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2. Online Payment Basics
Cash, checks, credit cards, and
debit cards account for more
than 90 percent of all
consumer payments in the
India
Most popular consumer
electronic transfers are
automated payments of:
Auto loans/Payments
Insurance payments
Mortgage payments made
from consumers’ checking
accounts
Scrip
Digital cash minted by a
company instead of by a
government
Cannot be exchanged for
cash
Like a gift certificate that
is good at more than one
store
3. E-payment systems
To transfer money over the Internet
Methods of traditional payment
Check, credit card, or cash
Methods of electronic payment
Electronic cash, software wallets, smart cards, and
credit/debit cards
Scrip is digital cash minted by third-party
organizations
4. Payment Cards
The term payment card describes
all types of plastic cards used to
make purchases
Credit card
Has a spending limit based on
a user’s credit history
Debit card
Removes an amount from a
cardholder’s bank account
Transfers it to the seller’s
bank account
Charge card
Carries no spending limit
Amount charged is due at the
end of the billing period
Advantages:
Worldwide acceptance
Built-in security for
merchants
Disadvantage:
Payment card service
companies charge merchants
per-transaction fees and
monthly processing fees
5. Payment Acceptance and Processing
Steps followed once a
merchant receives a
consumer’s payment card
information:
Merchant authenticates
payment card
Merchant checks with
payment card issuer
To ensure that credit
or funds are available
Puts a hold on the
credit line or the funds
needed to cover the
charge
Settlement occurs
Closed loop systems
Card issuer pays the
merchants that accept the
card directly and does not
use an intermediary
Open loop systems
Involve three or more
parties
Systems using Visa or
MasterCard are examples
6. Desirable Properties of Digital Money
Universally accepted
Transferable electronically
Divisible
Non-forgeable, non-stealable
Private (no one except parties know the amount)
Anonymous (no one can identify the payer)
Work off-line (no on-line verification needed)
7. Merchant Accounts
To process payment cards for Internet transactions an online
merchant must set up a merchant account
New merchants must supply:
Business plans
Details about existing bank accounts
Business and personal credit histories
Why are controls needed?
8. Processing Payment Cards Online
InternetSecure
Provides secure payment card services
First Data
Provides merchant payment card processing
services with the following programs:
ICVERIFY and WebAuthorize
Banks connect to an Automated Clearing House (ACH)
through highly secure, private leased telephone lines
9. Electronic Cash
Term that describes any value
storage and exchange system
created by a private entity
that:
Does not use paper
documents or coins
Can serve as a substitute
for government-issued
physical currency
Attractive in two arenas:
Sale of goods and services
of less than $10
Sale of goods and services
to those without credit
cards
Concerns about electronic
payment methods include:
Privacy and security
Independence
Portability
Convenience
Advantages of electronic cash
include being:
Independent and portable
10. E-cash Concept
Merchant
Consumer
Bank
1
2
3
4
5
1. Consumer buys e-cash from Bank
2. Bank sends e-cash bits to
consumer (after
charging that amount plus fee)
3. Consumer sends e-cash to
merchant
4. Merchant checks with Bank that e-
cash
is valid (check for forgery or fraud)
5. Bank verifies that e-cash is valid
6. Parties complete transaction: e.g.,
merchant
present e-cash to issuing back for
deposit
once goods or services are
delivered
11. Advantages and Disadvantages of
Electronic Cash
Advantages
More efficient, eventually meaning lower prices
Lower transaction costs
Anybody can use it, unlike credit cards, and does not
require special authorization
Disadvantages
Tax trail non-existent, like regular cash
Money laundering
Susceptible to forgery
12. Micropayments and Small Payments
Micropayments
Internet payments for items costing from a few
cents to approximately a dollar
Small payments
Payments of less than $10
13. Holding Electronic Cash: Online and Offline Cash
Online cash storage
Trusted third party is
involved in all transfers of
electronic cash
Holds consumers’ cash
accounts
Offline cash storage
Virtual equivalent of money
kept in a wallet
No third party is involved
in the transaction
Double-spending
Spending electronic cash
twice
Advantages of electronic cash:
Transactions are more
efficient
Transfer on the Internet
costs less than processing
credit card transactions
Disadvantages of electronic
cash:
Use provides no audit trail
Problem of money
laundering arises
Susceptible to forgery
14. Providing Security for Electronic Cash
Cryptographic algorithms
Keys to creating tamperproof electronic cash that can be
traced back to its origins
Anonymous electronic cash
Electronic cash that cannot be traced back to the person
who spent it
Creating truly anonymous electronic cash
Requires a bank to issue electronic cash with embedded
serial numbers
15. Electronic Cash Systems
CheckFree
Largest online bill processor in
the world
Provides online payment
processing services
Clickshare
An electronic cash system
aimed at magazine and
newspaper publishers
PayPal
Provides payment processing
services to businesses and to
individuals
Peer-to-peer (P2P) payment
system
Free payment clearing
service for individuals
16. Electronic Wallets
Stores credit card, electronic cash, owner identification and
address
Makes shopping easier and more efficient
Eliminates need to repeatedly enter identifying
information into forms to purchase
Works in many different stores to speed checkout
Amazon.com one of the first online merchants to
eliminate repeat form-filling for purchases
17. Electronic Wallets
Hold credit card numbers,
electronic cash, owner
identification, and contact
information
Give consumers the benefit of
entering their information just
once
Make shopping more efficient
Server-side electronic wallet
Stores a customer’s
information on a remote
server belonging to a
particular merchant or
wallet publisher
Client-side electronic wallet
Stores a consumer’s
information on his or her
own computer
18. The ECML Standard
Electronic Commerce Modeling Language (ECML) proposed
standards for electronic wallets
Companies forming the consortium are America Online,
IBM, Microsoft, Visa, and MasterCard
Ultimate goal is for all commerce sites to accept ECML
Unclear how this standard will incorporate privacy
standards W3C set forth
Electronic Commerce Modeling Language (ECML)
Wallet/Merchant Standards Initiative, July 1999
(Next four slides)
19. Smart Cards
Magnetic stripe
140 bytes, cost $0.20-0.75
Memory cards
1-4 KB memory, no processor, cost $1.00-2.50
Optical memory cards
4 megabytes read-only (CD-like), cost $7.00-12.00
Microprocessor cards
Embedded microprocessor
(OLD) 8-bit processor, 16 KB ROM, 512 bytes RAM
Equivalent power to IBM XT PC, cost $7.00-15.00
32-bit processors now available
20. Smart Cards
Plastic card containing an embedded microchip
Available for over 10 years
So far not successful in U.S., but popular in Europe,
Australia, and Japan
Unsuccessful in U.S. partly because few card readers
available
Smart cards gradually reappearing in U.S.; success depends
on:
Critical mass of smart cards that support applications
Compatibility between smart cards, card-reader devices,
and applications
21. Smart Card Applications
Ticketless travel
Seoul bus system: 4M cards, 1B transactions since 1996
Planned the SF Bay Area system
Authentication, ID
Medical records
Ecash
Store loyalty programs
Personal profiles
Government
Licenses
Mall parking
. . .
22. Advantages and Disadvantages of Smart Cards
Advantages:
1. Atomic, debt-free transactions
2. Feasible for very small transactions (information commerce)
3. (Potentially) anonymous
4. Security of physical storage
5. (Potentially) currency-neutral
Disadvantages:
1. Low maximum transaction limit (not suitable for B2B or most
B2C)
2. High Infrastructure costs (not suitable for C2C)
3. Single physical point of failure (the card)
4. Not (yet) widely used
23. Other Cards
Stored Value Cards
Stored-value cards can be an elaborate smart card with a
microchip that records currency balance
Common stored-value cards include: Prepaid phone, copy, subway,
and bus cards
Magnetic strip cards
Cannot send or receive information
Cannot increment or decrement value of cash stored on the card
Processing must be done on a device into which the card is
inserted
Smart cards are better suited for Internet payment transactions
Are stored-value cards
Can hold private user data, such as financial facts
Can store about 100 times more information than a magnetic
strip plastic card
Safer than conventional credit cards
24. Phishing Attacks
Basic structure:
Attacker sends e-mail
messages to a large
number of recipients
Message states that an
account has been
compromised and the
matter should be
corrected
Message includes a link
User enters a login name
and password, which the
perpetrator captures
Once inside a victim’s
account, the perpetrator
can access personal
information
Countermeasures
Most important step that
companies can take today
is to educate Web site
users
Many companies contract
consulting firms that
specialize in anti-phishing
work
Anti-phishing technique is
to monitor online chat
rooms used by criminals