Electronic Payment Systems Shortened


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Electronic Payment Systems Shortened

  1. 1. Electronic Payment Systems
  2. 2. Digital Tokens <ul><li>Digital / Electronic token :- Cash that is backed by bank </li></ul><ul><li>3 types- </li></ul><ul><li>Cash or real-time </li></ul><ul><li>Debit or pre-paid </li></ul><ul><li>Credit or post-paid </li></ul>
  3. 3. Dimensions of analyzing <ul><li>The nature of transaction for which the instrument is designed </li></ul><ul><li>The means of settlement used </li></ul><ul><ul><li>Credit, electronic bill payment, cash </li></ul></ul><ul><li>Approach to security, anonymity and authentication </li></ul><ul><li>The question of risk </li></ul>
  4. 4. Electronic cash (e-cash) <ul><li>E-cash is an electronic payment option </li></ul><ul><li>The cash could be stored on a remote computer’s memory, in smart cards, </li></ul><ul><li>or in other easily transported standard or special-purpose devices </li></ul>
  5. 5. <ul><li>Remote computer’s memory:- </li></ul><ul><li>The user downloads electronic money from his bank account using </li></ul><ul><li> special software and stores the E-cash on his local hard drive. </li></ul><ul><li>To pay a WWW merchant electronically, the E-cash user goes through the software to pay the desired amount from the E-cash &quot;wallet&quot; to the merchants local hard drive (&quot;wallet&quot;) after passing the transaction through an E-cash bank for authenticity verification. </li></ul><ul><li>The merchant can then pay its bills/payroll with this E-cash or </li></ul><ul><li>upload it to the merchant's hard currency bank account. </li></ul><ul><li>The E-cash company makes money on each transaction from the </li></ul><ul><li>merchant (this fee is very small, however) and from royalties paid by </li></ul><ul><li>banks which provide customers with E-cash software/hardware for a </li></ul><ul><li>small monthly fee. </li></ul><ul><li>Transactions between individuals would not be subject to a fee. </li></ul>
  6. 6. Properties of e-cash <ul><li>Monetary value </li></ul><ul><li>Interoperability </li></ul><ul><li>Retrievability </li></ul><ul><li>security </li></ul>
  7. 7. E-cash in action <ul><li>Digital signature </li></ul><ul><li>Private & public keys </li></ul><ul><li>Bank supplies its public key to customers </li></ul>
  8. 8. Purchasing e-cash from currency servers <ul><li>Establishment of an account </li></ul><ul><li>Maintaining enough money in the account to back the purchase </li></ul>
  9. 9. Using the digital currency <ul><li>Advantage of e-cash </li></ul><ul><li>Instant settlement </li></ul><ul><li>Drawback of e-cash </li></ul><ul><li>Inability to divide into smaller amounts </li></ul><ul><li>Currency fluctuations </li></ul>
  10. 10. Smart Cards <ul><li>A &quot;smart card&quot; is a microprocessor card of credit card dimensions or smaller, with various tamper-resistant properties (e.g. a secure crypto-processor, secure file system, human-readable features) and is capable of providing security services (e.g. confidentiality of information in the memory). </li></ul><ul><li>In Japan, France, Germany, Singapore smart cards are used to pay public phone calls, transportation etc. </li></ul>
  11. 11. <ul><li>Types of smart cards </li></ul><ul><li>Relationship based smart cards </li></ul><ul><li>Electronic purses </li></ul>
  12. 12. Relationship based smart cards <ul><li>It is an enhancement of existing card services that a financial institution </li></ul><ul><li>delivers to its customers via a chip-based card </li></ul><ul><li>Services </li></ul><ul><li>Access to multiple financial accounts- debit, credit, investment </li></ul><ul><li>Variety of functions- cash access, bill payment, balance enquiry </li></ul><ul><li>Multiple access options at multiple locations using multiple devices- ATM, personal computer, PDA </li></ul><ul><li>Info of card holder </li></ul>
  13. 13. Electronic purses Wallet sized smart cards embedded with programmable microchips that stores sums of money for people to use Purse can be loaded with money at an ATM Once depleted the purse can be recharged with more money It can be used to pay the bills Small bills like photocopies, laundry , parking fees etc
  14. 14. Credit based payment <ul><li>3 categories </li></ul><ul><li>Payments using plain credit card details </li></ul><ul><li>Payments using encrypted credit card details </li></ul><ul><li>Payments using third party verification </li></ul>
  15. 15. Encryption & credit cards <ul><li>Sequence of steps for secure transaction </li></ul><ul><li>Customer presents card to the merchant </li></ul><ul><li>Merchant validates customer’s identity as the owner of the card </li></ul><ul><li>Merchant relays credit card charge & signature to its bank </li></ul><ul><li>Bank relays this info to customer’s bank for authorization approval </li></ul><ul><li>Customer’s bank returns authentication & authorization to the merchant </li></ul>
  16. 16. Processing payments using encrypted credit cards Customer Merchant's server Send encrypted credit card number Send information Online credit card processors Customer’s bank Monthly purchase statement verify authorize OK Check for credit card authenticity and sufficient funds
  17. 17. Third party processor & credit card <ul><li>Consumers register with a third party on the internet (OTPPs) to verify electronic micro transactions </li></ul><ul><li>Example of companies:- </li></ul><ul><li>First Virtual (http://www.fv.com/) </li></ul><ul><li>Open market ( http://www.openmarket.com/ ) </li></ul><ul><li>OTPP- On-line Third Party Processors </li></ul>
  18. 18. <ul><li>OTPPs process </li></ul><ul><li>Consumer C acquires an OTPP a/c number </li></ul><ul><li>C requests for item from merchant M by quoting OTPP a/c number </li></ul><ul><li>M contacts OTPP payment server with C’s a/c number </li></ul><ul><li>OTPP verifies a/c number & checks for funds </li></ul><ul><li>OTPP sends an electronic message to the buyer. Buyer responds as Yes, No , Fraud </li></ul><ul><li>If Yes, OTPP informs M </li></ul><ul><li>OTPP will not debit buyer’s a/c until it receives </li></ul><ul><li>confirmation of purchase completion </li></ul>
  19. 19. Online payment process using a third party processor customer merchant Merchant’s server Client browser request Payment server Credit cards visa Charge cards American express Bank accounts Debit cards Private label cards Digicash On-line third party processors with links to multiple payment systems verification authorization
  20. 20. Risk in electronic payment system <ul><li>Mistakes & Disputes </li></ul><ul><li>Privacy issues </li></ul><ul><li>Credit risk </li></ul>
  21. 21. Designing electronic payment systems <ul><li>Privacy </li></ul><ul><li>Security </li></ul><ul><li>Intuitive interfaces </li></ul><ul><li>Database integration </li></ul><ul><li>Brokers </li></ul><ul><li>Pricing </li></ul><ul><li>standards </li></ul>