CHAPTER 1 – Methods and instruments of payment
Introduction
• Choice of method of payment depends on:
1. Amount
2. Relationship
3. Distance
4. Convenience
5. Risk/Security
6. Trust
General features of modern payments methods
• Quick & efficient (Instant)
• Cost effective
• Convenient (any place, any time)
• Easy to use
• Secure and reliable
• Interoperable
Modern methods of payment
1. Credit cards
• Method of payment + form of credit
Þ Issuer settles debt with supplier – card holder refunds issuer
• Advantages:
§ Do not have to carry cash around
§ Can be used overseas
§ Used for internet purchases
• Two party cards:
§ Issued by large chain stores to an account holder
§ 2 parties = issuer (supplier) and card holder (customer)
§ To make purchases at that store up to a certain credit limit
• Three party cards:
§ Issued by a bank or other financial institution
§ 3 parties = issuer (bank/financial institution), supplier and card holder
§ To make purchases at any place where credit card is accepted up to a
certain credit limit
• Disadvantages:
§ More easily spend money and incur large debts
, § Security risks – can be stolen, lost or cloned and fraud (internet purchases)
• Not negotiable instruments – regulated by National Credit Act and ECTA
2. EFT transactions
• Payment instructions for the transfer of funds by electronic means – made by
cell-phone, internet, home banking services, ATM
• Erroneous transfers by customer
§ Is possible to claim from beneficiary on grounds of unjustified enrichment
§ But, generally transactions can only be reversed with permission of
beneficiary
• Customer carries risk of any unauthorised use of card until bank is notified (bank
is not liable for unauthorised transactions)
• Credit vs debit instructions
§ Credit instruction = to transfer funds electronically from account of mandator
to account of beneficiary e.g. payment of salaries
→ Take place through Bankserv system: electronic facilities between banks
§ Debit instruction = person to whom payment is made may claim amount from
financial institution where debtor has an account e.g. stop orders, debit
orders
• Regulated by: ECTA, National Credit Act, Consumer Protection Act, principles of
law of contract & SA Code for Banking Practice
• Same advantages & disadvantages as credit cards
3. E-money
• Electronic purse e.g. gift vouchers, loyalty cards, SU card = money is “loaded”
onto the card
• Issued by banks = do a number of transactions until available balance is used
• Payment Intermediaries e.g. PayPal, ApplePay = consumer does not divulge
banking/credit card details and payment is made through intermediary
• Virtual currencies e.g. Bitcoin (not yet considered legal payment method in SA)
4. Mobile payments
• Cell phone networks in conjunction with banks or major grocery chains
• Mobile wallets
• Phone applications and scanning technology e.g. SnapScan
Traditional methods of payment
• Includes physical instruments
Þ Instruments of payment: cheques, bills of exchange and promissory notes
• In writing
• Remain important in the commercial context
§ Provide security
, § Guarantee function
• Value documents vs legitimation documents
• Personal rights of creditor linked to a piece of paper
• Value document = rights linked to possession of paper e.g. movie ticket
• Legitimation documents = document shows who the holder is and thus
legitimates a specific person as a holder (of the personal right)
• Cheque = value document & legitimation document
• Fraud:
§ Formal legitimation: appears from document that creditor = holder
§ Material legitimation: real creditor who is entitled to payment
§ Thief or person who committed fraud can still be formally legitimised but not
materially, except for holder in due course who bona fide took for value
CHAPTER 2 – General concepts
Negotiability
• Negotiate = "the transfer of the bill in such a manner that it constitutes the
transferee the holder”
• Negotiation entails the transfer of rights
• Normal transfer:
§ Transferor cannot transfer more rights that he has himself (nemo plus iuris)
§ e.g. thieves cannot transfer rights
• Negotiable instruments
§ Transferee takes the bill without defects in title
§ Can quality as a holder in due course (cheques/bills of exchange/promissory
notes)
§ Not subject to the nemo plus iuris rule
• Negotiable document = a value document
a) The formally legitimised creditor can transfer her rights (both those indicated
by the paper and those linked to the paper) to someone else; and
b) This transfer is not necessarily subject to the nemo plus iuris rule
• If person received document in good faith for value, that person obtains the
document free of any defects in the title of its predecessor
• Statutory negotiability
§ Bills of exchange, cheques, promissory notes
§ Arises from Bills of Exchange Act
• Common law negotiability
§ Arises from trade usage
§ Treasury bonds, traveller’s cheques
CHAPTER 1 – Methods and instruments of payment
Introduction
• Choice of method of payment depends on:
1. Amount
2. Relationship
3. Distance
4. Convenience
5. Risk/Security
6. Trust
General features of modern payments methods
• Quick & efficient (Instant)
• Cost effective
• Convenient (any place, any time)
• Easy to use
• Secure and reliable
• Interoperable
Modern methods of payment
1. Credit cards
• Method of payment + form of credit
Þ Issuer settles debt with supplier – card holder refunds issuer
• Advantages:
§ Do not have to carry cash around
§ Can be used overseas
§ Used for internet purchases
• Two party cards:
§ Issued by large chain stores to an account holder
§ 2 parties = issuer (supplier) and card holder (customer)
§ To make purchases at that store up to a certain credit limit
• Three party cards:
§ Issued by a bank or other financial institution
§ 3 parties = issuer (bank/financial institution), supplier and card holder
§ To make purchases at any place where credit card is accepted up to a
certain credit limit
• Disadvantages:
§ More easily spend money and incur large debts
, § Security risks – can be stolen, lost or cloned and fraud (internet purchases)
• Not negotiable instruments – regulated by National Credit Act and ECTA
2. EFT transactions
• Payment instructions for the transfer of funds by electronic means – made by
cell-phone, internet, home banking services, ATM
• Erroneous transfers by customer
§ Is possible to claim from beneficiary on grounds of unjustified enrichment
§ But, generally transactions can only be reversed with permission of
beneficiary
• Customer carries risk of any unauthorised use of card until bank is notified (bank
is not liable for unauthorised transactions)
• Credit vs debit instructions
§ Credit instruction = to transfer funds electronically from account of mandator
to account of beneficiary e.g. payment of salaries
→ Take place through Bankserv system: electronic facilities between banks
§ Debit instruction = person to whom payment is made may claim amount from
financial institution where debtor has an account e.g. stop orders, debit
orders
• Regulated by: ECTA, National Credit Act, Consumer Protection Act, principles of
law of contract & SA Code for Banking Practice
• Same advantages & disadvantages as credit cards
3. E-money
• Electronic purse e.g. gift vouchers, loyalty cards, SU card = money is “loaded”
onto the card
• Issued by banks = do a number of transactions until available balance is used
• Payment Intermediaries e.g. PayPal, ApplePay = consumer does not divulge
banking/credit card details and payment is made through intermediary
• Virtual currencies e.g. Bitcoin (not yet considered legal payment method in SA)
4. Mobile payments
• Cell phone networks in conjunction with banks or major grocery chains
• Mobile wallets
• Phone applications and scanning technology e.g. SnapScan
Traditional methods of payment
• Includes physical instruments
Þ Instruments of payment: cheques, bills of exchange and promissory notes
• In writing
• Remain important in the commercial context
§ Provide security
, § Guarantee function
• Value documents vs legitimation documents
• Personal rights of creditor linked to a piece of paper
• Value document = rights linked to possession of paper e.g. movie ticket
• Legitimation documents = document shows who the holder is and thus
legitimates a specific person as a holder (of the personal right)
• Cheque = value document & legitimation document
• Fraud:
§ Formal legitimation: appears from document that creditor = holder
§ Material legitimation: real creditor who is entitled to payment
§ Thief or person who committed fraud can still be formally legitimised but not
materially, except for holder in due course who bona fide took for value
CHAPTER 2 – General concepts
Negotiability
• Negotiate = "the transfer of the bill in such a manner that it constitutes the
transferee the holder”
• Negotiation entails the transfer of rights
• Normal transfer:
§ Transferor cannot transfer more rights that he has himself (nemo plus iuris)
§ e.g. thieves cannot transfer rights
• Negotiable instruments
§ Transferee takes the bill without defects in title
§ Can quality as a holder in due course (cheques/bills of exchange/promissory
notes)
§ Not subject to the nemo plus iuris rule
• Negotiable document = a value document
a) The formally legitimised creditor can transfer her rights (both those indicated
by the paper and those linked to the paper) to someone else; and
b) This transfer is not necessarily subject to the nemo plus iuris rule
• If person received document in good faith for value, that person obtains the
document free of any defects in the title of its predecessor
• Statutory negotiability
§ Bills of exchange, cheques, promissory notes
§ Arises from Bills of Exchange Act
• Common law negotiability
§ Arises from trade usage
§ Treasury bonds, traveller’s cheques
