Debit Payments

• A withdrawal by a customer, using an ATM, constitutes a real time withdrawal by such customer out of their own account. ATMs may either belong or be contracted to the bank holding the account of the customer or to another bank. A customer initiates the transaction by inserting their Card in the ATM, after which the ATM will request that the Personal Identification Number (PIN) be keyed to verify that the transaction is in fact being initiated by the customer. This requirement protects the customer from the system being misused to obtain funds fraudulently from the customer’s account. As the customer is responsible for safekeeping of both the Card and the PIN, using both the Card and PIN, will be deemed to have been initiated by the customer.

• A transaction initiated at an ATM is immediately passed on to the bank where the customer’s account is held together with the PIN encrypted. The Issuing bank (customer’s bank) has the capability through its security system to verify the correctness of the PIN without the PIN ever being exposed to anybody during the process. All transactions are uniquely referenced to facilitate easy identification of the transaction where subsequent enquiry or audit is needed.
• Having verified the PIN and ensured that the customer has sufficient funds in their account to cover the requested withdrawal, the customers bank (Issuing bank) will debit the account of the customer, then send a message, via the PSO, through the bank controlling the ATM, authorising the amount requested be paid out. The ATM would then proceed with dispensing of the authorised amount if it contains sufficient bank notes to make the payment.
• Normally, if any one of the required messages or actions fails to be executed, the ATM and or the system/s of the bank/s and PSO will record such error with a code indicating the type of failure, send an error message to the other parties to indicate that the action has failed and the system/s will reverse any entries that could not be completed.
• All banks involved in the exchange of ATM transactions are required to reconcile the records of transactions on a daily basis so as to ensure that the system is kept in balance and any incomplete transactions can be rectified speedily. A bank receiving a query regarding anomalous transactions has seven working days to resolve a query.

In the unlikely event that a customer’s account is debited with the withdrawal without the customer actually having received such funds, the two banks involved will communicate with each other, having identified the error during the daily reconciliation processes or when a customer complaint is received. The funds involved will be returned to the affected customer and the service providing bank.

The following interbank transactions can be performed at an ATM:

• Balance enquiry;
• General payments (e.g. prepaid electricity and airtime)

The development of these types of devices was to address the need to provide a cost effective solution to facilitate the withdrawal of Cash where no formal banking services were available, predominantly in rural communities. SSDs are devices that are unattended and have no physical capability of dispensing cash. These devices however facilitate Cash withdrawals via the dispensing of script redeemable for Cash. The device dispenses two transaction scripts; being a receipt for the Cardholder and a Voucher redeemable for Cash at the Merchant. Stringent rules have been developed to govern the risks associated with these devices which consumers are exposed to, which include guidelines in respect of transaction costs, security and placement of device and merchant conduct.

The following additional transactions can be performed at an SSD:

• Balance enquiries;
• General payments (e.g. prepaid electricity and airtime)

Background

The large variety of Card-based payment products offered by PASA members represent one of the most dynamic, growing and innovative areas which PASA is responsible for. In the retail payments environment these products also generally have a far greater global reach, and are supported by global payments brands. This is in contrast to the other retail payment systems such as cheques and EFTs, which are confined to the domestic borders (although to some extent accepted by countries that form part of the Common Monetary Area, viz Namibia, Lesotho and Swaziland).

Some examples of the household international brands associated with card payment instruments include Visa, MasterCard, Amex and Diners. The ever increasing variety of products being developed in this field of endeavour includes debit cards, credit cards, charge cards, corporate cards, purchase cards, garage cards, petrol cards, fleet cards, etc.

Most of the Card categories, transaction types, clearing rules, and authorised clearing operators are legally defined, governed and managed within the context of a number of card-related PCH agreements, such as the Debit Card PCH, Credit Card PCH, Fleet Card PCH and the Amex/ Diners PCH. There are three PCH System Operators (PSOs) currently authorised to clear transactions on behalf of most of the participants of the PCHs, namely Visa, MasterCard and BankservAfrica.

The following is a brief overview of some of the technologies, concepts and products related to card payment systems.

Credit Cards

A Credit Card is essentially a payment instrument issued by a financial institution and linked to a credit card account with a pre-approved credit limit, which enables the Cardholder to purchase goods and services from merchants who have agreed to accept the card. The PCH participant providing the card and the line of credit to its customer is referred to as the Issuer, while the participant accepting and processing the transaction from the merchant is known as the acquirer. In South Africa most banks issue either Amex, Diners, Visa or MasterCard branded credit cards, and in general their global operating regulations for MasterCard and Visa are followed and have been adopted by the PCH participant group. However, there are exceptions, where the participants have agreed to change or amend some of these rules to better reflect local needs or risk considerations.

There are two main categories of credit cards available to customers, namely an “embossed” credit card, which would allow usage at Merchants with a card reading device such as a Point of Sale (POS) terminal, at an ATM, but also in circumstances where the card cannot be physically read by a device – such as the Internet, or even mail order/ telephone order environments. These cards can also operate below a so-called “Floor Limit”, which means that for purchases below a certain amount of available credit of the card holder does not need to be verified. One of the features of credit cards that are unique to South Africa, is the budget facility that clients can opt for at the time of purchase at POS. This means that clients can upfront decide to pay off the outstanding credit over a pre-defined period (of say, 6 months), rather than making the transaction part of the general pool of credit, of which a minimum percentage needs to be paid off at the end of each month (eg. 10%); the outstanding balance is then revolved into the next month and interest added to that.

Embossed cards are verified by the signature of the card holder, although as these cards are migrated to chip technology, verification is by PIN.  South Africa has made good progress with migration to EMV Chip cards. Updated industry statistics are published in the PASA Annual Report each year. 

Debit Cards

A debit card is a payment instrument linked to a deposit account, such as current cheque account, savings account or transmission account. Although some of these accounts could go into overdraft, they are generally in debit or pre-funded, and thus have a lower credit risk exposure when compared to credit card.

There are a number of different debit cards available to the South African public. By far the most popular and widely used of these is the on-line, PIN-based category. These debit cards only work in an environment where the card can be physically read by a card reading device (such as a POS/ merchant terminal) or ATM, is authorised by a PIN entry, and immediately goes on-line to the Issuer to ensure that sufficient funds are available for authorisation of the transaction. They can therefore not be used in an Internet environment, nor for mail orders or telephone orders or even with POS terminals that are “off-line”. They are generally branded Visa Electron or MasterCard Maestro.

A second category of debit card is an embossed debit card, usually branded MasterCard Debit/ MasterCard Cheque, or else Visa Debit/ Visa Cheque, which is linked to a current account, but in all other respects operates like a normal credit card (ie. Signature verified, can be used under the Floor Limit at POS, on the Internet, and in mail order/ telephone order environments). Whilst the credit risk exposure to the Issuer is limited, the fraud risk is as high as for credit cards, and this card is therefore generally only issued to more affluent customers.

Over the past few years more than half of debit cards have been migrated from magnetic stripe to Chip technology, which has resulted in off-line limits being determined by each individual card and transactions being PIN authenticated. Updated EMV Chip migration statistics are published in the PASA Annual Report each year.  

A third category of debit card is the pre-paid card. Specific examples of these cards include gift cards, wage, and others. In reality these cards function no differently than either one of the previous two types of debit cards. In other words, a pre-paid card can either be un-embossed (and therefore on-line, PIN-based), or embossed (and therefore operate as a cheque card or off-line debit card, which is signature based).

Garage Cards/Petrol Cards

Due to the fact that in South Africa, for various regulatory reasons, normal credit cards were not accepted at fuel forecourts, a special category of card was developed by some banks for the sole purpose of use at petrol stations (for fuel and oil purchases, and sometimes for repairs and maintenance), as well as at toll roads in later years.

These are generally signature-based cards, with their own floor limits, and are branded by the issuing bank concerned (ie. not Visa, or MasterCard). The interchange also flows from Issuer to Acquirer (rather than the other way round as is normal practice), from which the fuel retailer sometimes receives a small rebate.

The bank customer may opt to link the card to either a credit card account, or a current account, therefore making it either a special form of a credit card or debit card.

Fleet Cards

Five of the banks, who have fleet management divisions, currently also offer fleet cards. These cards also operate in a so-called three-party commercial construct.,  The actual payment instructions, however,  are cleared in the normal four party environments through BankservAfrica. In other words, commercial arrangements are closed, while payment arrangements (which include the PCH and operations) are open as all four acquirers accept all five Issuers’ cards.

The fleet card is linked to a fleet card system, which not only controls credit or pre-paid amounts available, but also records mileage, fuel consumption, vehicle maintenance, name of driver and other information useful to fleet owners.

Cheque

A cheque written out, signed and handed to the receiving customer starts a physical journey, whilst a corresponding electronic transaction is generated and processed. The receiving customers will deposit such cheques at their bank and expect to receive credit on the same day, even though a cheque is judged to be a promise to pay that is only fulfilled when the paying bank has confirmed the correctness and legality of the cheque as well as whether the paying customer has adequate funds to cover the amount of the cheque. In South Africa a customer is credited with the value of a cheque deposited on the date of the deposit. In most other countries credit is only applied once the paying bank has cleared the cheque. Banks normally withhold access to the funds credited in this manner to safeguard against the possible unpaying and return of the cheque by the paying bank. To speed up the process, the information on a cheque is sent electronically to the paying customer’s bank and the physical cheque follows to serve as final confirmation of the mandate. Upon receipt of the cheque at the branch of the paying customer’s bank, the cheque will be inspected to confirm the correctness of the details and the signature of the cheque. If a cheque is found to be flawed in terms of signature (mandate), the paying bank will return the transaction electronically to the depositing bank and the cheque will follow. The maximum value payable per cheque is currently set at R500 000 – (Five Hundred Thousand Rand). Drawers and Payees are encouraged to make use of available electronic based products.