Electronic Commerce Eighth Edition Chapter 11 Payment Systems For Electronic Commerce
Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>The basic functions of online payment...
Online Payment Basics <ul><li>E-commerce </li></ul><ul><ul><li>Exchange money for goods or services </li></ul></ul><ul><ul...
Online Payment Basics (cont’d.) <ul><li>Four basic means to purchase items in B2C (traditional and electronic) </li></ul><...
Electronic Commerce, Eighth Edition
Online Payment Basics (cont’d.) <ul><li>Scrip  </li></ul><ul><ul><li>Digital cash minted by a company </li></ul></ul><ul><...
Electronic Commerce, Eighth Edition
Payment Cards <ul><li>General term describing all types of plastic cards consumers (businesses) use to make purchases </li...
Payment Cards (cont’d.) <ul><li>Credit card   (cont’d.) </li></ul><ul><ul><li>Card not present transactions </li></ul></ul...
Payment Cards (cont’d.) <ul><li>Charge card  (American Express) </li></ul><ul><ul><li>No spending limit </li></ul></ul><ul...
Payment Cards (cont’d.) <ul><li>Single-use cards </li></ul><ul><ul><li>Cards with disposable numbers </li></ul></ul><ul><u...
Advantages and Disadvantages of Payment Cards <ul><li>Advantage for merchants </li></ul><ul><ul><li>Fraud protection (buil...
Advantages and Disadvantages of Payment Cards (cont’d.) <ul><li>Disadvantage for merchants </li></ul><ul><ul><li>Per-trans...
Payment Acceptance and Processing <ul><li>Internet payment card process easier than physical store process </li></ul><ul><...
Payment Acceptance and Processing (cont’d.) <ul><li>General steps in payment card transactions  </li></ul><ul><ul><li>Merc...
Payment Acceptance and Processing (cont’d.) <ul><li>Open and closed loop systems </li></ul><ul><ul><li>Closed loop systems...
Payment Acceptance and Processing (cont’d.) <ul><li>Merchant accounts (acquiring bank)  </li></ul><ul><ul><li>Bank doing b...
Payment Acceptance and Processing (cont’d.) <ul><li>Merchant accounts (cont’d.) </li></ul><ul><ul><li>Chargeback </li></ul...
Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online </li></ul><ul><ul><li>Payment processi...
Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online (cont’d.) </li></ul><ul><ul><li>First ...
Electronic Commerce, Eighth Edition
Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online (cont’d.) </li></ul><ul><ul><li>Mercha...
Electronic Cash <ul><li>Electronic cash  (e-cash, digital cash) </li></ul><ul><ul><li>Describes any value storage and exch...
Electronic Cash (cont’d.) <ul><li>Small purchases not profitable for merchants </li></ul><ul><ul><li>Bank fees greater tha...
Micropayments and Small Payments <ul><li>Micropayments </li></ul><ul><ul><li>Internet payments for items </li></ul></ul><u...
Micropayments and Small Payments (cont’d.) <ul><li>Small payments  </li></ul><ul><ul><li>All payments of less than $10 </l...
Privacy and Security of Electronic Cash <ul><li>Electronic payment methods concerns </li></ul><ul><ul><li>Privacy and secu...
Privacy and Security of Electronic Cash (cont’d.) <ul><li>Electronic cash companies </li></ul><ul><ul><li>eCharge, Interne...
Holding Electronic Cash: Online and Offline Cash <ul><li>Online cash storage </li></ul><ul><ul><li>Consumer has no persona...
Holding Electronic Cash: Online and Offline Cash (cont’d.) <ul><li>Offline cash storage </li></ul><ul><ul><li>Virtual equi...
Advantages and Disadvantages of Electronic Cash <ul><li>Traditional brick-and-mortar billing methods </li></ul><ul><ul><li...
Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Online auction customers use conventional payment method...
Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Advantages of electronic cash transactions (cont’d.) </l...
Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Disadvantages of electronic cash transactions (cont’d.) ...
How Electronic Cash Works <ul><li>Consumer opens account with electronic cash issuer </li></ul><ul><ul><li>Presents proof ...
How Electronic Cash Works (cont’d.) <ul><li>After consumer identity is verified: </li></ul><ul><ul><li>Electronic cash amo...
Providing Security for Electronic Cash <ul><li>Significant electronic cash problem </li></ul><ul><ul><li>Potential for dou...
Providing Security for Electronic Cash (cont’d.) <ul><li>When second transaction occurs </li></ul><ul><ul><li>Complicated ...
Electronic Commerce, Eighth Edition
Providing Security for Electronic Cash (cont’d.) <ul><li>Double-spending </li></ul><ul><ul><li>Neither detected nor preven...
Providing Security for Electronic Cash (cont’d.) <ul><li>Single issuing bank can detect when two deposits of same electron...
Providing Security for Electronic Cash (cont’d.) <ul><li>Creating truly anonymous electronic cash </li></ul><ul><ul><li>Ba...
Electronic Cash Systems <ul><li>Electronic cash </li></ul><ul><ul><li>More successful in Europe and Japan </li></ul></ul><...
Electronic Cash Systems (cont’d.) <ul><li>Reasons for failure of United States electronic cash systems  </li></ul><ul><ul>...
Electronic Cash Systems (cont’d.) <ul><li>CheckFree </li></ul><ul><ul><li>Largest online bill processor (in the world) </l...
Electronic Cash Systems (cont’d.) <ul><li>Clickshare </li></ul><ul><ul><li>Electronic cash system for magazines and newspa...
Electronic Cash Systems (cont’d.) <ul><li>Clickshare (cont’d.) </li></ul><ul><ul><li>Tracks user on the Internet </li></ul...
Electronic Cash Systems (cont’d.) <ul><li>PayPal </li></ul><ul><ul><li>Payment processing services to businesses, individu...
Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Eliminates writing and mailing checks or ...
Electronic Commerce, Eighth Edition
Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Merchants and consumers first register fo...
Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Competition from Billpoint </li></ul></ul...
Electronic Wallets <ul><li>Concerns of consumers when shopping online </li></ul><ul><ul><li>Entering detailed shipping and...
Electronic Wallets (cont’d.) <ul><li>Electronic wallet  ( e-wallet ) </li></ul><ul><ul><li>Holds credit card numbers, elec...
Electronic Wallets (cont’d.) <ul><li>Server-side electronic wallet (cont’d.) </li></ul><ul><ul><li>Main weakness  </li></u...
Electronic Wallets (cont’d.) <ul><li>Client-side electronic wallet (cont’d.) </li></ul><ul><ul><li>Advantage </li></ul></u...
Electronic Wallets (cont’d.) <ul><li>Characteristics of useful wallets </li></ul><ul><ul><li>Wallet accessibility </li></u...
Electronic Wallets (cont’d.) <ul><li>Electronic wallets  </li></ul><ul><ul><li>Store shipping and billing information </li...
Electronic Wallets (cont’d.) <ul><li>Electronic wallet used by business companies  </li></ul><ul><ul><li>Example: MasterCa...
Microsoft Windows Live ID <ul><li>Formerly called Passport, Microsoft .NET Passport </li></ul><ul><li>Single sign-in servi...
Microsoft Windows Live ID (cont’d.) <ul><li>Four integrated services </li></ul><ul><ul><li>Single sign-in service (SSI) </...
Yahoo! Wallet <ul><li>Server-side electronic wallet offered by Yahoo! </li></ul><ul><li>Completes order forms automaticall...
Yahoo! Wallet (cont’d.) <ul><li>Yahoo! Advantage </li></ul><ul><ul><li>Number of services and shops accommodate own wallet...
Stored-Value Cards <ul><li>Microchip smart card or magnetic strip plastic card </li></ul><ul><ul><li>Records currency bala...
Magnetic Strip Cards <ul><li>Holds rechargeable value </li></ul><ul><li>Passive magnetic strip cards cannot: </li></ul><ul...
Smart Cards <ul><li>Stored-value card  </li></ul><ul><ul><li>Plastic card with embedded microchip </li></ul></ul><ul><li>C...
Smart Cards (cont’d.) <ul><li>Safer than conventional credit cards </li></ul><ul><ul><li>Information encrypted on smart ca...
Electronic Commerce, Eighth Edition
Smart Cards (cont’d.) <ul><li>Beginning to appear in United States </li></ul><ul><ul><li>San Francisco TransLink integrate...
Internet Technologies and the Banking Industry <ul><li>Paper checks </li></ul><ul><ul><li>Largest dollar volume of payment...
Check Processing <ul><li>Physical check processing (banks, clearinghouses) </li></ul><ul><ul><li>Person wrote check; retai...
Check Processing (cont’d.) <ul><li>Disadvantage of paper checks  </li></ul><ul><ul><li>Cost of transporting tons of paper ...
Check Processing (cont’d.) <ul><li>Technologies helping banks reduce float </li></ul><ul><ul><li>2004 U.S. law: Check Clea...
Phishing Attacks <ul><li>Phishing expedition </li></ul><ul><ul><li>Technique for committing fraud against online businesse...
Phishing Attacks (cont’d.) <ul><li>Basic structure (cont’d.) </li></ul><ul><ul><li>E-mail message tells recipient account ...
Electronic Commerce, Eighth Edition
Phishing Attacks (cont’d.) <ul><li>Spear phishing   </li></ul><ul><ul><li>Phishing expedition that is carefully designed t...
Phishing Attacks (cont’d.) <ul><li>E-mail link disguises and tricks </li></ul><ul><ul><li>Example of Web server that ignor...
Phishing Attacks (cont’d.) <ul><li>E-mail link disguises and tricks (cont’d.) </li></ul><ul><ul><li>Pop-up windows </li></...
Electronic Commerce, Eighth Edition
Organized Crime, Identity Theft, and Phishing Attacks <ul><li>Organized crime  ( racketeering ) </li></ul><ul><ul><li>Unla...
Electronic Commerce, Eighth Edition
Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) <ul><li>Large criminal organizations </li></ul><ul><ul><li...
Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) <ul><li>Two elements in phishing </li></ul><ul><ul><li>Col...
Phishing Attack Countermeasures <ul><li>Change protocol </li></ul><ul><ul><li>Improve e-mail recipients’ ability to identi...
Summary <ul><li>Online stores payment forms </li></ul><ul><ul><li>Credit, debit, charge cards (payment cards) </li></ul></...
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9781423903055 ppt ch11

  1. 1. Electronic Commerce Eighth Edition Chapter 11 Payment Systems For Electronic Commerce
  2. 2. Learning Objectives <ul><li>In this chapter, you will learn about: </li></ul><ul><li>The basic functions of online payment systems </li></ul><ul><li>The use of payment cards in electronic commerce </li></ul><ul><li>The history and future of electronic cash </li></ul><ul><li>How electronic wallets work </li></ul><ul><li>The use of stored-value cards in electronic commerce </li></ul><ul><li>Internet technologies and the banking industry </li></ul>Electronic Commerce, Eighth Edition Electronic Commerce, Eighth Edition
  3. 3. Online Payment Basics <ul><li>E-commerce </li></ul><ul><ul><li>Exchange money for goods or services </li></ul></ul><ul><ul><li>Important function: handling Internet payments </li></ul></ul><ul><ul><li>B2B payment transactions </li></ul></ul><ul><ul><ul><li>Electronic funds transfers (EFTs) </li></ul></ul></ul><ul><li>B2C payment transactions </li></ul><ul><ul><li>Evolving and competing for dominance </li></ul></ul><ul><ul><li>Customer convenience, saves companies money </li></ul></ul><ul><ul><ul><li>Bill mailed by mail costs $1.00 to $1.50 </li></ul></ul></ul><ul><ul><ul><li>Internet billing cost: 50 cents </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  4. 4. Online Payment Basics (cont’d.) <ul><li>Four basic means to purchase items in B2C (traditional and electronic) </li></ul><ul><ul><li>Cash, checks, credit cards, debit cards </li></ul></ul><ul><ul><ul><li>90% of all United States consumer payments </li></ul></ul></ul><ul><li>Electronic transfer: small but growing </li></ul><ul><li>Most popular: automated payments </li></ul><ul><li>Credit cards </li></ul><ul><ul><li>Worldwide: 90% of online payments </li></ul></ul><ul><ul><li>United States: 97% of online payments </li></ul></ul>Electronic Commerce, Eighth Edition
  5. 5. Electronic Commerce, Eighth Edition
  6. 6. Online Payment Basics (cont’d.) <ul><li>Scrip </li></ul><ul><ul><li>Digital cash minted by a company </li></ul></ul><ul><ul><ul><li>Cannot be exchanged for cash </li></ul></ul></ul><ul><ul><ul><li>Exchanged for goods or services by company issuing scrip </li></ul></ul></ul><ul><ul><li>Like a gift certificate: good at more than one store </li></ul></ul><ul><ul><li>Current scrip offerings ( eScrip) </li></ul></ul><ul><ul><ul><li>Focus: not-for-profit fundraising market </li></ul></ul></ul><ul><li>Merchant should offer customers payment options </li></ul><ul><ul><li>Safe, convenient, widely accepted </li></ul></ul><ul><ul><li>Companies sell payment processing package service </li></ul></ul>Electronic Commerce, Eighth Edition
  7. 7. Electronic Commerce, Eighth Edition
  8. 8. Payment Cards <ul><li>General term describing all types of plastic cards consumers (businesses) use to make purchases </li></ul><ul><ul><li>Categories: credit cards, debit cards, charge cards </li></ul></ul><ul><li>Credit card (Visa, MasterCard) </li></ul><ul><ul><li>Spending limit based on user’s credit history </li></ul></ul><ul><ul><ul><li>Charge purchases against credit line </li></ul></ul></ul><ul><ul><li>Options for user billing cycle payments </li></ul></ul><ul><ul><ul><li>Pay off entire credit card balance; pay minimum amount </li></ul></ul></ul><ul><ul><ul><li>Card issuers charge unpaid balance interest </li></ul></ul></ul><ul><ul><li>Accepted worldwide, 30-day dispute period </li></ul></ul>Electronic Commerce, Eighth Edition
  9. 9. Payment Cards (cont’d.) <ul><li>Credit card (cont’d.) </li></ul><ul><ul><li>Card not present transactions </li></ul></ul><ul><ul><ul><li>Cardholder not present during transaction </li></ul></ul></ul><ul><ul><ul><li>Requires extra security </li></ul></ul></ul><ul><li>Debit card </li></ul><ul><ul><li>Removes sales amount from cardholder’s bank account </li></ul></ul><ul><ul><li>Transfers sales amount to seller’s bank account </li></ul></ul><ul><ul><li>Issued by cardholder’s bank </li></ul></ul><ul><ul><ul><li>Carries major credit card issuer name </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  10. 10. Payment Cards (cont’d.) <ul><li>Charge card (American Express) </li></ul><ul><ul><li>No spending limit </li></ul></ul><ul><ul><li>Entire balance due at end of billing period </li></ul></ul><ul><ul><li>No line of credit or interest charges </li></ul></ul><ul><ul><li>Examples: department store, oil company cards </li></ul></ul><ul><li>“ Payment card” </li></ul><ul><ul><li>Refers to credit cards, debit cards, and charge cards </li></ul></ul>Electronic Commerce, Eighth Edition
  11. 11. Payment Cards (cont’d.) <ul><li>Single-use cards </li></ul><ul><ul><li>Cards with disposable numbers </li></ul></ul><ul><ul><ul><li>Addresses concern of giving online vendors payment card numbers </li></ul></ul></ul><ul><ul><li>Not used much anymore </li></ul></ul><ul><ul><ul><li>Problem: required consumers to behave differently </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  12. 12. Advantages and Disadvantages of Payment Cards <ul><li>Advantage for merchants </li></ul><ul><ul><li>Fraud protection (built-in security) </li></ul></ul><ul><ul><ul><li>Charge paid through issuer of payment card </li></ul></ul></ul><ul><li>Advantage for U.S. consumers </li></ul><ul><ul><li>Liability of fraudulent card use: $50 </li></ul></ul><ul><ul><ul><li>Card issuer frequently waives $50 charge if card stolen </li></ul></ul></ul><ul><li>Good for merchants and consumers </li></ul><ul><ul><li>Worldwide acceptance </li></ul></ul><ul><ul><ul><li>Currency conversion handled by card issuer </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  13. 13. Advantages and Disadvantages of Payment Cards (cont’d.) <ul><li>Disadvantage for merchants </li></ul><ul><ul><li>Per-transaction fees, monthly processing fees </li></ul></ul><ul><ul><ul><li>Cost of doing business </li></ul></ul></ul><ul><ul><li>Goods and services prices are slightly higher </li></ul></ul><ul><ul><ul><li>As opposed to environment free of payments cards </li></ul></ul></ul><ul><ul><li>For payment: </li></ul></ul><ul><ul><ul><li>Merchant must first set up merchant account </li></ul></ul></ul><ul><li>Disadvantage for consumers </li></ul><ul><ul><li>Annual fee </li></ul></ul>Electronic Commerce, Eighth Edition
  14. 14. Payment Acceptance and Processing <ul><li>Internet payment card process easier than physical store process </li></ul><ul><li>EMV standard </li></ul><ul><ul><li>Single standard handling payment card transactions </li></ul></ul><ul><ul><li>Visa, MasterCard, MasterCard International </li></ul></ul><ul><li>United States online stores, mail order stores </li></ul><ul><ul><li>Must ship merchandise within 30 days of charging payment </li></ul></ul><ul><ul><ul><li>Violation penalties are significant </li></ul></ul></ul><ul><ul><ul><li>Most do not charge payment card accounts until merchandise shipped </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  15. 15. Payment Acceptance and Processing (cont’d.) <ul><li>General steps in payment card transactions </li></ul><ul><ul><li>Merchant receives payment card information </li></ul></ul><ul><ul><li>Merchant authenticates payment </li></ul></ul><ul><ul><li>Merchant ensures funds are available and puts hold on credit line or funds to cover charge </li></ul></ul><ul><ul><li>Settlement occurs (few days after purchase); funds travel between banks and are placed into merchant’s account </li></ul></ul>Electronic Commerce, Eighth Edition
  16. 16. Payment Acceptance and Processing (cont’d.) <ul><li>Open and closed loop systems </li></ul><ul><ul><li>Closed loop systems </li></ul></ul><ul><ul><ul><li>Card issuer pays merchant directly </li></ul></ul></ul><ul><ul><ul><li>Does not use intermediary </li></ul></ul></ul><ul><ul><ul><li>American Express, Discover Card </li></ul></ul></ul><ul><ul><li>Open loop systems (three or more parties) </li></ul></ul><ul><ul><ul><li>Third party (intermediary bank) processes transaction </li></ul></ul></ul><ul><ul><ul><li>Visa, MasterCard: not issued directly to consumers </li></ul></ul></ul><ul><ul><ul><li>Credit card associations: operated by association member banks </li></ul></ul></ul><ul><ul><ul><li>Customer issuing banks: member banks </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  17. 17. Payment Acceptance and Processing (cont’d.) <ul><li>Merchant accounts (acquiring bank) </li></ul><ul><ul><li>Bank doing business with sellers (Internet, non-Internet) wanting to accept payment cards </li></ul></ul><ul><ul><li>Merchant account </li></ul></ul><ul><ul><ul><li>Required for online merchant to process payment cards </li></ul></ul></ul><ul><ul><li>Acceptance by bank of merchant account </li></ul></ul><ul><ul><ul><li>Merchant must provide business information </li></ul></ul></ul><ul><ul><ul><li>Risk of business type assessed </li></ul></ul></ul><ul><ul><li>Bank collects credit card receipts on merchant’s behalf </li></ul></ul><ul><ul><ul><li>Credits value in merchant’s account </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  18. 18. Payment Acceptance and Processing (cont’d.) <ul><li>Merchant accounts (cont’d.) </li></ul><ul><ul><li>Chargeback </li></ul></ul><ul><ul><ul><li>Cardholder successfully contests charge </li></ul></ul></ul><ul><ul><ul><li>Merchant bank must retrieve money from merchant account </li></ul></ul></ul><ul><ul><ul><li>Merchant may have to cover chargeback potential </li></ul></ul></ul><ul><ul><li>Problem facing online businesses </li></ul></ul><ul><ul><ul><li>Level of online transaction fraud </li></ul></ul></ul><ul><ul><ul><li>Fewer than 5 percent of credit card transactions completed online; accounts for 60 percent of total credit card dollar amount fraud </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  19. 19. Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online </li></ul><ul><ul><li>Payment processing service providers </li></ul></ul><ul><ul><ul><li>Companies offering payment card processing </li></ul></ul></ul><ul><ul><li>Example: InternetSecure </li></ul></ul><ul><ul><ul><li>Supports Visa and MasterCard payments for Canadian and U.S. accounts </li></ul></ul></ul><ul><ul><ul><li>Provides risk management and fraud detection </li></ul></ul></ul><ul><ul><ul><li>Handles online merchants transactions </li></ul></ul></ul><ul><ul><ul><li>Uses existing bank-approved payment card processing infrastructure, secure links, and firewalls </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  20. 20. Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online (cont’d.) </li></ul><ul><ul><li>First Data </li></ul></ul><ul><ul><ul><li>Provides merchant payment card processing services with ICVERIFY and WebAuthorize programs </li></ul></ul></ul><ul><ul><ul><li>ICVERIFY: for small retailers using Microsoft Windows electronic cash registers, point-of-sale terminal systems </li></ul></ul></ul><ul><ul><ul><li>WebAuthorize: for large enterprise-class merchant sites </li></ul></ul></ul><ul><ul><li>ICVERIFY, WebAuthorize connect directly to: </li></ul></ul><ul><ul><ul><li>Network of banks: Automated Clearing House (ACH) </li></ul></ul></ul><ul><ul><ul><li>Credit card authorization companies </li></ul></ul></ul><ul><ul><ul><li>Connect to ACH through highly secure, private leased telephone lines </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  21. 21. Electronic Commerce, Eighth Edition
  22. 22. Payment Acceptance and Processing (cont’d.) <ul><li>Processing payment cards online (cont’d.) </li></ul><ul><ul><li>Merchant Warehouse’s PayFlow Link system </li></ul></ul><ul><ul><ul><li>Online payment system developed by CyberCash </li></ul></ul></ul><ul><ul><ul><li>Now operated by VeriSign </li></ul></ul></ul><ul><ul><li>InfoSpace’s Authorize.Net </li></ul></ul><ul><ul><ul><li>Online, realtime payment card processing service </li></ul></ul></ul><ul><ul><ul><li>Merchants link to system by inserting small HTML code block into transaction page </li></ul></ul></ul><ul><ul><ul><li>Order encrypted, transferred to Authorize.Net server </li></ul></ul></ul><ul><ul><ul><li>Server relays transaction to bank network </li></ul></ul></ul><ul><ul><ul><li>Customers not aware of third-party supplier (usually) </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  23. 23. Electronic Cash <ul><li>Electronic cash (e-cash, digital cash) </li></ul><ul><ul><li>Describes any value storage and exchange system created by private (nongovernmental) entity </li></ul></ul><ul><ul><ul><li>Does not use paper documents or coins </li></ul></ul></ul><ul><ul><ul><li>Can serve as substitute for government-issued physical currency </li></ul></ul></ul><ul><li>Readily exchanged for physical cash on demand </li></ul><ul><li>Problem </li></ul><ul><ul><li>No standard among all electronic cash issuers </li></ul></ul><ul><ul><li>Not universally accepted </li></ul></ul>Electronic Commerce, Eighth Edition
  24. 24. Electronic Cash (cont’d.) <ul><li>Small purchases not profitable for merchants </li></ul><ul><ul><li>Bank fees greater than profits </li></ul></ul><ul><li>Factors in favor of electronic cash </li></ul><ul><ul><li>Potentially significant market for electronic cash </li></ul></ul><ul><ul><ul><li>Market for Internet small purchases (below $10) </li></ul></ul></ul><ul><ul><li>Most of world’s population does not have credit cards </li></ul></ul><ul><ul><ul><li>Electronic cash: solution to paying for online purchases </li></ul></ul></ul><ul><li>Idea of electronic cash refuses to die </li></ul><ul><ul><li>Despite failures </li></ul></ul>Electronic Commerce, Eighth Edition
  25. 25. Micropayments and Small Payments <ul><li>Micropayments </li></ul><ul><ul><li>Internet payments for items </li></ul></ul><ul><ul><ul><li>Costing few cents to a dollar </li></ul></ul></ul><ul><li>Micropayments barriers </li></ul><ul><ul><li>Not implemented very well on the Web yet </li></ul></ul><ul><ul><li>Human psychology </li></ul></ul><ul><ul><ul><li>People prefer to buy small value items in fixed price chunks </li></ul></ul></ul><ul><ul><ul><li>Example: mobile phone has fixed monthly payment plans </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  26. 26. Micropayments and Small Payments (cont’d.) <ul><li>Small payments </li></ul><ul><ul><li>All payments of less than $10 </li></ul></ul><ul><li>Companies that have developed micropayment systems </li></ul><ul><ul><li>Millicent, DigiCash, Yaga, BitPass </li></ul></ul><ul><ul><ul><li>All have failed </li></ul></ul></ul><ul><ul><li>No company has gained broad acceptance of its system despite industry observers seeing such a need </li></ul></ul><ul><ul><li>No company devoted solely to offering micropayment services </li></ul></ul>Electronic Commerce, Eighth Edition
  27. 27. Privacy and Security of Electronic Cash <ul><li>Electronic payment methods concerns </li></ul><ul><ul><li>Privacy and security, independence, portability, convenience </li></ul></ul><ul><ul><li>Privacy and security: most important to consumers </li></ul></ul><ul><ul><ul><li>Transactions vulnerable </li></ul></ul></ul><ul><ul><ul><li>Electronic currency: copied, reused, forged </li></ul></ul></ul><ul><li>Unique security problems of electronic cash </li></ul><ul><ul><li>Possible to spend only once </li></ul></ul><ul><ul><ul><li>Not counterfeit; used in two different transactions </li></ul></ul></ul><ul><ul><li>Anonymous use </li></ul></ul><ul><ul><ul><li>Prevents sellers from collecting information </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  28. 28. Privacy and Security of Electronic Cash (cont’d.) <ul><li>Electronic cash companies </li></ul><ul><ul><li>eCharge, InternetCash, Valista </li></ul></ul><ul><li>Advantages of electronic cash </li></ul><ul><ul><li>Independent </li></ul></ul><ul><ul><ul><li>Unrelated to any network or storage device </li></ul></ul></ul><ul><ul><ul><li>Ideally pass transparently across international borders; converted automatically to recipient country’s currency </li></ul></ul></ul><ul><ul><li>Portable </li></ul></ul><ul><ul><ul><li>Freely transferable between any two parties </li></ul></ul></ul><ul><li>Credit and debit cards: not portable or transferable </li></ul><ul><li>Important characteristic of cash: convenience </li></ul>Electronic Commerce, Eighth Edition
  29. 29. Holding Electronic Cash: Online and Offline Cash <ul><li>Online cash storage </li></ul><ul><ul><li>Consumer has no personal possession of electronic cash </li></ul></ul><ul><ul><ul><li>Trusted third party (online bank) involved in all transfers, holds consumers’ cash accounts </li></ul></ul></ul><ul><li>Online system payment </li></ul><ul><ul><li>Merchants contact consumer’s bank </li></ul></ul><ul><ul><ul><li>Helps prevent fraud (confirm valid cash) </li></ul></ul></ul><ul><ul><ul><li>Resembles process of checking with consumer’s bank to ensure valid credit card and matching name </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  30. 30. Holding Electronic Cash: Online and Offline Cash (cont’d.) <ul><li>Offline cash storage </li></ul><ul><ul><li>Virtual equivalent of money kept in wallet </li></ul></ul><ul><ul><li>Customer holds it </li></ul></ul><ul><ul><ul><li>No third party involved in transaction </li></ul></ul></ul><ul><ul><li>Protection against fraud concern </li></ul></ul><ul><ul><ul><li>Hardware or software safeguards needed </li></ul></ul></ul><ul><ul><li>Double-spending </li></ul></ul><ul><ul><ul><li>Spending electronic cash twice </li></ul></ul></ul><ul><ul><ul><li>Too late to prevent fraudulent act by time same electronic currency clears bank for second time </li></ul></ul></ul><ul><ul><ul><li>Prevent double-spending: use encryption techniques </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  31. 31. Advantages and Disadvantages of Electronic Cash <ul><li>Traditional brick-and-mortar billing methods </li></ul><ul><ul><li>Costly </li></ul></ul><ul><ul><ul><li>Generate invoices, stuff envelopes, buy and affix postage to envelopes, send invoices to customers </li></ul></ul></ul><ul><ul><li>Accounts payable department </li></ul></ul><ul><ul><ul><li>Keeps track of incoming payments, posts accounts in database, ensures current customer data </li></ul></ul></ul><ul><li>Online stores have the same payment collection inefficiencies </li></ul><ul><ul><li>Online customers use credit cards to pay for purchases </li></ul></ul>Electronic Commerce, Eighth Edition
  32. 32. Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Online auction customers use conventional payment methods </li></ul><ul><ul><li>Checks, money orders </li></ul></ul><ul><li>Electronic cash system </li></ul><ul><ul><li>Less popular than other payment methods </li></ul></ul><ul><ul><li>Provides unique advantages and disadvantages </li></ul></ul><ul><li>Advantages of electronic cash transactions </li></ul><ul><ul><li>More efficient (less costly) </li></ul></ul><ul><ul><ul><li>Efficiency fosters more business (lower prices) </li></ul></ul></ul><ul><ul><li>Occurs on existing infrastructure (Internet) </li></ul></ul>Electronic Commerce, Eighth Edition
  33. 33. Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Advantages of electronic cash transactions (cont’d.) </li></ul><ul><ul><li>Internet spans globe </li></ul></ul><ul><ul><ul><li>Distance transaction travels does not affect cost </li></ul></ul></ul><ul><ul><li>Does not require one party to obtain authorization </li></ul></ul><ul><li>Disadvantages of electronic cash transactions </li></ul><ul><ul><li>No audit trail </li></ul></ul><ul><ul><li>Money laundering </li></ul></ul><ul><ul><ul><li>Technique criminals use to convert money illegally obtained into spendable cash </li></ul></ul></ul><ul><ul><ul><li>Purchase goods, services with ill-gotten electronic cash </li></ul></ul></ul><ul><ul><ul><li>Goods sold for physical cash on open market </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  34. 34. Advantages and Disadvantages of Electronic Cash (cont’d.) <ul><li>Disadvantages of electronic cash transactions (cont’d.) </li></ul><ul><ul><li>Susceptible to forgery </li></ul></ul><ul><ul><li>Other potentially damaging digital economic factors </li></ul></ul><ul><ul><ul><li>Expansion of money supply when banks loan electronic cash on consumer and merchant traditional bank accounts </li></ul></ul></ul><ul><li>Electronic cash has not yet become a global success </li></ul><ul><ul><li>Will require wide acceptance and solution to problem of multiple electronic cash standards </li></ul></ul>Electronic Commerce, Eighth Edition
  35. 35. How Electronic Cash Works <ul><li>Consumer opens account with electronic cash issuer </li></ul><ul><ul><li>Presents proof of identity </li></ul></ul><ul><li>Consumer withdraws electronic cash using issuer’s Web site </li></ul><ul><ul><li>Presents proof of identity </li></ul></ul><ul><ul><ul><li>Digital certificate issued by certification authority </li></ul></ul></ul><ul><ul><ul><li>Combination of credit card number and verifiable bank account </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  36. 36. How Electronic Cash Works (cont’d.) <ul><li>After consumer identity is verified: </li></ul><ul><ul><li>Electronic cash amount is issued </li></ul></ul><ul><ul><ul><li>Amount deducted from consumer’s account </li></ul></ul></ul><ul><ul><ul><li>Issuer may charge small processing fee </li></ul></ul></ul><ul><li>Consumer stores electronic cash </li></ul><ul><ul><li>In electronic wallet </li></ul></ul><ul><ul><li>On his or her computer </li></ul></ul><ul><ul><li>On stored-value card </li></ul></ul><ul><li>Consumer can authorize issuer to make third-party payments </li></ul><ul><ul><li>From electronic cash account </li></ul></ul>Electronic Commerce, Eighth Edition
  37. 37. Providing Security for Electronic Cash <ul><li>Significant electronic cash problem </li></ul><ul><ul><li>Potential for double-spending </li></ul></ul><ul><li>Main deterrent </li></ul><ul><ul><li>Threat of detection and prosecution </li></ul></ul><ul><li>Keys to creating tamperproof electronic cash that can be traced back to origins </li></ul><ul><ul><li>Cryptographic algorithms </li></ul></ul><ul><ul><li>Two-part lock </li></ul></ul><ul><ul><ul><li>Provides anonymous security </li></ul></ul></ul><ul><ul><ul><li>Signals someone is attempting to double-spend cash </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  38. 38. Providing Security for Electronic Cash (cont’d.) <ul><li>When second transaction occurs </li></ul><ul><ul><li>Complicated process reveals: </li></ul></ul><ul><ul><ul><li>Attempted second use </li></ul></ul></ul><ul><ul><ul><li>Identity of original electronic cash holder </li></ul></ul></ul><ul><li>Electronic cash used correctly </li></ul><ul><ul><li>Maintains user’s anonymity </li></ul></ul><ul><li>Double-lock procedure </li></ul><ul><ul><li>Protects anonymity of electronic cash users </li></ul></ul><ul><ul><li>Simultaneously provides built-in safeguards to prevent double-spending </li></ul></ul>Electronic Commerce, Eighth Edition
  39. 39. Electronic Commerce, Eighth Edition
  40. 40. Providing Security for Electronic Cash (cont’d.) <ul><li>Double-spending </li></ul><ul><ul><li>Neither detected nor prevented with truly anonymous electronic cash </li></ul></ul><ul><li>Anonymous electronic cash </li></ul><ul><ul><li>Cannot be traced back to person who spent it </li></ul></ul><ul><li>Tracing electronic cash </li></ul><ul><ul><li>Attach serial number to each electronic cash transaction </li></ul></ul><ul><ul><ul><li>Cash positively associated with particular consumer </li></ul></ul></ul><ul><ul><ul><li>Does not solve double-spending problem </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  41. 41. Providing Security for Electronic Cash (cont’d.) <ul><li>Single issuing bank can detect when two deposits of same electronic cash are about to occur </li></ul><ul><ul><li>Impossible to ascertain fault (consumer or merchant) </li></ul></ul><ul><li>Electronic cash contains serial numbers </li></ul><ul><ul><li>No longer anonymous </li></ul></ul><ul><ul><ul><li>One reason to acquire electronic cash </li></ul></ul></ul><ul><ul><li>Raises privacy issues </li></ul></ul><ul><ul><ul><li>The use of serial numbers to track consumers’ spending habits </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  42. 42. Providing Security for Electronic Cash (cont’d.) <ul><li>Creating truly anonymous electronic cash </li></ul><ul><ul><li>Bank issues electronic cash with embedded serial numbers </li></ul></ul><ul><ul><ul><li>Bank digitally signs electronic cash while removing association of cash with particular customer </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  43. 43. Electronic Cash Systems <ul><li>Electronic cash </li></ul><ul><ul><li>More successful in Europe and Japan </li></ul></ul><ul><ul><ul><li>Consumers prefer to use cash (does not work well for online transactions) </li></ul></ul></ul><ul><ul><ul><li>Electronic cash fills important need </li></ul></ul></ul><ul><ul><li>Not successful in United States </li></ul></ul><ul><ul><ul><li>Consumers have payment cards and checking accounts </li></ul></ul></ul><ul><li>KDD Communications (KCOM) </li></ul><ul><ul><li>Internet subsidiary: Japan’s largest phone company </li></ul></ul><ul><ul><li>Offers electronic cash through NetCoin Center </li></ul></ul>Electronic Commerce, Eighth Edition
  44. 44. Electronic Cash Systems (cont’d.) <ul><li>Reasons for failure of United States electronic cash systems </li></ul><ul><ul><li>Electronic cash systems implementation </li></ul></ul><ul><ul><ul><li>Required to download and install complicated client-side software that ran in conjunction with browser </li></ul></ul></ul><ul><ul><li>Number of competing technologies </li></ul></ul><ul><ul><ul><li>No standards developed </li></ul></ul></ul><ul><ul><ul><li>Array of proprietary electronic cash alternatives </li></ul></ul></ul><ul><ul><li>No interoperable software </li></ul></ul><ul><ul><ul><li>That runs transparently on variety of hardware configurations and different software systems </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  45. 45. Electronic Cash Systems (cont’d.) <ul><li>CheckFree </li></ul><ul><ul><li>Largest online bill processor (in the world) </li></ul></ul><ul><ul><li>Payment processing services since 1981 to: </li></ul></ul><ul><ul><ul><li>Large corporations, individual Internet users </li></ul></ul></ul><ul><ul><li>2007 Fiserv bought CheckFree ($4.4 billion) </li></ul></ul><ul><ul><ul><li>Offers online bill processing under CheckFree brand </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  46. 46. Electronic Cash Systems (cont’d.) <ul><li>Clickshare </li></ul><ul><ul><li>Electronic cash system for magazines and newspaper publishers </li></ul></ul><ul><ul><li>Uses technology called micropayment-only system </li></ul></ul><ul><ul><li>An ISP supporting Clickshare automatically registers users </li></ul></ul><ul><ul><li>When users click links leading to Clickshare sites </li></ul></ul><ul><ul><ul><li>They can make purchases without registering again </li></ul></ul></ul><ul><ul><ul><li>Clickshare keeps track of transactions and bills user’s ISP </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  47. 47. Electronic Cash Systems (cont’d.) <ul><li>Clickshare (cont’d.) </li></ul><ul><ul><li>Tracks user on the Internet </li></ul></ul><ul><ul><ul><li>Significant value to advertisers, marketers </li></ul></ul></ul><ul><ul><ul><li>Defeats anonymity </li></ul></ul></ul><ul><ul><li>Micropayment capability </li></ul></ul><ul><ul><ul><li>By-product of core functionality of tracking identified users </li></ul></ul></ul><ul><ul><ul><li>Tracks users with standard HTTP Web protocol </li></ul></ul></ul><ul><ul><ul><li>Does not require cookies or software wallets </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  48. 48. Electronic Cash Systems (cont’d.) <ul><li>PayPal </li></ul><ul><ul><li>Payment processing services to businesses, individuals </li></ul></ul><ul><ul><li>Earns profit from float </li></ul></ul><ul><ul><ul><li>Money deposited, not used immediately </li></ul></ul></ul><ul><ul><li>Charges transaction fee </li></ul></ul><ul><ul><ul><li>Businesses using service to collect payments </li></ul></ul></ul><ul><ul><li>Peer-to-peer (P2P) payment system </li></ul></ul><ul><ul><ul><li>Free payment clearing service for individuals </li></ul></ul></ul><ul><ul><ul><li>Payments from one type of entity to another of the same type </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  49. 49. Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Eliminates writing and mailing checks or payment cards </li></ul></ul><ul><ul><li>Send money instantly and securely to anyone with an e-mail address </li></ul></ul><ul><ul><li>Convenient for auction bidders to pay for purchases </li></ul></ul><ul><ul><li>Convenient for auction sellers </li></ul></ul><ul><ul><ul><li>Eliminates risks posed by other online payment types </li></ul></ul></ul><ul><ul><li>Transactions clear instantly </li></ul></ul><ul><ul><li>Redemption </li></ul></ul><ul><ul><ul><li>PayPal check </li></ul></ul></ul><ul><ul><ul><li>Direct deposit to checking accounts </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  50. 50. Electronic Commerce, Eighth Edition
  51. 51. Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Merchants and consumers first register for PayPal account </li></ul></ul><ul><ul><ul><li>No minimum amount account balance </li></ul></ul></ul><ul><ul><ul><li>Add money by authorizing checking accounts transfer, using credit card </li></ul></ul></ul><ul><ul><ul><li>Merchants need PayPal accounts to accept PayPal payments </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  52. 52. Electronic Cash Systems (cont’d.) <ul><li>PayPal (cont’d.) </li></ul><ul><ul><li>Competition from Billpoint </li></ul></ul><ul><ul><ul><li>Joint venture between eBay, Wells Fargo </li></ul></ul></ul><ul><ul><ul><li>PayPal maintained first-mover advantage </li></ul></ul></ul><ul><ul><ul><ul><li>Remained most widely used eBay payment processing system </li></ul></ul></ul></ul><ul><ul><ul><li>eBay purchased PayPal </li></ul></ul></ul><ul><ul><li>Other peer-to-peer payment business companies </li></ul></ul><ul><ul><ul><li>First Data Corporation offered electronic money orders through BidPay site (closed in 2007) </li></ul></ul></ul><ul><ul><ul><li>Citibank’s c2it payments service (closed in 2003) </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  53. 53. Electronic Wallets <ul><li>Concerns of consumers when shopping online </li></ul><ul><ul><li>Entering detailed shipping and payment information for each online purchase </li></ul></ul><ul><ul><li>Filling out forms </li></ul></ul><ul><li>Solution </li></ul><ul><ul><li>Electronic commerce sites allows customer to store name, address, credit card information on the site </li></ul></ul><ul><ul><li>Problem </li></ul></ul><ul><ul><ul><li>Consumers must enter information at each site </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  54. 54. Electronic Wallets (cont’d.) <ul><li>Electronic wallet ( e-wallet ) </li></ul><ul><ul><li>Holds credit card numbers, electronic cash, owner identification, owner contact information </li></ul></ul><ul><ul><li>Provides information at electronic commerce site checkout counter </li></ul></ul><ul><ul><li>Benefit: consumer enters information once </li></ul></ul><ul><ul><ul><li>More efficient shopping </li></ul></ul></ul><ul><li>Server-side electronic wallet </li></ul><ul><ul><li>Stores customer’s information on remote server of merchant or wallet publisher </li></ul></ul><ul><ul><li>No download time or installation on user’s computer </li></ul></ul>Electronic Commerce, Eighth Edition
  55. 55. Electronic Wallets (cont’d.) <ul><li>Server-side electronic wallet (cont’d.) </li></ul><ul><ul><li>Main weakness </li></ul></ul><ul><ul><ul><li>Security breach can reveal thousands of users’ personal information (credit card numbers) </li></ul></ul></ul><ul><ul><ul><li>Servers must employ strong security measures to minimize possibility of unauthorized disclosure </li></ul></ul></ul><ul><li>Client-side electronic wallet </li></ul><ul><ul><li>Stores information on consumer’s computer </li></ul></ul><ul><ul><li>Disadvantages </li></ul></ul><ul><ul><ul><li>Must download wallet software onto every computer </li></ul></ul></ul><ul><ul><ul><li>Not portable </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  56. 56. Electronic Wallets (cont’d.) <ul><li>Client-side electronic wallet (cont’d.) </li></ul><ul><ul><li>Advantage </li></ul></ul><ul><ul><ul><li>Sensitive information stored on user’s computer </li></ul></ul></ul><ul><ul><li>Sensitive information safer on client machine </li></ul></ul><ul><ul><ul><li>Attackers must launch many attacks on user computers (more difficult to identify) </li></ul></ul></ul><ul><ul><ul><li>Prevents easily identifiable wallet vendor’s servers from attack </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  57. 57. Electronic Wallets (cont’d.) <ul><li>Characteristics of useful wallets </li></ul><ul><ul><li>Wallet accessibility </li></ul></ul><ul><ul><ul><li>Populate data fields in any merchant’s forms for any site consumer visits </li></ul></ul></ul><ul><ul><li>Electronic wallet manufacturer and merchants from many sites must coordinate efforts </li></ul></ul><ul><ul><ul><li>Wallet recognizes consumer information going into each field of given merchant’s forms </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  58. 58. Electronic Wallets (cont’d.) <ul><li>Electronic wallets </li></ul><ul><ul><li>Store shipping and billing information </li></ul></ul><ul><ul><ul><li>Consumer’s first and last names, street address, city, state, country, postal code </li></ul></ul></ul><ul><ul><li>Hold credit card names, numbers </li></ul></ul><ul><ul><ul><li>Offers consumer choice of credit cards at online checkout </li></ul></ul></ul><ul><ul><li>Hold electronic cash from various providers </li></ul></ul>Electronic Commerce, Eighth Edition
  59. 59. Electronic Wallets (cont’d.) <ul><li>Electronic wallet used by business companies </li></ul><ul><ul><li>Example: MasterCard </li></ul></ul><ul><ul><li>Most abandoned efforts </li></ul></ul><ul><ul><ul><li>Current major browsers include feature to remember names, addresses, other commonly requested information </li></ul></ul></ul><ul><ul><ul><li>Browsers provides one-click Web form field completion </li></ul></ul></ul><ul><ul><li>Two e-wallet arena survivors </li></ul></ul><ul><ul><ul><li>Microsoft Windows Live ID </li></ul></ul></ul><ul><ul><ul><li>Yahoo! Wallet </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  60. 60. Microsoft Windows Live ID <ul><li>Formerly called Passport, Microsoft .NET Passport </li></ul><ul><li>Single sign-in service </li></ul><ul><ul><li>Includes server-side electronic wallet </li></ul></ul><ul><ul><ul><li>Operated by Microsoft </li></ul></ul></ul><ul><li>All personal data entered into Windows Live ID wallet </li></ul><ul><ul><li>Encrypted and password protected </li></ul></ul>Electronic Commerce, Eighth Edition
  61. 61. Microsoft Windows Live ID (cont’d.) <ul><li>Four integrated services </li></ul><ul><ul><li>Single sign-in service (SSI) </li></ul></ul><ul><ul><ul><li>Allows user to sign in at participating Web site using username and password </li></ul></ul></ul><ul><ul><li>Wallet service </li></ul></ul><ul><ul><ul><li>Provides electronic wallet functions (secure storage, form completion of credit card, address information) </li></ul></ul></ul><ul><ul><li>Kids service </li></ul></ul><ul><ul><ul><li>Helps parents protect, control children’s online privacy </li></ul></ul></ul><ul><ul><li>Public profiles </li></ul></ul><ul><ul><ul><li>Allows consumers to create public page of information about themselves </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  62. 62. Yahoo! Wallet <ul><li>Server-side electronic wallet offered by Yahoo! </li></ul><ul><li>Completes order forms automatically </li></ul><ul><ul><li>Identifying information, credit card payment information </li></ul></ul><ul><li>Stores information </li></ul><ul><ul><li>Several major credit, charge cards, Visa and MasterCard debit cards </li></ul></ul><ul><li>Accepted by: </li></ul><ul><ul><li>Thousands of Yahoo! Store merchants, Yahoo! Travel </li></ul></ul><ul><ul><li>Yahoo! Services </li></ul></ul><ul><ul><ul><li>Premium e-mail storage, Web hosting fees </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  63. 63. Yahoo! Wallet (cont’d.) <ul><li>Yahoo! Advantage </li></ul><ul><ul><li>Number of services and shops accommodate own wallet </li></ul></ul><ul><ul><ul><li>Large number of merchants accept wallet </li></ul></ul></ul><ul><li>Privacy concern </li></ul><ul><ul><li>Company issuing wallet has access to great deal of information about individual using wallet </li></ul></ul>Electronic Commerce, Eighth Edition
  64. 64. Stored-Value Cards <ul><li>Microchip smart card or magnetic strip plastic card </li></ul><ul><ul><li>Records currency balance </li></ul></ul><ul><li>Microchip versus magnetic strip </li></ul><ul><ul><li>Microchip stores more information </li></ul></ul><ul><ul><li>Tiny microchip computer processor </li></ul></ul><ul><ul><ul><li>Performs calculations and storage operations on card </li></ul></ul></ul><ul><ul><li>Different microchip card reader needed </li></ul></ul><ul><li>Examples: prepaid phone, copy, subway, bus cards </li></ul><ul><li>“ Stored-value card” and “smart card” used interchangeably </li></ul>Electronic Commerce, Eighth Edition
  65. 65. Magnetic Strip Cards <ul><li>Holds rechargeable value </li></ul><ul><li>Passive magnetic strip cards cannot: </li></ul><ul><ul><li>Send or receive information </li></ul></ul><ul><ul><li>Increment or decrement cash value stored </li></ul></ul><ul><li>Processing done on device into which card inserted </li></ul><ul><li>Magnetic strip cards and smart cards store electronic cash </li></ul><ul><ul><li>Smart card better suited for Internet payment transactions </li></ul></ul><ul><ul><ul><li>Has processing capability </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  66. 66. Smart Cards <ul><li>Stored-value card </li></ul><ul><ul><li>Plastic card with embedded microchip </li></ul></ul><ul><li>Credit, debit, charge cards store limited information on magnetic strip </li></ul><ul><li>Store information </li></ul><ul><ul><li>About 100 times more than magnetic strip plastic card </li></ul></ul><ul><li>Hold private user data </li></ul><ul><ul><li>Financial facts, encryption keys, account information, credit card numbers, health insurance information, medical records </li></ul></ul>Electronic Commerce, Eighth Edition
  67. 67. Smart Cards (cont’d.) <ul><li>Safer than conventional credit cards </li></ul><ul><ul><li>Information encrypted on smart card </li></ul></ul><ul><li>Popular in Europe, parts of Asia </li></ul><ul><ul><li>Public telephone calls, cable television programs </li></ul></ul><ul><ul><li>Hong Kong </li></ul></ul><ul><ul><ul><li>Retail counters, restaurant cash registers have smart card readers </li></ul></ul></ul><ul><ul><ul><li>Octopus is the public transportation smart card: can be reloaded at transportation locations, 7-Eleven stores </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  68. 68. Electronic Commerce, Eighth Edition
  69. 69. Smart Cards (cont’d.) <ul><li>Beginning to appear in United States </li></ul><ul><ul><li>San Francisco TransLink integrated ticketing system for public transportation </li></ul></ul><ul><ul><li>Smart Visa card (2000) </li></ul></ul><ul><ul><li>Target Visa smart card (2002) </li></ul></ul><ul><li>Smart Card Alliance </li></ul><ul><ul><li>Advances smart card benefits </li></ul></ul><ul><ul><li>Promotes widespread acceptance of multiple-application smart card technology </li></ul></ul><ul><ul><li>Promotes compatibility among smart cards, card reader devices, applications </li></ul></ul>Electronic Commerce, Eighth Edition
  70. 70. Internet Technologies and the Banking Industry <ul><li>Paper checks </li></ul><ul><ul><li>Largest dollar volume of payments </li></ul></ul><ul><ul><li>Processed through world’s banking system </li></ul></ul><ul><li>Other major payment forms </li></ul><ul><ul><li>Involve banks one way or another </li></ul></ul><ul><li>Banking industry Internet technologies </li></ul><ul><ul><li>Providing new tools </li></ul></ul><ul><ul><li>Creating new threats </li></ul></ul>Electronic Commerce, Eighth Edition
  71. 71. Check Processing <ul><li>Physical check processing (banks, clearinghouses) </li></ul><ul><ul><li>Person wrote check; retailer deposited check in bank account </li></ul></ul><ul><ul><li>Retailer’s bank sent paper check to clearinghouse </li></ul></ul><ul><ul><ul><li>Clearinghouse managed fund transfer (consumer’s bank to retailer’s account) </li></ul></ul></ul><ul><ul><li>Paper check transported to consumer’s bank </li></ul></ul><ul><ul><li>Send cancelled check to consumer </li></ul></ul><ul><li>Many banks stopped sending cancelled checks to consumer </li></ul><ul><ul><li>Provide PDF images of processed checks </li></ul></ul>Electronic Commerce, Eighth Edition
  72. 72. Check Processing (cont’d.) <ul><li>Disadvantage of paper checks </li></ul><ul><ul><li>Cost of transporting tons of paper checks </li></ul></ul><ul><ul><li>Float </li></ul></ul><ul><ul><ul><li>Delay between the time person writes check and the time check clears person’s bank </li></ul></ul></ul><ul><ul><ul><li>Bank’s customer obtains free use of funds for few days </li></ul></ul></ul><ul><ul><ul><li>Bank loses use of funds for same time period </li></ul></ul></ul><ul><ul><ul><li>Can become significantly longer than a few days </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  73. 73. Check Processing (cont’d.) <ul><li>Technologies helping banks reduce float </li></ul><ul><ul><li>2004 U.S. law: Check Clearing for the 21st Century Act (Check 21) </li></ul></ul><ul><ul><ul><li>Banks eliminate movement of physical checks entirely </li></ul></ul></ul><ul><li>Check 21-compliant world </li></ul><ul><ul><li>Retailer scans customer's check </li></ul></ul><ul><ul><li>Scanned image transmitted instantly </li></ul></ul><ul><ul><ul><li>Through clearing system </li></ul></ul></ul><ul><ul><li>Posts almost immediately to both accounts </li></ul></ul><ul><ul><ul><li>Eliminates transaction float </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  74. 74. Phishing Attacks <ul><li>Phishing expedition </li></ul><ul><ul><li>Technique for committing fraud against online businesses customers </li></ul></ul><ul><ul><li>Launched against all online business types </li></ul></ul><ul><ul><li>Particular concern to financial institutions </li></ul></ul><ul><ul><ul><li>Customers expect high degree of personal information security </li></ul></ul></ul><ul><li>Basic structure </li></ul><ul><ul><li>Attacker sends e-mail message </li></ul></ul><ul><ul><ul><li>Large number of recipients </li></ul></ul></ul><ul><ul><ul><li>Account at targeted Web site </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  75. 75. Phishing Attacks (cont’d.) <ul><li>Basic structure (cont’d.) </li></ul><ul><ul><li>E-mail message tells recipient account is compromised </li></ul></ul><ul><ul><ul><li>Recipient must log on to account to correct problem </li></ul></ul></ul><ul><ul><li>E-mail message includes link </li></ul></ul><ul><ul><ul><li>Appears to be Web site login page </li></ul></ul></ul><ul><ul><ul><li>Actually disguised perpetrator’s Web site </li></ul></ul></ul><ul><ul><li>Recipient enters login name, password </li></ul></ul><ul><ul><ul><li>Perpetrator captures </li></ul></ul></ul><ul><ul><ul><li>Uses to access recipient’s account </li></ul></ul></ul><ul><ul><ul><li>Access personal information, make purchases, withdraw funds </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  76. 76. Electronic Commerce, Eighth Edition
  77. 77. Phishing Attacks (cont’d.) <ul><li>Spear phishing </li></ul><ul><ul><li>Phishing expedition that is carefully designed to target particular person or organization </li></ul></ul><ul><ul><li>Requires considerable research </li></ul></ul><ul><ul><li>Increases chance of e-mail being opened </li></ul></ul><ul><ul><li>Example: 2008 government stimulus checks </li></ul></ul><ul><ul><ul><li>Phishing e-mails appeared within one week of passage </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  78. 78. Phishing Attacks (cont’d.) <ul><li>E-mail link disguises and tricks </li></ul><ul><ul><li>Example of Web server that ignores all characters preceding “@”: </li></ul></ul><ul><ul><ul><li>https://www.paypal.com@218.36.41.188/fl/login.html </li></ul></ul></ul><ul><ul><li>Example of disguised link: </li></ul></ul><ul><ul><ul><li>https://www.paypal.com@218.36.41.188/fl/login.html </li></ul></ul></ul><ul><ul><li>Example of invisible phony site displayed due to JavaScript code: </li></ul></ul><ul><ul><ul><li>http://leasurelandscapes.com/snow/webscr.dll </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  79. 79. Phishing Attacks (cont’d.) <ul><li>E-mail link disguises and tricks (cont’d.) </li></ul><ul><ul><li>Pop-up windows </li></ul></ul><ul><ul><ul><li>Look exactly like browser address bar </li></ul></ul></ul><ul><ul><li>Including Web site graphics of financial institutions </li></ul></ul><ul><ul><ul><li>Looks more convincing </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  80. 80. Electronic Commerce, Eighth Edition
  81. 81. Organized Crime, Identity Theft, and Phishing Attacks <ul><li>Organized crime ( racketeering ) </li></ul><ul><ul><li>Unlawful activities conducted by highly organized, disciplined association for profit </li></ul></ul><ul><ul><li>Differentiated from less organized terrorist groups </li></ul></ul><ul><ul><li>Internet providing new criminal activity opportunities </li></ul></ul><ul><ul><ul><li>Generates spam, phishing, identity theft </li></ul></ul></ul><ul><ul><li>Identity theft </li></ul></ul><ul><ul><ul><li>Criminal act where perpetrator gathers victim’s personal information </li></ul></ul></ul><ul><ul><ul><li>Uses information to obtain credit </li></ul></ul></ul><ul><ul><ul><li>Perpetrator runs up account charges and disappears </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  82. 82. Electronic Commerce, Eighth Edition
  83. 83. Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) <ul><li>Large criminal organizations </li></ul><ul><ul><li>Efficient perpetrators of identity theft </li></ul></ul><ul><ul><ul><li>Exploit large amounts of personal information quickly and efficiently </li></ul></ul></ul><ul><ul><li>Sell or trade information that is not of immediate use </li></ul></ul><ul><ul><ul><li>Other worldwide organized crime entities </li></ul></ul></ul><ul><ul><li>Zombie farm </li></ul></ul><ul><ul><ul><li>Large number of computers implanted with zombie programs </li></ul></ul></ul><ul><ul><li>Pharming attack </li></ul></ul><ul><ul><ul><li>Hacker sells right to use zombie farm to organized crime association </li></ul></ul></ul>Electronic Commerce, Eighth Edition
  84. 84. Organized Crime, Identity Theft, and Phishing Attacks (cont’d.) <ul><li>Two elements in phishing </li></ul><ul><ul><li>Collectors: collect information </li></ul></ul><ul><ul><li>Cashers: use information </li></ul></ul><ul><ul><li>Require different skills </li></ul></ul><ul><li>Crime organizations facilitate transactions between collectors and cashers </li></ul><ul><ul><li>Increases phishing activity efficiency, volume </li></ul></ul><ul><li>Each year </li></ul><ul><ul><li>More than a million people fall victim </li></ul></ul><ul><ul><li>Financial losses exceed $500 million </li></ul></ul>Electronic Commerce, Eighth Edition
  85. 85. Phishing Attack Countermeasures <ul><li>Change protocol </li></ul><ul><ul><li>Improve e-mail recipients’ ability to identify message source </li></ul></ul><ul><ul><li>Reduce phishing attack threat </li></ul></ul><ul><li>Educate Web site users </li></ul><ul><li>Contract with consulting firms specializing in anti-phishing work </li></ul><ul><li>Monitor online chat rooms used by criminals </li></ul>Electronic Commerce, Eighth Edition
  86. 86. Summary <ul><li>Online stores payment forms </li></ul><ul><ul><li>Credit, debit, charge cards (payment cards) </li></ul></ul><ul><ul><ul><li>Ubiquitous, convenient, easy to use </li></ul></ul></ul><ul><ul><li>Electronic cash advantages and potential uses </li></ul></ul><ul><ul><ul><li>Making micropayments, stored online or offline </li></ul></ul></ul><ul><ul><li>Convenience of electronic wallets </li></ul></ul><ul><ul><li>Stored-value cards </li></ul></ul><ul><ul><ul><li>Smart cards, magnetic strip cards </li></ul></ul></ul><ul><li>Banks process most monetary transactions </li></ul><ul><ul><li>Use Internet technologies to process checks </li></ul></ul><ul><li>Concerns: phishing expeditions, identity theft </li></ul>Electronic Commerce, Eighth Edition

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