Description
Early Debi Order
May 2008
Overview of the payments environment
The information set out herein represents The Banking Association South Africa's views concerning the core features, characteristics and functionality of the different retail payment streams. Clearly, this document does not purport to set out a complete description of all aspects of the payment streams. This document simply seeks to facilitate a general, basic understanding of the National Payment System and should not be regarded as promoting any direction or strategy. Each member of the Banking Association South Africa can and should have its own views in this regard.
1.
Introduction In an effort to promote general understanding of the core features, characteristics and functionality of the different low value payment streams, this document provides a high level overview of such. Whilst it is acknowledged that each bank provides its own products on a competitive basis and therefore uses its own terminology and product names, this document attempts to collate some broad-based concepts that are common amongst banks for payment streams that are available in the interoperable (interbank) domain. Furthermore, the wide spectrum of transaction types that are available in the interoperable domain is dealt with, although individual banks do not necessarily offer all payment streams and / or transaction types as this is their competitive right. The information contained in this document can be used as a reference by both The Banking Association South Africa as well as its member banks on a voluntary basis to educate parties interested in the functioning of the payment system.
2.
Payment streams versus payment systems The National Payment System (NPS) can best be described as a mechanism which enables the transfer of money between its participants. The importance of the NPS cannot be over emphasized as it is one of the main cogs required for the effective functioning of the SA economy. This is well illustrated by the following comparison: “Payment and settlement systems are to economic activity what roads are to traffic: necessary but typically taken for granted unless they cause an accident or bottlenecks develop1”. The NPS consists of an array of components, some of which are shortly outlined below.
2.1
Payment streams Payment streams consist of processes, systems and rules between banks (see Figure 1) which enable the banks to exchange and execute payment
1
Bank for International Settlements Annual Report 1994 p. 172
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instructions. There are four different payment streams in South Africa (Low Value Electronic debit, Low value Electronic Credits, High Value Electronic Credits and Paper) of which the principles and rules are contained in the Payment Clearing House (PCH) Agreements and associated Clearing Rules. 2.2 Payment systems In order for a payment stream to function, it requires customers to access it via instruments and channels, such as bank cards, branches, Automated Teller Machines (ATMs) and Point of Sale terminals (POSs). A payment stream combined with these access mechanisms and channels, as well as its technical specifications, legal and business agreements and the related risk mitigation procedures that enable the end-to-end transfer of funds as well as the origination and finalisation of non-value transactions (e.g. balance enquiries), jointly form a payment system (see Figure 1). Figure 1
Customer
Channel
Paying Bank
PCH System Operator
Receiving Bank
Channel
Beneficiary
Payment Stream
Bank to Bank process
Payment System
Involves the end-to-end process from the paying customer to the beneficiary
The combination of all the individual payment systems being used for o o o the transfer of money the origination and finalisation of non-value transactions (e.g. balance enquiries) the final settlement of the obligations resulting from the value transactions between banks,
forms the National Payment System. 2.3 Clearing and settlement The process of exchanging and executing a payment instruction is referred to as the clearing process. Settlement is the final discharge of an obligation between one bank and another which results from a clearing instruction or a number of instructions. 2.3.1 Clearing Clearing can be done in one of the following two ways: o Real time clearing Real time clearing is the process whereby a payment instruction is submitted to the paying bank and the instruction is executed at the time of the customer initiating the payment instruction. Each payment
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instruction is processed individually between the different payment participants in order to determine whether there are sufficient funds in the paying customer’s account to successfully conclude the transaction. An example of a real-time clearing transaction is an ATM transaction. o Batch clearing Batch clearing is the activity whereby single payment instructions directed at various participants are bulked by the beneficiary (in the case of debit pull transactions), or by the payer (in the case of credit push transactions), before being submitted into the payment stream for clearing. The PCH System Operator (PSO) sorts the transactions per homing bank, and delivers one file containing many payment instructions to the homing bank for processing. An example of batch clearing is Electronic Funds Transfer (EFT) transactions.
2.3.2
Settlement The process of discharging settlement obligations is referred to as the settlement process. Dependent on the underlying payment instruction, settlement can be done in a number of different ways, namely: o Deferred Deferred the day, window. settlement settlement is for payment instructions which were cleared during but are settled afterwards at designated times or in the night There are two types of deferred settlement, namely.
Single day settlement Payment instructions with limits of R5 million and less are cleared through the low value payment streams (e.g. EFT, Credit card, Debit card), are settled daily. The PSO calculates the gross settlement positions of the participating banks in each of the payment streams and submits this information to the SARB for settlement by the banks in the SARB’s South African Multiple Option Settlement (SAMOS) system. Intraday settlement Intra day settlement is when the transactions are settled as soon as possible after they have been cleared. This method of settlement is for example used in the Real Time Clearing (RTC) payment stream.
-
o
Real time settlement Real time settlement is the process whereby the exchange of a payment instruction and settlement occurs almost simultaneously. This settlement type is mostly used for payment instructions with values greater than R5 million.
2.4
Low value versus high value payment streams There are a number of different low value payment streams, as well as high value payment streams The core differences between the low value and high value payment streams are that the: o low value payment streams are designed to meet the needs of individual users, whereas high value payment streams were designed to meet the needs of corporate users.
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o
transactions in the low value payment streams are restricted in terms of limits to manage the risk within the payment systems e.g. EFT debit transactions may not exceed R500 000 and EFT credit transactions may not exceed R5 million, whereas high value payment streams are restricted to credit push transactions and there are no value limitations on these transactions.
2.5
Debit pull versus credit push payment streams There are fundamentally two overarching payment stream categories, the one being Debit Pull and the other Credit Push. The most relevant low value payment streams in these categories, as well as their core differences, are indicated below. Debit pull Low value payment streams o Electronic Funds Transfer (EFT) debit pull (e.g. debit orders) o Authenticated Early Debit Orders (AEDO) o Non-Authenticated Early Debit Orders (NAEDO) o Card (Debit, Credit, Cheque and Garage cards) o Cash withdrawals at Automated Teller Machines (ATMs) and Self Service Devices (SSDs) o Cheques o Mzansi Money Transfer Core differences o The account holder authorises the beneficiary to submit a payment instruction to the account holding institution. o The account holder may not always be authenticated prior to the payment instruction being processed. o Debit pull transactions have a greater ability to be reversed if transactions were incorrectly processed. o The account holder initiates the payment directly at their account holding institution. o The account holder is authenticated prior to the transaction instruction being processed. o Transactions are irrevocable, except where fraud is involved. Credit push o EFT credit push (e.g. electronic account payments and stop orders) o Real Time Clearing (RTC)
The basic functioning of the two groupings of payment streams is explained below.
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2.5.1
Credit push As illustrated in Figure 2, the paying customer is responsible to originate the payment instruction via one of his / her bank’s channels. Once the customer has been authenticated by the bank, the bank can process the instruction. If sufficient funds are available to make the payment, the paying bank will debit the customer’s account and then submit the payment instruction via the PSO to the beneficiary’s bank who in turn will credit the beneficiary’s account. Subsequent to routing the payment instructions to the relevant banks, the PSO calculates the gross interbank obligations resulting from the cleared transactions and communicates these to the SARB for settlement by the participating banks. An example of a credit push transaction is when a creditor is paid via an internet transfer, e.g. paying your electricity or water bill via the internet. Figure 2
Account R150 Account R150
Customer
Customer Account
Paying Bank
PCH System Operator Credit Push
Receiving Bank
Beneficiary Account
Beneficiary
Pmt Instruction
2.5.2
Debit pull As illustrated in Figure 3, payment instructions in debit pull payment streams are initiated by the beneficiary (e.g. insurance company) who receives a mandate (payment instruction authority) from the paying customer to submit a payment instruction to his bank (homing bank). On receipt of a mandate, and under agreement with its own bank (sponsoring bank), the beneficiary may submit a payment instruction to the sponsoring bank. On receipt of the payment instruction, the sponsoring bank will submit the payment instruction to the PSO who in turn will route the instruction to the paying customer’s bank (homing bank) who will respond to the instruction by debiting the customer’s account. This scenario will result if both the beneficiary and the paying customer have their banking accounts with two different banks. The PSO calculates the gross interbank obligations resulting from the cleared transactions and communicates these to the SARB for settlement by the participating banks. An example of a debit pull transaction is a debit order.
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Figure 3
Account R150 Account R150
Customer
Customer Account
Paying Bank
PCH System Operator Mandate Pmt Instruction Debit Pull
Receiving Bank
Beneficiary Account
Beneficiary
3.
Debit pull payment streams The basic functioning and characteristics of the individual debit pull payment streams are outlined below.
3.1 3.1.1
Electronic Funds Transfer (EFT) Debits (debit orders) Objective To provide a mechanism for product or service providers, such as telecommunication companies, insurance companies, municipalities as well as credit providers, through which they can collect once-off and recurring payments from their customers for the amounts due to them.
3.1.2
Basic functioning The product or service providers’ customers, who have bank accounts, provide voice recorded instructions or signed paper mandates to the product or service company, thereby enabling the company to collect funds from their accounts. Under agreement with its own bank (sponsoring bank), the beneficiary may submit payment instructions into the payment system. The sponsoring bank is responsible for the introduction of the payment instructions in order to mitigate against risk being introduced into the payments system. The PSO routes the payment instructions to the paying customer’s bank (homing bank). On receipt of the payment instructions file, the homing bank will attempt to debit the relevant account holder’s bank account. If this is not possible, for whatever reason (e.g. insufficient funds), the sponsoring bank will be informed within four days that the transaction was unsuccessful. EFT debits are processed after hours for efficient use of banks’ processing capacity.
3.1.3
Supporting channels As a result of the customer mandate being provided on a once-off basis for possibly recurring transactions via voice recording or a signed paper mandate, and the payment instruction being initiated by the beneficiary, there are no subsequent channels with which the account holder needs to interface in support of this payment stream.
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3.1.4
Customer related characteristics Due to the fact that EFT debit pull transactions are processed without the homing bank validating its customers’ mandates at the time of the transaction, these transactions are revocable and can be disputed indefinitely by those customers whose accounts were debited.
3.2 3.2.1
Early Debit Order system (EDO) Background As a result of an increased demand for credit by the lower income groups during the 1990’s, collectors sought new ways to improve their collection process through payment streams such as EFTs and ATMs. EFTs, however, proved to be ineffective to meet the needs of the emerging market. Due to this ineffectiveness, large collectors approached banks to provide numerous closed system solutions to them, in order to meet their specific requirements and to afford collection preference and early notification. In addition, many micro lenders (some who were unable to secure formal collection facilities with the banks), resorted to using the ATM network by retaining the ATM card and PIN of their clients and processing real-time transactions against the account holder at night when the salary credit was processed. In order to address above, the SA Reserve Bank, supported by an array of industry participants [Life Offices Association (LOA), Banking Association (BA), Short Term Insurance Association (SAIA), Micro Finance SA (MFSA), the Consumer Credit Association (CCA), the Payments Association of South Africa (PASA), and the Micro Finance Regulatory Council (MFRC)] engaged with one another in seeking solutions for these challenges. The outcome of this process was the development of Authenticated and Non-Authenticated Early debit order systems.
3.2.2
Objective To meet the needs of the emerging market through improved notification and processing, and to create a level playing field for participants by removing preferential processing in closed systems and introducing the processing of debits in a randomised manner.
3.2.3
EDO systems The EDO system consists of two underlying payment streams, as outlined below. o Authenticated Early Debit Order (AEDO) payment stream AEDO allows customers to mandate payment collectors (e.g. furniture retailers or micro financiers), by means of a debit card and PIN authorisation, to withdraw a single payment or fixed instalments for a prescribed period from their account. The customer only has to provide the transaction authorisation once he / she has checked the correctness of the captured contractual information by swiping his / her debit card on a certified device, similar to a Point of Sale (POS) type terminal, and keying in his / her secret PIN. Once the Cardholder has entered his / her PIN, the customer’s card details, encrypted PIN and contractual payment information are forwarded in a secure format to the customer’s bank, who verifies the authenticity of
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the message from the card and PIN data received. Authenticated transactions are registered on a centralised AEDO system housed at the PSO. On the applicable dates, the previously authorised AEDO payment instructions are presented by the PSO to the homing bank for processing directly after the transmission of bulk salary payments. o Non-Authenticated Early Debit Order (NAEDO) payment stream The NAEDO system allows customers to mandate payment collectors / users, by means of either a signed paper mandate or a voice recorded mandate (similar to EFT debits), to collect variable instalment amounts from their accounts. Once the paying bank receives these payment instructions, it needs to randomise them along with the same days’ AEDO transactions and its own on-us EDO transactions.
3.2.4
Basic functioning EDO In order to submit an EDO payment instruction, there needs to be a unique mandate in place for each contract. The mandates may allow for moving action dates in line with the National Credit Act. This means that EDO payment instructions need not be submitted at the same date each month, but could be submitted at different dates should the customer’s mandate allow for this. Additional functionality available to users of the EDO system, is tracking. This functionality enables the “monitoring” of the customer’s account, for a specified period of time (e.g. 1, 3, 7 or 14 days) to see whether there are sufficient funds in the account before a payment instruction is submitted. The benefit to the customer of using the EDO payment instruction, is that while the EDO instruction is in tracking, the cardholder does not incur unpaid fees, however, the paying bank may decide to levy an unpaid fee at the end of the tracking cycle if there are insufficient funds in the account. Through the credit tracking functionality, EDO reduces the risk of processing a payment instruction against a cardholder’s account if there are insufficient funds in the account, thereby reducing the likelihood of unpaid fees being charged to the account. Once the EDO payment instructions have been processed, the transaction outcomes are communicated to the relevant payment collector / user. In the event of non-payment of any one of the payments on the pre-designated date, a message is relayed to the payment collector / user, who is able to follow up with the customer directly. In order to ensure no preference, AEDO and NAEDO transactions are randomised and processed together with the homing bank’s on-us EDO transactions.
3.2.5
Supporting channels The channels on which EDO payment instructions can be authorised are outlined below. o AEDO AEDO transactions are mandated on a once-off basis via authentication devices, similar to Point of Sale (POS) terminals, located at the payment beneficiary.
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o
NAEDO Similar to debit orders, NAEDO transactions are authorised by the account holder on a once-off basis by means of either a signed paper mandate or a voice recorded mandate, after which there is no further customer interaction with any channel. AEDO As a result of the cardholder mandating these transactions with his / her card and PIN, the transactions cannot be disputed by the account holder once completed and are therefore irrevocable except where fraud is involved. NAEDO As a result of the customer mandate not being authenticated at the time of the transaction, NAEDO transactions are revocable and can be disputed indefinitely by account holders. It is important to note that should a customer dispute a voice recorded mandate, the account holding institution will not get involved in the resolution of dispute, i.e. whether the mandate is valid or not.
3.2.6
Customer related characteristics o
o
3.3 3.3.1
Card Payment Stream Objective To enable card transactions at merchants who participate in this payment stream, these transactions are mainly purchase transactions.
3.3.2
Card types The main types of retail cards as well as their core characteristics are outlined below. o Credit cards A credit card is issued against a credit card account and has a free funding period. These cards are mostly authenticated at the time of the purchase transaction by means of the cardholder’s signature. Dependent on the transaction value, transactions can be authorised either by being sent for real time authorisation by the card issuing bank or, if below the floor limit, the transaction is authorised by the POS terminal and only submitted to the issuing bank at a later time. The reason for this is to speed up the transaction processing time and to reduce the operational transaction cost. Even though credit card purchase transactions are mostly authorised by means of the account holders’ signature, credit card cash withdrawals in an un-assisted environment, such as on an ATM, requires the transaction to be authorised by means of a unique PIN. A feature that is unique to credit and cheque cards is that it allows for pre-authorisation of transactions and the reservation of funds. The reservation, however, lapses after a period of time. This functionality is used in instances where the final purchase amount has not yet been determined at the time of the service or product being provided. Examples of this are hotel reservations and rental car bookings, where the product or service provider wants a level of comfort that the customer has the necessary funds available for the estimated future transaction value once the delivery of the product or service has been concluded.
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o
Debit cards Debit cards are issued against a demand deposit account such as a current account, savings or a transmission account and normally require the cardholder to be authenticated by means of a PIN. The transaction is authorised on a real time basis by a single payment instruction being communicated to the issuing bank which checks that the cardholder has sufficient funds in his / her account to conclude the transaction. Cheque cards Cheque cards are issued against demand deposit accounts such as current accounts. When doing a transaction, the cardholder can be authenticated either by means of a PIN or signature, while the transaction can be authorised by the issuing bank or the POS terminal dependent on the transaction value and the applicable floor limit. Prepaid cards Prepaid cards are cards that are issued against a pre loaded balance, and are mostly distributed via retailers as gift cards. No “Know Your Customer” (KYC) checks are performed against the recipients of these cards as balances are kept below the KYC threshold of R5000. Money can be loaded onto a prepaid card by means of cash, bank transfer or even another payment card.
o
o
o
Petrol cards Petrol cards are unique to South Africa and Namibia and were developed as a result of local fuel regulations. Authentication of petrol card transactions are normally done by means of the cardholder’s signature, while the transaction can be authorised by the issuing bank or the POS terminal dependent on the transaction value and the applicable floor limit.
3.3.3
Basic functioning of magnetic stripe (magstripe) cards Magstripe cardholders are usually authenticated either by means of a PIN or a signature and the transactions can either be authorised by means of: o o online communication with the card issuing bank (the customer’s bank), or off-line by the Point of Sale (POS) terminal if the transaction is below the floor limit (an authorisation tier based on certain risk factors). Transactions below the floor limit are submitted to the issuing bank at a time subsequent to the purchase transaction.
3.3.4
Basic functioning of Chip & PIN cards Chip & PIN cards require the cardholder to authorise transactions by means of a unique PIN. Most Chip & PIN cards, however, also contain a magnetic stripe, which enables a merchant to perform a magnetic stripe transaction should the merchant’s POS terminal not be Chip enabled, or in instances where the Chip is damaged. The PIN keyed in by the customer is authenticated at the time of the transaction by the POS terminal communicating it to the Chip located on the card. Once the cardholder has been authenticated, some transactions will be authorised: o off-line by the card’s micro Chip, based on the account information stored on the card. These transactions will, at a later time when the card holder
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does another transaction at a chip enabled POS terminal, be communicated to the issuing bank’s system for processing. o online by being sent through to the card issuing bank for real time authorisation.
Note: For more information on Chip & PIN, there is a comprehensive set of documents available on The Banking Association’s website. (www.banking.org.za) 3.3.5 Supporting channels Dependent on the type of card, transactions can be facilitated via a number of different channels, including: o o o o o o 3.3.6 POS terminals located at merchants supporting this payment stream; Internet; Automatic Teller Machines (ATMs); Self Service Devices (SSDs); Call centres; Mobile Phones.
Customer related characteristics on magstripe cards The authorisation mechanism (i.e. PIN or signature) used by the cardholder at the time of the transaction determines whether a transaction can be disputed or not. o Transactions authorised by means of a signature are revocable and can be disputed as a result of the cardholder not being authenticated by the bank at the time of the transaction. PIN validated transactions can, however, not be disputed except where fraud is involved or errors occurred.
o 3.3.7
Customer related characteristics on Chip & PIN cards As a result of the real-time authentication of the card and PIN, the transaction cannot be disputed except where fraud is involved.
3.4 3.4.1
Cash withdrawals at ATMs and SSDs Objective To enable authenticated bank cardholders to primarily withdraw cash from their accounts in both assisted as well as un-assisted environments.
3.4.2
Basic functioning This payment stream allows cardholders to identify themselves by means of their card and PIN and to issue an electronic debit pull payment instruction which is processed and authorised on an on-line basis if sufficient funds are available in the cardholder’s account. The type of payment instructions that can be issued at present in the Interbank domain are limited to balance enquiries, cash withdrawals and pre-paid purchases and can be initiated in either of the environments outlined below: o Assisted environment An assisted environment refers to a Self Service Device (SSD), which is a device that has no physical capability for dispensing cash, but facilitates cash withdrawals via the dispensing of a paper voucher / script which the
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customer needs to hand to a cashier in the same environment, who in turn will provide the customer with cash equal to the amount printed on the paper voucher. SSD devices are mostly deployed in rural outlying areas where it is not economically viable to deploy fully functional ATMs. o Un-assisted / Un-attended environment An un-assisted environment is an Automated Teller Machine (ATM), which is a device that has the physical capability of dispensing cash from a vault via a cash transporting mechanism. The only interaction required to complete a transaction is between the cardholder and the device.
3.4.3 3.4.4
Supporting channels Access to this payment stream is via ATMs and SSDs. Customer related characteristics Customers can dispute ATM and SSD transactions if a problem occurs at the time of the transactions. If a customer disputes a transaction that occurred in an un-assisted environment, the device on which the transaction was facilitated will be closed and audited to determine whether there are any discrepancies between the device’s audit trail and the cash available in the machine. In the case of a transaction which occurred in an assisted environment being disputed, the dispute will be handled in conjunction with the retailer who helped facilitate the transaction on behalf of the acquiring bank.
3.5 3.5.1
Code Line Clearing (CLC) Payment Stream, i.e. Cheques Objective To enable the users thereof to provide a cheque, bill of exchange or promissory note for collection to the specified beneficiary, to collect the value specified on it from their account.
3.5.2
Basic functioning The issuer (drawer) of the cheque is required to specify a certain amount of information on a cheque before issuing it. This includes the beneficiary / payee of the cheque, the transacting date and the value of the payment instruction. On receipt of a cheque the recipient thereof is required either to present it for cash or deposit it in his / her account in order to receive the value specified on the cheque. Once the cheque has been deposited, the beneficiary’s bank (collecting bank) will pass a debit pull payment instruction to the drawee bank by means of Code Line Clearing (Data Transmission Record (DTR) – an electronic submission of the cheque Magnetic Ink Character Recognition (MICR) details), after which the cheque is passed to the drawee bank for validation.
3.5.3
Supporting channels Cheques can be issued by the drawer without interacting with a banking channel, but in order for the beneficiary / payee designated on the cheque to receive the value specified on the cheque, it needs to be cashed or deposited at a bank. This can be done either at a bank branch or at an ATM.
3.5.4
Customer related characteristics As a result of a customer / drawer having the ability to write a cheque without having sufficient funds in his / her account, the cheque may not be honoured
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by the drawee bank (account holder’s bank) at the time of it being presented by the beneficiary / payee. There are, however, numerous other reasons in addition to insufficient funds, why the drawee bank may not honour a cheque at the time of it being presented, for example: amounts differ – payment amount in words does not equate to that in figures, or post dated – the transaction date is for a future period in time. In addition to the above, cheques in comparison to the electronic payment streams have a longer clearing cycle, which means that it takes a number of days after a cheque has been deposited before it is physically presented to the paying bank and the value thereof is available to the beneficiary / payee for use (the time before the value is available to the customer is usually determined by an individual arrangement between the bank and its client – commonly referred to as Effects not Cleared (ENC) period). This is as a result of the cheque validation process that needs to be completed before the cheque can be cleared. 3.6 3.6.1 Mzansi Money Transfer (MMT) Objective To enable the transfer of funds between participating South African banks, as well as the Postbank, without the need for either the person initiating or receiving the transfer to have a bank account. This money transfer facility only operates within the South African borders. 3.6.2 Basic functioning As long as a person has a valid identity document he / she can initiate an MMT transaction at any participating bank, by requesting it to do a transfer for a specified amount deposited at the bank or Postbank and by selecting a unique transaction identification number. The bank will provide the customer who initiated the transfer with a transaction reference number. The customer, who initiated the transfer, then has to communicate the transaction reference number as well as the unique transaction identification number to the intended recipient, who can withdraw the funds from any participant by providing this information supported by his or her ID book. 3.6.3 Supporting channels This payment stream can currently only be accessed via any branch of the participating bank and Postbank branches. 3.6.4 Customer related characteristics Any person can initiate an MMT transfer as long as he / she has a valid South African identity document. The transfer can be initiated at any branch of the participating bank as well as Postbank and can also be collected at any branch of any participating bank or Postbank branch. 4. Credit push payment streams The basic functioning and characteristics of the individual credit push payment streams are outlined below.
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4.1 4.1.1
EFT Credits (e.g. electronic account payments, salary payments and stop orders) Objective To enable account holders to make payments to any other bank account holder.
4.1.2
Basic functioning The account holder intending to make a payment needs to authenticate himself / herself on the banking channel of his / her choice after which he / she can specify the account to which the payment should be made. Once the payment instruction has been completed, the account holder’s account will be debited with the specified amount and the payment instruction will be batched together with other payment instructions of other customers of the paying bank, and delivered to the PSO for clearing. The PSO groups the payment instructions together per homing bank, and then delivers these files to the banks during the agreed processing windows. Subsequent to receipt of the payment instructions, the homing bank will credit the accounts specified in the individual payment instructions with the amounts specified. The service enables low volume individual users to make individual payments and high volume users such as corporates, to make both individual and batch payments (e.g. salaries). Corporate users normally use sophisticated interfaces to submit EFTs.
4.1.3
Supporting channels Dependent on the distribution channel functionality provided by the transaction initiator’s bank, the following channels could all be used to initiate EFT credits on: branch banking, internet banking, call centres, cell phone banking, corporate interfaces and self service terminals of banks.
4.1.4
Customer related characteristics As EFT credits are processed on a batch basis in the evenings, it takes approximately twenty four hours from the time of the transaction being initiated (dependent on when the transaction is initiated) until the funds are in the beneficiary’s account. However, if a transaction is initiated on a Saturday afternoon or before a public holiday, the transaction could take up to three days before the funds are credited to the recipient’s account. Due to the fact that a paying customer is authenticated prior to the transaction, the transaction is irrevocable. Recovery of funds is, however, possible by means of either legal intervention or interaction by banks to get the wrong beneficiary to return the funds. In order to prevent payments from being submitted to incorrect beneficiary accounts, payment initiators should exercise caution when specifying the beneficiary account details.
4.2 4.2.1
Real-Time Clearing (RTC) Background The RTC payment stream is the newest of the payment streams and went live with a limited number of participant banks during March 2007. This payment stream was developed to provide increased transaction speed and convenience to customers, and has shown exceptional transaction growth since its inception.
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4.2.2
Objective To enable account holders to make payments, which are immediately cleared, to any other bank account holder on a near real time basis.
4.2.3
Basic functioning The account holder intending to make a payment, needs to authenticate him/ herself on the banking channel of his / her choice after which he / she can specify the account to which the payment should be made. Once the payment instruction has been cleared via the PSO, the receiving bank will credit the beneficiary’s account within 60 seconds from the time that the payment instruction was initiated. On receipt of the payment instruction, the recipient bank will credit the specified bank account with the transaction amount. The funds received are immediately available to the beneficiary.
4.2.4
Supporting channels Real time clearing is currently available to customers of participating banks and on limited channels, i.e. internet and branch banking. It is, however, possible that this functionality can in future be made available on different channels, similar to EFT credits.
4.2.5
Customer related characteristics As a result of the account holder being authenticated prior to the transaction, the transaction is irrevocable. Incorrect payments need the involvement of banks, as well as the approval of the account holders, to reverse the payments. If no agreement can be reached with the incorrect beneficiary, legal recourse may be required. As the transaction is processed on a near real time basis, the funds will be available in the recipient’s account within a minute of the payment instruction being given.
Glossary of Terms
Term Acquiring Bank
Definition The bank which recruits retailers and other service providers (merchants) to accept payment cards. Acquirers process a merchant's transactions and pass them into the clearing system to allow financial settlement. The process whereby the account holding bank verifies the account holder, e.g. by means of username and password on internet banking or with the card details and PIN on an ATM / POS before processing the account holder’s instruction. The exchange or execution of a payment instruction. A Chip & PIN card is a bank card which has an embedded computer chip which can store and process information. The PIN is used as the means of cardholder authentication to ensure that the cardholder is legitimate and the card is not lost or stolen. It may also have a traditional magnetic stripe. The bank to whom the order to pay is given or the bank on whom the cheque, bill of exchange or promissory note is drawn. An authorisation tier below which transactions are authorised by the Point of Sale terminal without sending them through to the issuing bank to check a number of factors (such as, whether sufficient funds are available in the customer’s account at the time of the transaction). The authorisation tier is determined by a number of different risk factors, including the customer’s individual profile as well as the profile of the merchant at which the transaction occurs. The bank receiving EFT payment instructions from a sponsoring bank for processing against its customers’ accounts. Payments interoperability can be described as the ability for one participant to efficiently and effectively, and without compromising the safety and soundness of the payments system, exchange payment transactions with another participant. Interoperability requires technical compatibility between participants’ systems, as well as business, legal and financial agreements between the parties. The bank who issues the account holder with a debit or credit card and who receives and authorises the card purchase payment instructions.
Authentication
Clearing Chip & PIN card
Drawee Bank
Floor limit
Homing Bank
Interoperable
Issuing Bank
DOC REF: AARTJ/PAYMENTS STRATEGY/#39599_V6
Magstripe
The magnetic stripe that currently appears on the back of all payment cards issued by financial institutions. It contains essential customer and account information. A product or service provider (e.g. a shop, restaurant or mail order company) who provides its bank card holding customers with access into the banking system, thereby enabling the acceptance of card purchase transactions. The combination of all the individual payment systems being used for the transfer of money as well as the settlement of the resulting obligations between banks. A transaction where the sponsoring bank and the homing bank is the same bank, e.g. the bank collects a customer’s home loan (which it provided) premium from the customer’s account held at the same bank. A transaction where the sponsoring bank and the homing bank are two different banks and where payments are processed between these two banks. An agreement between the participants of each individual payment stream, providing an overview of the functioning of each payment stream as well as the related standards, rules and risk mitigation procedures. The participants in the PCH, acting as a body with a common interest, with the purpose of recommending and implementing rules and standards in each payment stream. The operator appointed by PCH PG to provide payment clearing processing services for the payment stream. The processes, mechanisms and rules which enable a payment instruction to be executed. The combination of a payment stream with the necessary access instruments and channels, its related technical specifications, legal and business agreements as well as its risk mitigation procedures to enable the end-to-end transfer of funds. An instruction to transfer funds or make a payment from one banked customer to another. Personal Identification Number. A set of numeric characters, usually a four or five -digit sequence, used by the Cardholder to verify the identity at the point of sale (POS) or a customer activated terminal, such as an ATM. The number is generated by the Card Issuer using a secure computerised process when the card is first issued and may be changed by the Cardholder
Merchant
National Payment System (NPS) On-us transaction
Off-us transaction
Payment Clearing House Agreement (PCH)
Payment Clearing House Participant Group (PCH PG) Payment Clearing House System Operator (PSO) Payment Stream Payment System
Payment Instruction PIN
thereafter. Point of Sale (POS) infrastructure SAMOS SARB Settlement Infrastructure that enables bank card holding customers to swipe their cards and authorise card purchase transactions. South African Multiple Option Settlement. South African Reserve Bank. The final discharge of an obligation from one bank to another. This is done via the SAMOS system operated by the SARB. The bank that introduces EFT payment instructions into the payment system for submission to the homing bank.
Sponsoring Bank
doc_703531361.pdf
Early Debi Order
May 2008
Overview of the payments environment
The information set out herein represents The Banking Association South Africa's views concerning the core features, characteristics and functionality of the different retail payment streams. Clearly, this document does not purport to set out a complete description of all aspects of the payment streams. This document simply seeks to facilitate a general, basic understanding of the National Payment System and should not be regarded as promoting any direction or strategy. Each member of the Banking Association South Africa can and should have its own views in this regard.
1.
Introduction In an effort to promote general understanding of the core features, characteristics and functionality of the different low value payment streams, this document provides a high level overview of such. Whilst it is acknowledged that each bank provides its own products on a competitive basis and therefore uses its own terminology and product names, this document attempts to collate some broad-based concepts that are common amongst banks for payment streams that are available in the interoperable (interbank) domain. Furthermore, the wide spectrum of transaction types that are available in the interoperable domain is dealt with, although individual banks do not necessarily offer all payment streams and / or transaction types as this is their competitive right. The information contained in this document can be used as a reference by both The Banking Association South Africa as well as its member banks on a voluntary basis to educate parties interested in the functioning of the payment system.
2.
Payment streams versus payment systems The National Payment System (NPS) can best be described as a mechanism which enables the transfer of money between its participants. The importance of the NPS cannot be over emphasized as it is one of the main cogs required for the effective functioning of the SA economy. This is well illustrated by the following comparison: “Payment and settlement systems are to economic activity what roads are to traffic: necessary but typically taken for granted unless they cause an accident or bottlenecks develop1”. The NPS consists of an array of components, some of which are shortly outlined below.
2.1
Payment streams Payment streams consist of processes, systems and rules between banks (see Figure 1) which enable the banks to exchange and execute payment
1
Bank for International Settlements Annual Report 1994 p. 172
DOC REF: AARTJ/PAYMENTS STRATEGY/#39599_V6
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instructions. There are four different payment streams in South Africa (Low Value Electronic debit, Low value Electronic Credits, High Value Electronic Credits and Paper) of which the principles and rules are contained in the Payment Clearing House (PCH) Agreements and associated Clearing Rules. 2.2 Payment systems In order for a payment stream to function, it requires customers to access it via instruments and channels, such as bank cards, branches, Automated Teller Machines (ATMs) and Point of Sale terminals (POSs). A payment stream combined with these access mechanisms and channels, as well as its technical specifications, legal and business agreements and the related risk mitigation procedures that enable the end-to-end transfer of funds as well as the origination and finalisation of non-value transactions (e.g. balance enquiries), jointly form a payment system (see Figure 1). Figure 1
Customer
Channel
Paying Bank
PCH System Operator
Receiving Bank
Channel
Beneficiary
Payment Stream
Bank to Bank process
Payment System
Involves the end-to-end process from the paying customer to the beneficiary
The combination of all the individual payment systems being used for o o o the transfer of money the origination and finalisation of non-value transactions (e.g. balance enquiries) the final settlement of the obligations resulting from the value transactions between banks,
forms the National Payment System. 2.3 Clearing and settlement The process of exchanging and executing a payment instruction is referred to as the clearing process. Settlement is the final discharge of an obligation between one bank and another which results from a clearing instruction or a number of instructions. 2.3.1 Clearing Clearing can be done in one of the following two ways: o Real time clearing Real time clearing is the process whereby a payment instruction is submitted to the paying bank and the instruction is executed at the time of the customer initiating the payment instruction. Each payment
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instruction is processed individually between the different payment participants in order to determine whether there are sufficient funds in the paying customer’s account to successfully conclude the transaction. An example of a real-time clearing transaction is an ATM transaction. o Batch clearing Batch clearing is the activity whereby single payment instructions directed at various participants are bulked by the beneficiary (in the case of debit pull transactions), or by the payer (in the case of credit push transactions), before being submitted into the payment stream for clearing. The PCH System Operator (PSO) sorts the transactions per homing bank, and delivers one file containing many payment instructions to the homing bank for processing. An example of batch clearing is Electronic Funds Transfer (EFT) transactions.
2.3.2
Settlement The process of discharging settlement obligations is referred to as the settlement process. Dependent on the underlying payment instruction, settlement can be done in a number of different ways, namely: o Deferred Deferred the day, window. settlement settlement is for payment instructions which were cleared during but are settled afterwards at designated times or in the night There are two types of deferred settlement, namely.
Single day settlement Payment instructions with limits of R5 million and less are cleared through the low value payment streams (e.g. EFT, Credit card, Debit card), are settled daily. The PSO calculates the gross settlement positions of the participating banks in each of the payment streams and submits this information to the SARB for settlement by the banks in the SARB’s South African Multiple Option Settlement (SAMOS) system. Intraday settlement Intra day settlement is when the transactions are settled as soon as possible after they have been cleared. This method of settlement is for example used in the Real Time Clearing (RTC) payment stream.
-
o
Real time settlement Real time settlement is the process whereby the exchange of a payment instruction and settlement occurs almost simultaneously. This settlement type is mostly used for payment instructions with values greater than R5 million.
2.4
Low value versus high value payment streams There are a number of different low value payment streams, as well as high value payment streams The core differences between the low value and high value payment streams are that the: o low value payment streams are designed to meet the needs of individual users, whereas high value payment streams were designed to meet the needs of corporate users.
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o
transactions in the low value payment streams are restricted in terms of limits to manage the risk within the payment systems e.g. EFT debit transactions may not exceed R500 000 and EFT credit transactions may not exceed R5 million, whereas high value payment streams are restricted to credit push transactions and there are no value limitations on these transactions.
2.5
Debit pull versus credit push payment streams There are fundamentally two overarching payment stream categories, the one being Debit Pull and the other Credit Push. The most relevant low value payment streams in these categories, as well as their core differences, are indicated below. Debit pull Low value payment streams o Electronic Funds Transfer (EFT) debit pull (e.g. debit orders) o Authenticated Early Debit Orders (AEDO) o Non-Authenticated Early Debit Orders (NAEDO) o Card (Debit, Credit, Cheque and Garage cards) o Cash withdrawals at Automated Teller Machines (ATMs) and Self Service Devices (SSDs) o Cheques o Mzansi Money Transfer Core differences o The account holder authorises the beneficiary to submit a payment instruction to the account holding institution. o The account holder may not always be authenticated prior to the payment instruction being processed. o Debit pull transactions have a greater ability to be reversed if transactions were incorrectly processed. o The account holder initiates the payment directly at their account holding institution. o The account holder is authenticated prior to the transaction instruction being processed. o Transactions are irrevocable, except where fraud is involved. Credit push o EFT credit push (e.g. electronic account payments and stop orders) o Real Time Clearing (RTC)
The basic functioning of the two groupings of payment streams is explained below.
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2.5.1
Credit push As illustrated in Figure 2, the paying customer is responsible to originate the payment instruction via one of his / her bank’s channels. Once the customer has been authenticated by the bank, the bank can process the instruction. If sufficient funds are available to make the payment, the paying bank will debit the customer’s account and then submit the payment instruction via the PSO to the beneficiary’s bank who in turn will credit the beneficiary’s account. Subsequent to routing the payment instructions to the relevant banks, the PSO calculates the gross interbank obligations resulting from the cleared transactions and communicates these to the SARB for settlement by the participating banks. An example of a credit push transaction is when a creditor is paid via an internet transfer, e.g. paying your electricity or water bill via the internet. Figure 2
Account R150 Account R150
Customer
Customer Account
Paying Bank
PCH System Operator Credit Push
Receiving Bank
Beneficiary Account
Beneficiary
Pmt Instruction
2.5.2
Debit pull As illustrated in Figure 3, payment instructions in debit pull payment streams are initiated by the beneficiary (e.g. insurance company) who receives a mandate (payment instruction authority) from the paying customer to submit a payment instruction to his bank (homing bank). On receipt of a mandate, and under agreement with its own bank (sponsoring bank), the beneficiary may submit a payment instruction to the sponsoring bank. On receipt of the payment instruction, the sponsoring bank will submit the payment instruction to the PSO who in turn will route the instruction to the paying customer’s bank (homing bank) who will respond to the instruction by debiting the customer’s account. This scenario will result if both the beneficiary and the paying customer have their banking accounts with two different banks. The PSO calculates the gross interbank obligations resulting from the cleared transactions and communicates these to the SARB for settlement by the participating banks. An example of a debit pull transaction is a debit order.
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Figure 3
Account R150 Account R150
Customer
Customer Account
Paying Bank
PCH System Operator Mandate Pmt Instruction Debit Pull
Receiving Bank
Beneficiary Account
Beneficiary
3.
Debit pull payment streams The basic functioning and characteristics of the individual debit pull payment streams are outlined below.
3.1 3.1.1
Electronic Funds Transfer (EFT) Debits (debit orders) Objective To provide a mechanism for product or service providers, such as telecommunication companies, insurance companies, municipalities as well as credit providers, through which they can collect once-off and recurring payments from their customers for the amounts due to them.
3.1.2
Basic functioning The product or service providers’ customers, who have bank accounts, provide voice recorded instructions or signed paper mandates to the product or service company, thereby enabling the company to collect funds from their accounts. Under agreement with its own bank (sponsoring bank), the beneficiary may submit payment instructions into the payment system. The sponsoring bank is responsible for the introduction of the payment instructions in order to mitigate against risk being introduced into the payments system. The PSO routes the payment instructions to the paying customer’s bank (homing bank). On receipt of the payment instructions file, the homing bank will attempt to debit the relevant account holder’s bank account. If this is not possible, for whatever reason (e.g. insufficient funds), the sponsoring bank will be informed within four days that the transaction was unsuccessful. EFT debits are processed after hours for efficient use of banks’ processing capacity.
3.1.3
Supporting channels As a result of the customer mandate being provided on a once-off basis for possibly recurring transactions via voice recording or a signed paper mandate, and the payment instruction being initiated by the beneficiary, there are no subsequent channels with which the account holder needs to interface in support of this payment stream.
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3.1.4
Customer related characteristics Due to the fact that EFT debit pull transactions are processed without the homing bank validating its customers’ mandates at the time of the transaction, these transactions are revocable and can be disputed indefinitely by those customers whose accounts were debited.
3.2 3.2.1
Early Debit Order system (EDO) Background As a result of an increased demand for credit by the lower income groups during the 1990’s, collectors sought new ways to improve their collection process through payment streams such as EFTs and ATMs. EFTs, however, proved to be ineffective to meet the needs of the emerging market. Due to this ineffectiveness, large collectors approached banks to provide numerous closed system solutions to them, in order to meet their specific requirements and to afford collection preference and early notification. In addition, many micro lenders (some who were unable to secure formal collection facilities with the banks), resorted to using the ATM network by retaining the ATM card and PIN of their clients and processing real-time transactions against the account holder at night when the salary credit was processed. In order to address above, the SA Reserve Bank, supported by an array of industry participants [Life Offices Association (LOA), Banking Association (BA), Short Term Insurance Association (SAIA), Micro Finance SA (MFSA), the Consumer Credit Association (CCA), the Payments Association of South Africa (PASA), and the Micro Finance Regulatory Council (MFRC)] engaged with one another in seeking solutions for these challenges. The outcome of this process was the development of Authenticated and Non-Authenticated Early debit order systems.
3.2.2
Objective To meet the needs of the emerging market through improved notification and processing, and to create a level playing field for participants by removing preferential processing in closed systems and introducing the processing of debits in a randomised manner.
3.2.3
EDO systems The EDO system consists of two underlying payment streams, as outlined below. o Authenticated Early Debit Order (AEDO) payment stream AEDO allows customers to mandate payment collectors (e.g. furniture retailers or micro financiers), by means of a debit card and PIN authorisation, to withdraw a single payment or fixed instalments for a prescribed period from their account. The customer only has to provide the transaction authorisation once he / she has checked the correctness of the captured contractual information by swiping his / her debit card on a certified device, similar to a Point of Sale (POS) type terminal, and keying in his / her secret PIN. Once the Cardholder has entered his / her PIN, the customer’s card details, encrypted PIN and contractual payment information are forwarded in a secure format to the customer’s bank, who verifies the authenticity of
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the message from the card and PIN data received. Authenticated transactions are registered on a centralised AEDO system housed at the PSO. On the applicable dates, the previously authorised AEDO payment instructions are presented by the PSO to the homing bank for processing directly after the transmission of bulk salary payments. o Non-Authenticated Early Debit Order (NAEDO) payment stream The NAEDO system allows customers to mandate payment collectors / users, by means of either a signed paper mandate or a voice recorded mandate (similar to EFT debits), to collect variable instalment amounts from their accounts. Once the paying bank receives these payment instructions, it needs to randomise them along with the same days’ AEDO transactions and its own on-us EDO transactions.
3.2.4
Basic functioning EDO In order to submit an EDO payment instruction, there needs to be a unique mandate in place for each contract. The mandates may allow for moving action dates in line with the National Credit Act. This means that EDO payment instructions need not be submitted at the same date each month, but could be submitted at different dates should the customer’s mandate allow for this. Additional functionality available to users of the EDO system, is tracking. This functionality enables the “monitoring” of the customer’s account, for a specified period of time (e.g. 1, 3, 7 or 14 days) to see whether there are sufficient funds in the account before a payment instruction is submitted. The benefit to the customer of using the EDO payment instruction, is that while the EDO instruction is in tracking, the cardholder does not incur unpaid fees, however, the paying bank may decide to levy an unpaid fee at the end of the tracking cycle if there are insufficient funds in the account. Through the credit tracking functionality, EDO reduces the risk of processing a payment instruction against a cardholder’s account if there are insufficient funds in the account, thereby reducing the likelihood of unpaid fees being charged to the account. Once the EDO payment instructions have been processed, the transaction outcomes are communicated to the relevant payment collector / user. In the event of non-payment of any one of the payments on the pre-designated date, a message is relayed to the payment collector / user, who is able to follow up with the customer directly. In order to ensure no preference, AEDO and NAEDO transactions are randomised and processed together with the homing bank’s on-us EDO transactions.
3.2.5
Supporting channels The channels on which EDO payment instructions can be authorised are outlined below. o AEDO AEDO transactions are mandated on a once-off basis via authentication devices, similar to Point of Sale (POS) terminals, located at the payment beneficiary.
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o
NAEDO Similar to debit orders, NAEDO transactions are authorised by the account holder on a once-off basis by means of either a signed paper mandate or a voice recorded mandate, after which there is no further customer interaction with any channel. AEDO As a result of the cardholder mandating these transactions with his / her card and PIN, the transactions cannot be disputed by the account holder once completed and are therefore irrevocable except where fraud is involved. NAEDO As a result of the customer mandate not being authenticated at the time of the transaction, NAEDO transactions are revocable and can be disputed indefinitely by account holders. It is important to note that should a customer dispute a voice recorded mandate, the account holding institution will not get involved in the resolution of dispute, i.e. whether the mandate is valid or not.
3.2.6
Customer related characteristics o
o
3.3 3.3.1
Card Payment Stream Objective To enable card transactions at merchants who participate in this payment stream, these transactions are mainly purchase transactions.
3.3.2
Card types The main types of retail cards as well as their core characteristics are outlined below. o Credit cards A credit card is issued against a credit card account and has a free funding period. These cards are mostly authenticated at the time of the purchase transaction by means of the cardholder’s signature. Dependent on the transaction value, transactions can be authorised either by being sent for real time authorisation by the card issuing bank or, if below the floor limit, the transaction is authorised by the POS terminal and only submitted to the issuing bank at a later time. The reason for this is to speed up the transaction processing time and to reduce the operational transaction cost. Even though credit card purchase transactions are mostly authorised by means of the account holders’ signature, credit card cash withdrawals in an un-assisted environment, such as on an ATM, requires the transaction to be authorised by means of a unique PIN. A feature that is unique to credit and cheque cards is that it allows for pre-authorisation of transactions and the reservation of funds. The reservation, however, lapses after a period of time. This functionality is used in instances where the final purchase amount has not yet been determined at the time of the service or product being provided. Examples of this are hotel reservations and rental car bookings, where the product or service provider wants a level of comfort that the customer has the necessary funds available for the estimated future transaction value once the delivery of the product or service has been concluded.
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o
Debit cards Debit cards are issued against a demand deposit account such as a current account, savings or a transmission account and normally require the cardholder to be authenticated by means of a PIN. The transaction is authorised on a real time basis by a single payment instruction being communicated to the issuing bank which checks that the cardholder has sufficient funds in his / her account to conclude the transaction. Cheque cards Cheque cards are issued against demand deposit accounts such as current accounts. When doing a transaction, the cardholder can be authenticated either by means of a PIN or signature, while the transaction can be authorised by the issuing bank or the POS terminal dependent on the transaction value and the applicable floor limit. Prepaid cards Prepaid cards are cards that are issued against a pre loaded balance, and are mostly distributed via retailers as gift cards. No “Know Your Customer” (KYC) checks are performed against the recipients of these cards as balances are kept below the KYC threshold of R5000. Money can be loaded onto a prepaid card by means of cash, bank transfer or even another payment card.
o
o
o
Petrol cards Petrol cards are unique to South Africa and Namibia and were developed as a result of local fuel regulations. Authentication of petrol card transactions are normally done by means of the cardholder’s signature, while the transaction can be authorised by the issuing bank or the POS terminal dependent on the transaction value and the applicable floor limit.
3.3.3
Basic functioning of magnetic stripe (magstripe) cards Magstripe cardholders are usually authenticated either by means of a PIN or a signature and the transactions can either be authorised by means of: o o online communication with the card issuing bank (the customer’s bank), or off-line by the Point of Sale (POS) terminal if the transaction is below the floor limit (an authorisation tier based on certain risk factors). Transactions below the floor limit are submitted to the issuing bank at a time subsequent to the purchase transaction.
3.3.4
Basic functioning of Chip & PIN cards Chip & PIN cards require the cardholder to authorise transactions by means of a unique PIN. Most Chip & PIN cards, however, also contain a magnetic stripe, which enables a merchant to perform a magnetic stripe transaction should the merchant’s POS terminal not be Chip enabled, or in instances where the Chip is damaged. The PIN keyed in by the customer is authenticated at the time of the transaction by the POS terminal communicating it to the Chip located on the card. Once the cardholder has been authenticated, some transactions will be authorised: o off-line by the card’s micro Chip, based on the account information stored on the card. These transactions will, at a later time when the card holder
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does another transaction at a chip enabled POS terminal, be communicated to the issuing bank’s system for processing. o online by being sent through to the card issuing bank for real time authorisation.
Note: For more information on Chip & PIN, there is a comprehensive set of documents available on The Banking Association’s website. (www.banking.org.za) 3.3.5 Supporting channels Dependent on the type of card, transactions can be facilitated via a number of different channels, including: o o o o o o 3.3.6 POS terminals located at merchants supporting this payment stream; Internet; Automatic Teller Machines (ATMs); Self Service Devices (SSDs); Call centres; Mobile Phones.
Customer related characteristics on magstripe cards The authorisation mechanism (i.e. PIN or signature) used by the cardholder at the time of the transaction determines whether a transaction can be disputed or not. o Transactions authorised by means of a signature are revocable and can be disputed as a result of the cardholder not being authenticated by the bank at the time of the transaction. PIN validated transactions can, however, not be disputed except where fraud is involved or errors occurred.
o 3.3.7
Customer related characteristics on Chip & PIN cards As a result of the real-time authentication of the card and PIN, the transaction cannot be disputed except where fraud is involved.
3.4 3.4.1
Cash withdrawals at ATMs and SSDs Objective To enable authenticated bank cardholders to primarily withdraw cash from their accounts in both assisted as well as un-assisted environments.
3.4.2
Basic functioning This payment stream allows cardholders to identify themselves by means of their card and PIN and to issue an electronic debit pull payment instruction which is processed and authorised on an on-line basis if sufficient funds are available in the cardholder’s account. The type of payment instructions that can be issued at present in the Interbank domain are limited to balance enquiries, cash withdrawals and pre-paid purchases and can be initiated in either of the environments outlined below: o Assisted environment An assisted environment refers to a Self Service Device (SSD), which is a device that has no physical capability for dispensing cash, but facilitates cash withdrawals via the dispensing of a paper voucher / script which the
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customer needs to hand to a cashier in the same environment, who in turn will provide the customer with cash equal to the amount printed on the paper voucher. SSD devices are mostly deployed in rural outlying areas where it is not economically viable to deploy fully functional ATMs. o Un-assisted / Un-attended environment An un-assisted environment is an Automated Teller Machine (ATM), which is a device that has the physical capability of dispensing cash from a vault via a cash transporting mechanism. The only interaction required to complete a transaction is between the cardholder and the device.
3.4.3 3.4.4
Supporting channels Access to this payment stream is via ATMs and SSDs. Customer related characteristics Customers can dispute ATM and SSD transactions if a problem occurs at the time of the transactions. If a customer disputes a transaction that occurred in an un-assisted environment, the device on which the transaction was facilitated will be closed and audited to determine whether there are any discrepancies between the device’s audit trail and the cash available in the machine. In the case of a transaction which occurred in an assisted environment being disputed, the dispute will be handled in conjunction with the retailer who helped facilitate the transaction on behalf of the acquiring bank.
3.5 3.5.1
Code Line Clearing (CLC) Payment Stream, i.e. Cheques Objective To enable the users thereof to provide a cheque, bill of exchange or promissory note for collection to the specified beneficiary, to collect the value specified on it from their account.
3.5.2
Basic functioning The issuer (drawer) of the cheque is required to specify a certain amount of information on a cheque before issuing it. This includes the beneficiary / payee of the cheque, the transacting date and the value of the payment instruction. On receipt of a cheque the recipient thereof is required either to present it for cash or deposit it in his / her account in order to receive the value specified on the cheque. Once the cheque has been deposited, the beneficiary’s bank (collecting bank) will pass a debit pull payment instruction to the drawee bank by means of Code Line Clearing (Data Transmission Record (DTR) – an electronic submission of the cheque Magnetic Ink Character Recognition (MICR) details), after which the cheque is passed to the drawee bank for validation.
3.5.3
Supporting channels Cheques can be issued by the drawer without interacting with a banking channel, but in order for the beneficiary / payee designated on the cheque to receive the value specified on the cheque, it needs to be cashed or deposited at a bank. This can be done either at a bank branch or at an ATM.
3.5.4
Customer related characteristics As a result of a customer / drawer having the ability to write a cheque without having sufficient funds in his / her account, the cheque may not be honoured
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by the drawee bank (account holder’s bank) at the time of it being presented by the beneficiary / payee. There are, however, numerous other reasons in addition to insufficient funds, why the drawee bank may not honour a cheque at the time of it being presented, for example: amounts differ – payment amount in words does not equate to that in figures, or post dated – the transaction date is for a future period in time. In addition to the above, cheques in comparison to the electronic payment streams have a longer clearing cycle, which means that it takes a number of days after a cheque has been deposited before it is physically presented to the paying bank and the value thereof is available to the beneficiary / payee for use (the time before the value is available to the customer is usually determined by an individual arrangement between the bank and its client – commonly referred to as Effects not Cleared (ENC) period). This is as a result of the cheque validation process that needs to be completed before the cheque can be cleared. 3.6 3.6.1 Mzansi Money Transfer (MMT) Objective To enable the transfer of funds between participating South African banks, as well as the Postbank, without the need for either the person initiating or receiving the transfer to have a bank account. This money transfer facility only operates within the South African borders. 3.6.2 Basic functioning As long as a person has a valid identity document he / she can initiate an MMT transaction at any participating bank, by requesting it to do a transfer for a specified amount deposited at the bank or Postbank and by selecting a unique transaction identification number. The bank will provide the customer who initiated the transfer with a transaction reference number. The customer, who initiated the transfer, then has to communicate the transaction reference number as well as the unique transaction identification number to the intended recipient, who can withdraw the funds from any participant by providing this information supported by his or her ID book. 3.6.3 Supporting channels This payment stream can currently only be accessed via any branch of the participating bank and Postbank branches. 3.6.4 Customer related characteristics Any person can initiate an MMT transfer as long as he / she has a valid South African identity document. The transfer can be initiated at any branch of the participating bank as well as Postbank and can also be collected at any branch of any participating bank or Postbank branch. 4. Credit push payment streams The basic functioning and characteristics of the individual credit push payment streams are outlined below.
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4.1 4.1.1
EFT Credits (e.g. electronic account payments, salary payments and stop orders) Objective To enable account holders to make payments to any other bank account holder.
4.1.2
Basic functioning The account holder intending to make a payment needs to authenticate himself / herself on the banking channel of his / her choice after which he / she can specify the account to which the payment should be made. Once the payment instruction has been completed, the account holder’s account will be debited with the specified amount and the payment instruction will be batched together with other payment instructions of other customers of the paying bank, and delivered to the PSO for clearing. The PSO groups the payment instructions together per homing bank, and then delivers these files to the banks during the agreed processing windows. Subsequent to receipt of the payment instructions, the homing bank will credit the accounts specified in the individual payment instructions with the amounts specified. The service enables low volume individual users to make individual payments and high volume users such as corporates, to make both individual and batch payments (e.g. salaries). Corporate users normally use sophisticated interfaces to submit EFTs.
4.1.3
Supporting channels Dependent on the distribution channel functionality provided by the transaction initiator’s bank, the following channels could all be used to initiate EFT credits on: branch banking, internet banking, call centres, cell phone banking, corporate interfaces and self service terminals of banks.
4.1.4
Customer related characteristics As EFT credits are processed on a batch basis in the evenings, it takes approximately twenty four hours from the time of the transaction being initiated (dependent on when the transaction is initiated) until the funds are in the beneficiary’s account. However, if a transaction is initiated on a Saturday afternoon or before a public holiday, the transaction could take up to three days before the funds are credited to the recipient’s account. Due to the fact that a paying customer is authenticated prior to the transaction, the transaction is irrevocable. Recovery of funds is, however, possible by means of either legal intervention or interaction by banks to get the wrong beneficiary to return the funds. In order to prevent payments from being submitted to incorrect beneficiary accounts, payment initiators should exercise caution when specifying the beneficiary account details.
4.2 4.2.1
Real-Time Clearing (RTC) Background The RTC payment stream is the newest of the payment streams and went live with a limited number of participant banks during March 2007. This payment stream was developed to provide increased transaction speed and convenience to customers, and has shown exceptional transaction growth since its inception.
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4.2.2
Objective To enable account holders to make payments, which are immediately cleared, to any other bank account holder on a near real time basis.
4.2.3
Basic functioning The account holder intending to make a payment, needs to authenticate him/ herself on the banking channel of his / her choice after which he / she can specify the account to which the payment should be made. Once the payment instruction has been cleared via the PSO, the receiving bank will credit the beneficiary’s account within 60 seconds from the time that the payment instruction was initiated. On receipt of the payment instruction, the recipient bank will credit the specified bank account with the transaction amount. The funds received are immediately available to the beneficiary.
4.2.4
Supporting channels Real time clearing is currently available to customers of participating banks and on limited channels, i.e. internet and branch banking. It is, however, possible that this functionality can in future be made available on different channels, similar to EFT credits.
4.2.5
Customer related characteristics As a result of the account holder being authenticated prior to the transaction, the transaction is irrevocable. Incorrect payments need the involvement of banks, as well as the approval of the account holders, to reverse the payments. If no agreement can be reached with the incorrect beneficiary, legal recourse may be required. As the transaction is processed on a near real time basis, the funds will be available in the recipient’s account within a minute of the payment instruction being given.
Glossary of Terms
Term Acquiring Bank
Definition The bank which recruits retailers and other service providers (merchants) to accept payment cards. Acquirers process a merchant's transactions and pass them into the clearing system to allow financial settlement. The process whereby the account holding bank verifies the account holder, e.g. by means of username and password on internet banking or with the card details and PIN on an ATM / POS before processing the account holder’s instruction. The exchange or execution of a payment instruction. A Chip & PIN card is a bank card which has an embedded computer chip which can store and process information. The PIN is used as the means of cardholder authentication to ensure that the cardholder is legitimate and the card is not lost or stolen. It may also have a traditional magnetic stripe. The bank to whom the order to pay is given or the bank on whom the cheque, bill of exchange or promissory note is drawn. An authorisation tier below which transactions are authorised by the Point of Sale terminal without sending them through to the issuing bank to check a number of factors (such as, whether sufficient funds are available in the customer’s account at the time of the transaction). The authorisation tier is determined by a number of different risk factors, including the customer’s individual profile as well as the profile of the merchant at which the transaction occurs. The bank receiving EFT payment instructions from a sponsoring bank for processing against its customers’ accounts. Payments interoperability can be described as the ability for one participant to efficiently and effectively, and without compromising the safety and soundness of the payments system, exchange payment transactions with another participant. Interoperability requires technical compatibility between participants’ systems, as well as business, legal and financial agreements between the parties. The bank who issues the account holder with a debit or credit card and who receives and authorises the card purchase payment instructions.
Authentication
Clearing Chip & PIN card
Drawee Bank
Floor limit
Homing Bank
Interoperable
Issuing Bank
DOC REF: AARTJ/PAYMENTS STRATEGY/#39599_V6
Magstripe
The magnetic stripe that currently appears on the back of all payment cards issued by financial institutions. It contains essential customer and account information. A product or service provider (e.g. a shop, restaurant or mail order company) who provides its bank card holding customers with access into the banking system, thereby enabling the acceptance of card purchase transactions. The combination of all the individual payment systems being used for the transfer of money as well as the settlement of the resulting obligations between banks. A transaction where the sponsoring bank and the homing bank is the same bank, e.g. the bank collects a customer’s home loan (which it provided) premium from the customer’s account held at the same bank. A transaction where the sponsoring bank and the homing bank are two different banks and where payments are processed between these two banks. An agreement between the participants of each individual payment stream, providing an overview of the functioning of each payment stream as well as the related standards, rules and risk mitigation procedures. The participants in the PCH, acting as a body with a common interest, with the purpose of recommending and implementing rules and standards in each payment stream. The operator appointed by PCH PG to provide payment clearing processing services for the payment stream. The processes, mechanisms and rules which enable a payment instruction to be executed. The combination of a payment stream with the necessary access instruments and channels, its related technical specifications, legal and business agreements as well as its risk mitigation procedures to enable the end-to-end transfer of funds. An instruction to transfer funds or make a payment from one banked customer to another. Personal Identification Number. A set of numeric characters, usually a four or five -digit sequence, used by the Cardholder to verify the identity at the point of sale (POS) or a customer activated terminal, such as an ATM. The number is generated by the Card Issuer using a secure computerised process when the card is first issued and may be changed by the Cardholder
Merchant
National Payment System (NPS) On-us transaction
Off-us transaction
Payment Clearing House Agreement (PCH)
Payment Clearing House Participant Group (PCH PG) Payment Clearing House System Operator (PSO) Payment Stream Payment System
Payment Instruction PIN
thereafter. Point of Sale (POS) infrastructure SAMOS SARB Settlement Infrastructure that enables bank card holding customers to swipe their cards and authorise card purchase transactions. South African Multiple Option Settlement. South African Reserve Bank. The final discharge of an obligation from one bank to another. This is done via the SAMOS system operated by the SARB. The bank that introduces EFT payment instructions into the payment system for submission to the homing bank.
Sponsoring Bank
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