Smart Cards and e-Money: New Developments Bring New Problems

• Jurisdiction: South Africa
• Citation: (2004) 16 SA Merc LJ 703
• Date: 16 August 2019
• Author: W G Schulze
• Pages: 703-715
• Published date: 16 August 2019

Smart Cards and e-Money:

New Developments Bring New Problems

WG SCHULZE*

University of South Africa

1 Introduction

The aim of this article is brief‌l y to explore the development in the security

technology that underpins plastic payment cards and the impact they have had

on def‌i ning the bank-client relationship. Two recent technological developments

in the banking industry — the smart card and e-money — resulted from the

industry’s wish to improve payment security.

Monetary history suggests that there is a correlation between economic

prosperity and payment eff‌i ciency. Commerce thrives when creditors and

debtors have faith in the payment method used by debtors. Conversely, when

the maker (debtor) or receiver (creditor) of a payment loses conf‌i dence that

real value is exchanged, commerce tends to slow down.1 For some time now

commercial transactions worldwide — also in South Africa — have increased

in number, and have been completed with increasing speed. For example, in the

United States of America, the large-value transfer systems routinely transmit

more than $2 trillion every business day. This is made possible through

advanced telecommunications and computer technology.2

The vast majority of retail transactions by consumers and small businesses are

still paid for by ‘old-fashioned methods of payment’, such as cash and cheques.3

But experts predict that they, too, will increasingly use less conventional

methods of payment and rather opt for ‘modern’ forms of payment, including

electronic funds transfers and payment cards, the most obvious example of

which is the credit card.4

But credit cards are by no means the only, or most important, type of payment

card. Other types of payment card include the debit card, which allows the

703

* BLC LLB (Pret) LLD (Unisa). Professor of Banking Law in the Department of Mercantile Law,

University of South Africa, Pretoria.

1 Anon A Commercial Lawyer’s Take on the Electronic Purse (1999) viii.

2 Idem at vii.

3 See Coenraad Visser ‘The Evolution of Electronic Payment Systems’ (1989) 1 SA Merc LJ 189 at

190; WG Schulze ‘Stop Orders, Debit Orders, and Insurance Premiums’ (1992) 4 SA Merc LJ 53. In the

United Kingdom, cash still accounts for the vast majority of retail transactions: in the late 1990s it was

estimated that there were ten billion cash transactions of under 1 in value each day (Joan Wadsley &

Graham Penn The Law Relating to Domestic Banking 2 ed (2000) 463n4).

4 Electronic Purse op cit note 1 at vii. Over the last few years there has been a steady increase in both

the number of credit-card and electronic-transfer transactions in South Africa. At the same time there has

been a steady decrease in the number of cheques processed by the automated clearing bureau (ACB). For

statistics, see WG Schulze ‘Countermanding an Electronic Funds Transfer: the Supreme Court of Appeal

Takes a Second Bite at the Cherry’ (2004) 16 SA Merc LJ 667 at 668. But these statistics should be read

with caution. The decrease over the past few years in the number of processed cheques, but particularly

the sharp decrease in the total face value of these cheques, may be ascribed to the unanimous decision

taken by South African banks in 2001 not to accept any cheque in excess of R5 million for collection.

This decision by the banks came into operation on 2 January 2002.

(2004) 16 SA Merc LJ 703

© Juta and Company (Pty) Ltd