Banking Systems on the Internet

1
Banking Systems on the Internet

• Electronic Commerce

2
Types of Internet systems

• conventional system
• Notational Funds Transfer
• financial intermediaries
• digital systems - DigiCash
• CyberCash payment clearing process

3
Electronic payment methods

• credit cards
• debit cards
• automatic teller machines
• electronic checks
• prepaid cards
• smart cards
• digital cash

4
Types of electronic payment systems

• PCS - Payment Clearing Services
• payment through an intermediary
• NFT - Notational Funds Transfer
• payment through EFT
• EFT - Electronic Funds Transfer
• payment instructions routed on a private VAN
• DCS - Digital Currency Systems
• payment based on digital currency

5
Information passed in settlement

• PCS information about identities of buyer and
  seller, and instructions to settle payments
  without revealing financial information
• NFT financial information, e.g., credit card or
  bank account numbers (including checks and debit
  cards)
• EFT payment instructions routed on a private VAN
• DCS actual values represented by digital
  currency (digital currency payment systems)

6
A basic banking transaction

• buyer withdraws money from bank
• buyer and seller agree on terms
• buyer exchanges money with seller
• seller exchanges goods with buyer
• seller deposits funds in their bank

7
(No Transcript)
8
Transactions with an intermediary

• intermediary coordinates ecommerce
• bank processors connect to accounts
• intermediary holds buyer accounts
• intermediary holds merchant accounts
• ID numbers are used as digital currency
• transactions are recorded by intermediary
• intermediary uses NFT to settle accounts

9
(No Transcript)
10
Notational Funds Transfer system

• traditional Internet payment model
• used by 99 of US Web merchants
• checks or credit cards are encrypted
• buyers send data, sellers send goods
• merchants transfer account data to bank
• bank settles with notational funds transfer
• EFT / EDI / VAN over private network
• no money moves, notational funds transferred

11
(No Transcript)
12
Properties of digital currencies

• monetary value
• convenience
• security
• authentication
• non-refutability
• accessibility and reliability
• anonymity

13
Digital currency payment system

• real funds used to create accounts
• accounts have user IDs and passwords
• users transfer ID of digital currency
• merchants check ID for user - validity
• intermediary converts DC for funds
• funds are distributed to merchant accounts

14
(No Transcript)
15
First Virtual payment clearing process

• create an account with real funds
• create digital currency with ecash
• spend ecash at participating sites
• check ecash for counterfeit / 2x spend
• redeem ecash for real funds
• distribute funds to merchant banks

16
(No Transcript)
17
Ecash model of Mark Twain Bank

• create a world access account
• convert to digital currency at the mint
• download currency to your hard drive
• spend money at participating merchants
• Mark Twain Bank quietly moved from ecash
• never be a technology in search of a market

18
(No Transcript)
19
CyberCash clearing process

• CyberCash server
• CyberCash merchant server
• CyberCash wallet
• CyberCash merchant
• backend financial network

20
(No Transcript)
21
CyberCash payment process
22
CyberCash CashRegister Service
CyberCash
Financial Institutions
Banks
Processors
CashRegister 3
Consumer Browser
Credit Card Issuing Bank
Payment Gateway Servers
Web Server
Storefront
Acquiring Bank
Internet
MCK Connector
23
ICVerifys NetVerify Product Model
CyberCash
Financial Institutions
Banks
Processors
CashRegister 3
Consumer Browser
Credit Card Issuing Bank
Payment Gateway Servers
Web Server
Storefront
Acquiring Bank
Internet
NetVerify Software
Dial-up or Dedicated Line
24
Summary of banking systems

• conventional system
• Notational Funds Transfer
• financial intermediaries
• digital systems - DigiCash
• CyberCash payment clearing
• Internet systems are encrypted NFT systems
• digital systems were a few years too early
• watch for FDIC backed bank branded DigiCash