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Payment systems for electronic commerce
- 1. Payment Systems ForElectronic Commerce
- 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 Totransfer 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 Theterm 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 andProcessing 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 ofDigital 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 Toprocess 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 CardsOnline 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 Termthat 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. Consumerbuys 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 Disadvantagesof 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 SmallPayments 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 forElectronic 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 Storescredit 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 Holdcredit 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 Magneticstripe 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 Plasticcard 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 Disadvantagesof 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 StoredValue 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 Basicstructure: 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
- 25. Query Session Ask AskAsk … and you will never Ask