Chapter 8 : Electronic Payment Systems

7/30/2019 Chapter 8 : Electronic Payment Systems

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Chapter 8

Electronic Payment Systems

1www.prestonians.webnode.com


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LensDoc: Credit Card Dilemma

LensDoconline retailer of:

Contact lenses

Sun and magnifying glasses

Dental care and personal care products

Customers pay by credit card (90% of all onlinepurchases in the U.S.)

Easy to purchaseEasy to purchase fraudulently

Contact lenses cannot be returned once used, butunsatisfied customers want their money back

www.prestonians.webnode.com


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LensDoc: Credit Card Dilemma (cont.)

Solutions:Process credit card purchases by hand

Require:

Home addressShipping address

Investigating alternative methods of payment

Cash cards

Special card-swiping peripherals

Credit card processing services

Currently disadvantages outweigh advantagesof any of these alternatives



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Electronic Payments: An Overview

E-payment methodsCredit cards

Electronic funds transfer (EFT)

E-paymentsSmart cards

Digital cash and script

Digital checks

E-billingAll have the ability to transfer payment fromone person or party to another



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Electronic Payments: An Overview (cont.)

Four parts involved in e-payments

IssuerCustomer/payer/buyer

Merchant/payee/seller

Regulator

Key issue of trust mustbe addressed

PrivacyAuthentication andauthorization

Integrity

Nonrepudiation



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Electronic Payments: An Overview (cont.)

Independence

Interoperability andportability

Security

Anonymity

Divisibility

Ease of use

Transaction fees

Crucial factors in determining which method of

e-payment achieves widespread acceptance



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Security for E-Payments

Public key infrastructurePlaintext Encryption algorithm

Ciphertext Key

Types of encryption systemsSymmetric (private key)

Used to encrypt and decrypt plain text

Shared by sender and receiver of text

Asymmetric (public key)

Uses a pair of keys

Public key to encrypt the message

Private key to decrypt the message



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Figure 8-2

Private Key Encryption



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Public Key Encryption

Size of key

RSA algorithm

Speed of Key

Rijndael algorithm



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Digital Signatures: authenticity and nondenialAnalogous to handwritten signature

Based on public keys

Used to:Authenticate the identity of the sender of amessage or document

Ensure the original content of the electronic

message or document is unchangedBenefits:

Portable

Cannot be easily repudiated or imitated

Can be time stamped

Security for E-Payments (cont.)



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Figure 8-3

Digital Signatures



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Digital certificates

Identifying the

holder of a publickey (Key-Exchange)

Issued by a trustedcertificate authority

(CA)

Name : Richard

key-Exchange Key :

Signature Key :

Serial # : 29483756

Other Data : 10236283025273

Expires : 6/18/04

Signed : CAs Signature



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Secure socket layer/transport layer security

Secure socket layer (SLL)handle on Web browser,utilizing CAs and data encryption

Encryption

Digital certificates

Digital signatures

In 1996 SSL was standardized and named transportlayer security (TSL)

Operates at TCP/IP layer (base layer for Internet)

IPSecsecure version of IP protocol



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SET Vs. SSL

Secure Electronic Transaction(SET)

Secure Socket Layer (SSL)

Complex Simple

SETtailored to credit card

payment to merchants

SSLprotocol for general-

purpose secure messageexchanges (encryption)

SET protocol hides customerscredit card information frommerchants and orderinformation to banks, toprotect privacy (dualsignature)

SSL protocol may use acertificate, but there is no

payment gateway.Merchants need to receiveordering information andcredit card information(capturing process initiatedby merchants)



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E-Cards

Three common types of payment cardsCredit cardsprovides holder with credit tomake purchases up to a limit fixed by the cardissuer

Charge cardsbalance on a charge card issupposed to be paid in full upon receipt ofmonthly statement

Debit cardcost of a purchase drawn directlyfrom holders checking account (demand-deposit account)



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E-Cards (cont.)

The Players

Cardholder

Merchant (seller)Issuer (your bank)

Acquirer (merchants financial institution,acquires the sales slips)

Card association (VISA, MasterCard)

Third-party processors (outsourcers performingsame duties formerly provided by issuers, etc.)



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Figure 8-4

Online Credit Card Processing

Source: The E-Commerce Book: Building the E-Empireby S. Korper and J. Ellis, copyright 2000 by

Academic Press, reproduced by permission of the publisher.



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E-Cards (cont.)

E-wallets

One-click shoppingsaving your order informationon retailers Web server

Name

Shipping address

Billing address

Credit card informationE-walletsoftware downloaded to cardholdersdesktop that stores same information and allowsone-click-like shopping



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E-Cards (cont.)

Other security risks with credit cards

Stolen cards

Reneging by the customerauthorizes apayment and later denies it

Theft of card details stored on merchantscomputerisolate computer storing

information so it cannot be accessed directlyfrom the Web

Overcoming risks with virtual credit cards



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E-Cards (cont.)

Purchase cards

Instrument of choice for B2B purchasing

Special-purpose, non-revolving payment cardsissued to employees solely for purchasing andpaying for nonstrategic materials and services



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E-Cards (cont.)

Purchase cardsoperate like other credit cards

Cardholder of corporation places an order forgoods or services

Supplier processes transaction withauthorization of card issuer

Issuer verifies purchase authorization

All cardholders transactions processedcentrallyone payment for all purchases

Each cardholder reviews monthly statementCard issuer analyzes transactionsstandardand ad hoc reports are made

Card issuer creates electronic file to upload to

corporations ledger systemwww.prestonians.webnode.com


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E-Cards (cont.)

Benefits of purchasing cardsCost savings

Productivity gains

Bill consolidation

Payment reconciliation

Preferred pricingManagement reports



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E-Cards (cont.)

Smart CardsIntegrated circuit (IC) microprocessor cards

includes IC chips with programmable functions thatmake cards smart

Integrated circuit (IC) memory cardsno processorSuitable for uses where card performs fixed

operationDisposable, prepaid (phone cards)



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E-Cards (cont.)

Optical memory cards

Stores 4MB of data; once written, datacannot be changed or removed

Ideal for keeping records (medical files)

Require expensive card readers

Categorize smart cards by how they store data

Contact cardinsert in smart card readerContactless cardembedded antenna readby another antenna (mass-transitapplications)



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Contactless IC Cards

Proximity CardUsed to access buildings and pay for busesand other transportation systems

Bus, subway and toll card in many cities

Amplified Remote Sensing CardGood for a range of up to 100 feet, and can

be used for tolling moving vehicles at gatesPay toll without stopping (e.g. Highway 91 inCalifornia)


Fi 8 5


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Figure 8-5

Smart Card Image

Embedded

chip

Source: Visa.



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E-Cards (cont.)

Important applications of smart card use:

Loyalty

FinancialInformation technology

Health and social welfare

Transportation

Identification


E C h d


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E-Cash and

Payment Card Alternatives

E-cash and credit card alternatives (formicropaymentsunder $10)

E-cash (eCoin.net)

Identity of user hidden from merchant

Easier to use than earlier e-cash systems

Requires specialized software

Qpass (Qpass.com)

Set up Qpass account

User name and password

What credit card to charge


E Cash and


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E-Cash and

Payment Card Alternatives(cont.)

PrivateBuy

User establishes account

User assigned 16-digit user number(anonymous address)

Hides user name and card number frommerchant site

Relies on credit card system already inplace


E C h d


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E-Cash and

Payment Card Alternatives (cont.)

Echarge enables users to:

Establish accounts

Receive user ID and password

Use instead of credit card numbers

Purchases billed to users credit card

Merchants must establish payment option


E C h d


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E-Cash and


Stores cash downloaded from bank or creditcard account

Common uses

Disposable vs. reloadable cards

Sample cards

Visa cash

MondexElectronic purses

Lack of interoperable equipment and standards

Common Electronic Purse Specification (CEPS)


E Cash and


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E-Cash and


E-loyalty and rewards programsLoyalty programs online

Beenz.comConsumer earns beenz by visiting,registering, or purchasing at 300participating sites

Beenz are stored and used for laterpurchases

Partnered with MasterCard to offerrewardzcardstored-value card used in U.S.and Canada for purchases where MasterCardis accepted

Transfer beenz into money to spend on Web,by phone, mail order, physical stores


E Cash and


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E-Cash and


MyPoints-CyberGold

Customers earn cash

Cash used for later purchases or applied to

credit card account

RocketCash

Combines online cash account with rewardsprogram

User opens account and adds funds

Used to make purchases at participatingmerchants


E C h d


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E-Cash and


Person-to-person (P2P) payments and giftsEnable transfer of funds between two

individualsRepaying money borrowed

Paying for an item purchased at onlineauction

Sending money to students at collegeSending a gift to a family member


Fi 8 7


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Figure 8-7

Sending money with PayPal

Source:paypal.com.



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E-Checking

Electronic checkbookCounterpart of electronic wallet

To be integrated with the accountinginformation system of business buyers andwith the payment server of sellers

To save the electronic invoice and receipt ofpayment in the buyers and sellers computers

for future retrievalExample : SafeCheck

Used mainly in B2B



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E-Checking (cont.)

Current checking systemRole of clearinghouses in the check-clearingprocess

Magnetic ink characters (MICR)

Costs of the current system

Electronic version of paper check

Leverage check payment systemsFit within current business practices, eliminateneed for process reengineering

Work like paper check with fewer manual steps



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E-Checking (cont.)

Designed to meet needs of businesses and consumers (stateof the art security systems)

Used by all bank customers with checking accounts

Enhance existing bank accounts with new EC features

Benefits of e-checking for industry-wide savings

Online check collection process

Online notices of check returns

Truncating paper checks at bank of first deposit

Creating new cash management productopportunities



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E-Checking (cont.)

Truncating paper checks at bank of firstdeposit

Creating new cash management productopportunities

Checkfree (checkfree.com) leading third-party

e-billing vendor



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E-Checking (cont.)

Treasury Department expects e-checks to:

Enhance security through use of public keycryptography

Push a payment to the payee and not pullfunds from general account of the U.S.

Leverage Internet for its strength as ubiquitous

communication vehicleIncrease payment choices for U.S. Treasurypayees



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E-Billing

Customers are either individuals orcompanies

Two common models of e-billingBiller directcustomer receives bill from asingle merchant

Third-party consolidatorspresents bills frommultiple merchants



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Managerial Issues

In the B2C world, understand your customersand products

In the B2B world, keep an open mind aboutonline alternatives

In-house or outsource

Security continues to be a major issue

Chapter 8 : Electronic Payment Systems

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