The liability of banks in respect of unauthorised digital payments: Is there adequate legislative protection afforded to consumers in South Africa?

Abstract

As the payment landscape evolves to keep up with new trends in technology, there has been a shift towards the creation and use of digital payment solutions. The rise in financial technology (Fintech) has provided consumers with faster and more convenient ways to pay. The efforts to create a contactless and cashless society are helping to drive financial inclusion and to close the digital divides. However, the shift has also meant that there has been an increase in fraudulent activities. The rapid expansion of digital banking in South Africa has led to a significant rise in unauthorised digital transactions. Similar to other countries, South Africa is grappling with the challenges posed by unauthorised digital payments and the subsequent responsibilities of banks in ensuring consumer protection. Currently, South Africa does not have dedicated legislation for digital payments. A key problem with this is the lack of explicit provisions detailing the extent to which banks are liable for unauthorised digital payments, particularly in cases where consumers fall victim to cyber fraud. While some common law principles, such as contractual and delictual liability may be applicable, there remains uncertainty regarding the circumstances under which banks are required to reimburse affected consumers. This research examines the liability of banks in cases of unauthorised digital payments, assessing whether the existing legislative framework provides sufficient safeguards for consumers. The analysis explores key legal provisions, including the Banks Act, the Electronic Communications and Transactions Act (ECTA), the National Payment System Act, the National Credit Act and the Code of Banking Practice, alongside relevant case law. It also considers the role of regulatory bodies such as the Prudential Authority and the Financial Sector Conduct Authority in enforcing consumer rights. The study identifies gaps in the current regulatory framework, particularly concerning liability allocation between banks and consumers, and evaluates the effectiveness of dispute resolution mechanisms. This research further explores how the EU’s PSD has contributed towards making payments safer and more secure, in the hope that South Africa may draw lessons from the EU. The study concludes by proposing legal and policy reforms to enhance consumer protection and ensure a balanced approach to bank liability in the digital era.