Ch 11:Payment Systems for Electronic Commerce

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Ch 11Payment Systems for Electronic Commerce

• Presented by Sharon Taylor

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Introduction

• Paypal, founded in 1999
• Biggest use is clearing auctions on eBay
• Fees
• Profit margin
• Payment surveillance software
• Bought by e-Bay in 2002

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Online Processing Basics

• Most popular electronic transfers from consumers
  checking accounts
• Automated payments for auto
• Insurance and mortgage
• Most popular Internet payment method credit
  cards

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Scrip

• Digital cash minted by a company
• Only goods of that company
• Most currently (eScrip) for not-for-profit
  fundraising
• Primary and secondary schools in U.S.

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Payment Card Types

• Credit card
• Spending limit based on credit history
• Pay entire balance or minimum payment
• Interest on unpaid balance
• Widely accepted
• 30 days to dispute online purchase
• Card not present purchases

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Debit Card

• Removes amount of sale from bank account
• Transfers to sellers bank
• Usually has name of credit card issuer
• By agreement with issuing bank

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Charge Card

• American Express, Diners Club
• No spending limit
• Entire balance due each month
• No interest charge or line of credit
• Issued by retailers

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Single Use Cards

• Not classed as payment cards
• Issued by payment card firm
• Unique card number valid for one transaction only
• American Express, MBNA, Citigroup, J.P. Morgan

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Advantages of Payment Cards

• Fraud protection for merchants
• Limited liability if stolen
• Worldwide acceptance
• Currency conversion handled by issuer
• No special hardware or software needed

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Disadvantages of Payment Cards

• Issuer charges merchants per-transaction fees
• And a monthly processing fee
• Not cost effective for small transactions

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Payment Acceptance Processing

• EMV standard for handling transactions
• Developed by Europay, Mastercard and Visa
• Now called MasterCard International
• Must ship within 30 days of charge
• Info sent using SSL encryption

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Steps in transaction

• Merchant authenticates payment card
• Checks to see funds are available
• Puts hold on the credit line or funds
• Settlement occurs in a few days
• Funds move between banks

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Open and Closed Loop System

• Closed loop systems
• Card issuer pays 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

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Merchant Accounts

• To process payment cards for Internet
  transactions an online merchant must set up a
  merchant account
• New merchant must supply
• Business plan
• Details about existing bank accounts
• Business and personal credit history

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Processing Payments Online

• InternetSecure
• Provides secure payment card services
• First Data
• Provides merchant payment card processing
  services with the following programs
• ICVERIFY, PCAuthorize, and WebAuthorize
• Banks connect to an Automated Clearing House
  (ACH) through highly secure, private leased
  telephone lines

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Processing a Payment Card Transaction
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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 higher-priced goods and services to those
  without credit cards

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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

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Privacy and Security of Electronic Cash

• Concerns about electronic payment methods include
• Privacy and security
• Independence
• Portability
• Convenience
• Advantages of electronic cash
• Independent and portable

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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

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Advantages and Disadvantages of Electronic Cash

• 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

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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

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Detecting Double Spending of Electronic Cash
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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

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Electronic Cash Systems (continued)

• PayPal
• Provides payment processing services to
  businesses and to individuals
• Peer-to-peer (P2P) payment system
• Free payment clearing service for individuals

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PayPal Payment Method Search Option on eBay Main
Search Page
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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

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Electronic Wallets (continued)

• Server-side electronic wallet
• Stores a customers information on a remote
  server belonging to a particular merchant or
  wallet publisher
• Client-side electronic wallet
• Stores a consumers information on his or her own
  computer

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Microsoft .NET Passport

• An electronic wallet operated by Microsoft
• Passport consists of four integrated services
• Passport single sign-in service (SSI)
• Passport Wallet service
• Kids Passport service
• Public profiles

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Microsoft .NET Passport Home Page
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Yahoo! Wallet

• Server side electronic wallet offered by Yahoo!
• Lets users store information about several major
  credit and charge cards
• Many industry observers and privacy rights
  activist groups are concerned about electronic
  wallets

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W3C Micropayment Standards Development Activity

• Common Markup for Micropayment Per-Fee-Links
• Standards developed by W3C Electronic Commerce
  Interest Group (ECIG)
• Provide extensible and interoperable way to embed
  micropayment information in a Web page
• Extensible system
• One that developers can add to (or extend)
  without voiding any earlier work on the system

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W3C Proposed Micropayment HTML Tags
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The ECML Standard

• Electronic Commerce Modeling Language (ECML)
• Users can enter credit card and address
  information once into an ECML-capable electronic
  wallet
• Users control access to their ECML electronic
  wallets

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Stored-Value Cards

• Can be an elaborate smart card with a microchip
  that records currency balance
• Common stored-value cards
• Prepaid phone, copy, subway, and bus cards

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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 card
• Better suited for Internet payment transactions

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Smart Cards

• 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

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Octopus Smart Card Information on the Hong Kong
Citybus Site
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Smart Cards (continued)

• Smart Card Alliance
• Promotes benefits of smart cards
• Promotes widespread acceptance of
  multiple-application smart card technology
• Members include companies in banking, financial
  services, computer technology, and healthcare
• Promotes compatibility among smart cards, card
  reader devices, and applications

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Internet Technology and the Banking Industry

• Paper checks
• Used to make the largest dollar volume payments
• Check Clearing for the 21st Century Act (Check
  21)
• Permits banks to eliminate the movement of
  physical checks entirely

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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 victims account, the perpetrator
  can access personal information

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Phishing Attack Countermeasures

• Most important step that companies can take today
  
• Educate Web site users
• Many companies contract consulting firms that
  specialize in anti-phishing work
• Anti-phishing technique
• Monitor online chat rooms used by criminals