Electronic Payment Systems

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Electronic Payment Systems
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Electronic Payment Systems

• BACS
• BACS Ltd (Bankers Automated Clearing Services)
• Automated transfers of debits and credits

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Electronic Payment Systems

• Direct Debit
• The direct debit enables customers to authorise
  banks to make payments on their behalf May be
• Set amounts or
• Variable

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Electronic Payment Systems

• Direct Debit (Cont)
• The payee bank (the bank receiving the payment)
  will inform the paying bank of the amount its
  customer requires. The paying bank will then
  debit the account of its customer and inform the
  payee bank that it has done so.

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Electronic Payment Systems

• Direct Debit Guarantee
• The Direct Debit Guarantee, which requires payers
  to be told in advance of any change in the
  amounts or dates of payments. If an error is made
  a full an immediate refund will be made to the
  payers account on request. Customer can cancel
  at any time

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Electronic Payment Systems

• Direct Credit
• The direct credit enables customers to authorise
  banks to receive payments on their behalf. The
  most common item paid into bank accounts in this
  way is salaries/wages.

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Electronic Payment Systems

• Both debit and credit is a three-day process.
• Day 1 - information regarding transfers received
  by 9 pm on sorted into data files for each bank
• Day 2 the payee/paying bank will receive details
  of the transfer
• Day 3 the payee/paying bank will credit/debit
  their customers accounts.
• No money actually changes hands the banks
  reconcile their positions through their accounts
  with the Bank of England.

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Electronic Payment Systems

• CHAPS
• CHAPS Ltd (Clearing House Automated Payment
  System)
• Usually single payments
• Real Time Gross Settlement System (RTGS) Payee
  bank receiving payment actually receives the
  money on notice.

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Electronic Payment Systems

• CHAPS
• The paying bank informs the Bank of England which
  debits the paying banks account and sends
  confirmation
• The paying bank informs receiving bank, which
  sends an acknowledgement (logical acknowledgement
  message - LAK) to the paying bank. The receiving
  bank must then give value to the customer the
  same day.

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Electronic Payment Systems

• ATM
• Automated Teller Machines or Cash dispenser
  machines - electronic funds transfer terminals
• Plastic card and PIN needed to
• dispense cash
• handle deposits
• transfer funds between accounts
• paying bills
• display balances

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Electronic Payment Systems

• ATM
• These often double up as credit cards and cheque
  guarantee cards
• When ATM only used in banks machine for an
  account in credit it is not a credit token
• But if used to access an overdraft, it is -
  Ombudsman opinion.
• The ATM card is not a credit token if it is not
  used to obtain credit and therefore the 50 limit
  does not apply See section 14 Consumer Credit Act
  1974

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Electronic Payment Systems

• Completion and Countermand of Payment
• Most ATM systems are on line, which means that
  the customer's instruction to withdraw cash is
  debited to his or her account immediately. This
  means that the transaction is irrevocable and
  cannot be countermanded.

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Electronic Payment Systems

• Completion and Countermand of Payment(Cont)
  Payment of an ATM transaction is completed (that
  is paid)
• a) when cash is dispensed to the customer (cash
  withdrawal)
• b) when the debit is passed to his or her account
  in other transactions. In most on line machines
  this is instantaneous with the instruction but
  with off line machines it may be later.

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Electronic Payment Systems

• Fraud in the use of ATMs
• There is an increased risk of fraud. The main
  safeguard is the PIN, but problems will occur
  when
• The customer carries the card and PIN together
  and an unauthorised person obtains and uses them
• When the card and PIN are intercepted by post
  although these are posted separately to avoid
  this
• When an unauthorised person skims the PIN off an
  offline card.

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Electronic Payment Systems

• Fraud in the use of ATMs (Cont)
• A cash card is a credit token under the Consumer
  Credit Act 1974 since it is an agreement by which
  a bank undertakes to supply cash on its
  production ss8, 9 and 14. A debtor only liable
  for 50.00 s 84.
• Customer not liable to the bank for loss arising
  from use by another person s 83.
• Withdrawal less than the 25,000 Therefore
  regulated under the Consumer Credit Act 1974.

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Electronic Payment Systems

• Equipment Failure and ATMs
• The banks have an implied dut of care and skill
  e.g. to ensure that ATMs respond accurately , are
  reasonable maintained provide sufficient
  information on transactions.
• Banks include clause authorising debit of the
  account even if due to computer error, theft or
  misuse of the card and PIN. But Unfair Contract
  Terms act 1977 requires exclusion clauses to
  satisfy a test of reasonableness and the Unfair
  Terms in Consumer Contracts Regulations 1999
  requires clauses to be in good faith, not to
  cause an imbalance to the detriment of the
  consumer

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Electronic Payment Systems

• ATMs and the Banking Code
• Provides that card holder not liable after
  informing bank of loss provided customer did not
  act fraudulently or without reasonable care or
  gross negligence e.g.
• allowing another to use the card or PIN
• not destroying the PIN notification
• writing down the PIN
• failing to keep the card safe and the PIN separate

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Electronic Payment Systems

• EFTPOS
• The Electronic Funds Transfer at the Point of
  Sale (EFTPOS) is a payment system which allows
  payment to be made for goods and services by
  conveying details of the transactions to the
  payer's and the payee's banks without using paper
  vouchers at all.

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Electronic Payment Systems

• An EFTPOS system can accept credit cards or debit
  cards. It involves
• a) a terminal in the retailer's or other person's
  outlet
• b) a message transmission facility linking the
  terminal to the bank's computers
• c) a magnetic strip on the plastic card which
  allows the system to be activated.

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Electronic Payment Systems

• Debit Cards
• Deduct money from an account directly manually or
  (more commonly) electronically by EFTPOS.

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Electronic Payment Systems

• Debit Cards and EFTPOS
• Operation governed by Re Charge Card Services
  1988. System based on following contracts
• a) the contract between the retailer and the
  customer (purchase of the goods)
• b) the contract between the customer and the
  customer's bank (paying bank)
• c) the contract between the retailer and the
  retailer the retailer's bank (receiving bank)
• d) the contract between the banks and the
  operators of the EFTPOS system

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Electronic Payment Systems

• Contract a) is discharged when the debit card is
  accepted and the goods handed over. The paying
  bank agrees to transfer funds directly to the
  collecting/receiving bank.
• Contract b) is discharged by the paying bank
  agreeing to pay the retailer when the customer
  uses the debit card.
• Contract c) is entered into when the retailer
  decides to use the EFTPOS system. The bank
  credits the retailer's account through the EFTPOS
  but only effectively cleared when collected.

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Electronic Payment Systems

• Fraud, mistake and malfunction of EFTPOS
• Fraud by retailer's employee - retailer liable
• Fraud by a thief - innocent victim liable for
  50.

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Electronic Payment Systems

• Completion and countermand of payment
• On line EFTOPS completed once the paying bank
  approves and authorises i.e. at the point of sale
  - cannot be countermanded.
• Off line EFTPOS can be countermanded debit
  reaches the account (like dishonoured cheque) BUT
  ...

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Electronic Payment Systems

• Completion and countermand of payment (Cont)
• 2 possibilities
• 1. Bank stops payment and reclaims from retailer
  who reclaims from customer (like dishonoured
  cheque)
• 2. Bank pays retailer because customer's contract
  with the retailer is discharged when the payment
  card is tendered and accepted by the retailer.
  Bank claims from customer.
• Dilemma settled by terms of contract between
  parties.