Summary Mercantile Law - Methods pf Payments (2nd Semester)

Methods of
payment
Chapter 1:
(SHORT QUESTIONS)

Transactinncintractsn=nineninnwhichntwinirnmirenpartesnagreenthatninenwillndeliverngiidsnirnrender
servicesntinthenitherninnreturnnfirnpayment.

Paymentncannbenmadenbynmeansnifnanrangenifnpaymentnmethidsnsuchnasncash,nbillsnifnexchange,
cheques, n credit n cards n etc. n The n chiice n if n payment n methid n depends n in n the n amiunt n iwed, n the
relatinshipnbetweennthenpartesnandnthenphysicalndistancenbetweennthem.

Modern methods of payment:

1. Credit Cards:
Functinnasnanmethidnifnpaymentnasnwellnasnanfirmnifncredit.
Thenissuernifnthencardn(thenbank)nsetlesnthendebtnwithnthensuppliern(seller)nimmediately,n
whilenthencardnhildern(buyer)nrefundsnthenissuernatnanlaternpiint.
ItnalsinalliwsncashntinbenwithdrawnnatnannATMn

2 Types of credit cards:
 Two party credit cards:
CardsnarenissuednbynLARGEnCHAINnstiresntinannacciuntnhildern(Wiilwirthsn
Card)
nThen2npartesn=nthenissuern(seller)nandnthencardnhildern(cinsumer)
Enablesncustimerntinmakenpurchasesnatnthatnpartcularnstirenandntransactinsn
arenregulatednbynthenNatinalnCreditnAct.n

 Three party credit cards:
CardsnarenissuednbynanBANKnirnithernFINANCIALnINSTITUTIONSntinancardnhilder
Then3npartesn=nAnbankn(issuer)nthensuppliernandnthencardnhildern(cinsumer)
Cinsequentallyntherenaren3ncintractsninvilved.
1. Cardnhildernandnthenissuern-nThenhildernagreesntinpaynthenissuernback
2. IssuernandnSuppliern-nissuernundertakesntinreimbursenthensupplierninn
certainncinditinsn
3. CardnhildernandnSuppliern-nSuppliernundertakesntinprividengiidnirn
servicesntinthencardnhilder.

, EnablesnthencardnhilderntinmakenpurchasesnatnANYnplacenwherenthencreditncardnis
accepted.
Othernfirmsnifn3npartyncardsn=nDebitncardsnandnChequencardsn-nThencardnhildersn
acciuntnisndebitednimmediatelynatnthentllnpiintnandnfundsnarenelectrinicallyn
transferredntinthenacciuntnifnthensupplier.

Advantage:nDinnitnhaventincarryncashnariund,neasilynpirtable,ncannuseniverseas,n
paymentnisnguaranteednfirnthensellernandnitnenciuragesnpeiplentinspendnmire.
Disadvantages:nMineynisnmireneasilynspentnandnlargendebtsnarenincurred.
Securitynissuesn-nstilenncard,nfraudnandnsimeinenelsenmaynusenitnwithiutn
yiurnauthirisatin
CardnhildernremainsnLIABLEnfirnanynunauthirisednusenifnhisncardnUNTILn
thenissuernisnnitiednthatnthencardnisnlist.nThereafernthenissuerncarriesn
thenrisknifnsubsequentnpurchasesnmadenwithnthencard.

CreditncardsnarenNOTnnegitableninstrumentsnandnarenNOTnregulatednbynthenBillsnifnExchangen
Act.n

 RegulatednbynthenNatinalnCreditnActnifn2005nandnthenElectrinicnCimmunicatinsn
andnTransactinsnActnifn2002



2. Electronic Fund Transfer:
Entailnpaymentninstructinsnfirnthentransfernifnfundsnbynelectrinicnmeans.
Mediumsn=nphines,ninternet,nhimenbankingnapps,nATM
Transfersnarenmadenfrimnthenacciuntnifninenpersinntinthenacciuntnifnanither.
 BanksnwillnREVERSEnanynincirrectntransactinsnmadenbyntheirnSTAFF
 Ifnthencustimernmadenannincirrectntransfernthenlegalnpisitinnisnntnclear.
Itnisnpissiblentinclaimnbacknfrimnthenpartynwhinbeneitedninnthengriundsnifn
unjustiednenrichment.
Thentransactinncanninlynbenreversednwithnthenpermissiinnifnthenbeneiciary.

2 Types of instructons:

 Credit instructons:
InstructinntinTRANSFERnfundsnfrimnthenacciuntnifnthenmandatiryntinthen
acciuntnifnthenbeneiciary.n
PricessnisnimplementednbynthenDEBTOR

InstructinsngenerallyntakenplacenthriughnthenBankservnsystem,nATMnsystemnirn
EFTPOS,nbynmeansnifnancreditncard
Bankserv systemn=nprividesnfirnelectrinicnfacilitesnbetweennbanksnandnalsinfirn
thenclearingnifncheques

 Debit Instructons:

, Instructinsnalliwnthenpersinntinwhimnpaymentnisnmaden(creditir)ntinclaimn
paymentnirnannamiuntnfrimntheninancialninsttutinnwherenthendebtirnhasnhisn
acciunt.
PricessnisnimplementednbynthenCREDITOR

TransactinsnarenregulatednbynthenElectrinicnCimmunicatinsnandnTransactinsnActnifn2002,n
principlesnifnthenlawnifnncintractnandnthenNatinalnCreditnActn2005.

ThenCidenfirnBankingnPractsenalsinplaysnanrilentinpritectnthencinsumer.nHiweverntherenisnan
ibligatinninnbithnthenbanknandnthencustimerntinactnwithndiligence.nThencidenhasnNOnLEGALn
standingnifnitnisnnitnincirpiratednintinthenstandardncintractsnifnbanksnwithnitsnclients.

 EFTncannbenVOIDninnthengriundsnifniustus errornifncertainnrequirementsnarenmet.

ThenCinsumernPritectinnActnstatesnthatnthensuppliernmustnhavenSAFEnandnRELIABLEn
paymentnsystemsninnplace

3. Electronic or E-money:
Thesencardsnfunctinnasnannelectrinicnpursenandncannbenusedninntransactinsnwithn
partcipatngnsuppliersnfirnthenpurpisenfirnwhichntheynhavenbeennissued.
CardsnhavenNOnregulatin,nexceptnfirncintractualnregulatinnandntheynarenusednuntlnthen
availablenbalancenisnused.

TheynarenexamplesnifnpaymentnintermediariesnwherenthencinsumerndiesnNOTndivulgen
thendetailsnifnhisnbankntinthensuppliernandnpaymentnisnmadenthriughnannintermediary.
Examplen-nPayPal

4. Mobile payments:
Cinceptnciversnallnmethidsnifnpaymentsnwhichntakenplacenbynmeansnifncellnphines.
Itnisnrunnbyncellnphinennetwirksninncinjunctinnwithnbanks.
TakenplacenbynmeansnifnEFTnwhichnisnpairednwithnanmibilenapplicatin
Therenisnalsinthen‘mibilenelectrinicnpursennwhichnrequiresnthatnbithnthensendernandnthen
receivernifnthenmineynregisternwithnthenSAMEnschemenandnhavenACOUNTSnatnthenSAMEn
bank.
Examplen=nMiila

Traditional methods of payments:

BillsnifnexchangenandnchequesnarenWRITTENninstructinsnifnpayments.nPrimissirynnitesnarenwritenn
primisesnifnpayment.

 AllnarenregulatednbynthenBillsnifnExchangenActnifn1964

Chequesnarenannimpirtantnmethidnifnpaymentninnthencimmercialncintextn(evennthiughtntheynarenntn
widelynusednanymire)nasntheynprividenanFORMnOFnSECURITYnandnfulilnanguaranteenfunctinnthatn
paymentnwillnbenmade.n

Safernmethidntinusenwhennthenpartesndinnitnkniwneachnither.