Class 11

E-Payment system

Major Trends in E-Commerce Payments 2013–2014

• Payment by credit and/or debit card remains the dominant form of online payment.

• Mobile retail payment.

• PayPal remains the most popular alternative payment method online.

• Start-up Square begins to gain traction with a smartphone app, credit card reader, and credit card processing service that permits anyone to accept credit card payments.

Major Trends in E-Commerce Payments 2013–2014

• Google introduces Google Wallet, a mobile payment system based on near field communication (NFC) chips; Apple continues to go its own way, releasing iPhone 5S with fingerprint sensing technology but without NFC chips.

Online Payment Methods in the United States

Online Credit Card Transactions

Online stored value payment system

• Online stored value payment system permits consumers to make instant, online payments to merchants and other individuals based on value stored in an online account

Near field communication (NFC)• Near field communication (NFC) a set of short-

range wireless technologies used to share information among devices

Digital cash

• Digital cash an alternative payment system in which unique, authenticated tokens represent cash value

Virtual currencies

• Virtual currency typically circulates within an internal virtual world community or is issued by a specific corporate entity, and used to purchase virtual goods

Electronic billing presentment and payment

• Electronic billing presentment and payment (EBPP) systems are systems that enable the online delivery and payment of monthly bills.

Bitcoin

• In recent years, a number of countries around the world have experienced banking crises, eroding trust in the system.

• As globalization has continued and the world’s banking systems have grown more unified, the debt crises of individual nations have had a ripple effect on the rest of the world, more so than in the past.

Bitcoin

• Bitcoin, a form of electronic currency that does not exist in physical form and can be transferred from one person to another via peer-to-peer networks, without the need for a bank or other financial institution as intermediary.

• Bitcoin is more complicated than traditional currencies, but is accepted by a growing number of merchants, some reputable, and some not.

EBPP Business Models

Tools used to establish secure Internet communications

channels• Secure Sockets Layer (SSL)/Transport Layer

Security (TLS)—This is the most common form of securing channels. The SSL protocol provides data encryption, server authentication, client authentication, and message integrity for TCP/IP connections.

• Virtual private networks (VPNs)—These allow remote users to securely access internal networks via the Internet, using PPTP, an encoding mechanism that allows one local network to connect to another using the Internet as the conduit.

Tools used to establish secure Internet communications channels• WPA2—the most current wireless security

standard uses the AES algorithm for encryption and CCMP, a more advanced authentication code protocol

Tools to protect networks, the servers, and clients

• Firewalls—software applications that act as filters between a company’s private network and the Internet itself, preventing unauthorized remote client computers from attaching to your internal network.

• Proxies—software servers that act primarily to limit access of internal clients to external Internet servers and are frequently referred to as the gateway.

Tools to protect networks, the servers, and clients

• Intrusion detection and prevention systems (IDS/IDP)—an IDS examines network traffic, watching to see if it matches certain patterns or preconfigured rules indicative of an attack, while an IPS has all of the funcationality of an IDS with the additional ability to take steps to prevent and block suspicious activities.

Tools to protect networks, the servers, and clients

• Operating system controls—built-in username and password requirements that provide a level of authentication. Some operating systems also have an access control function that controls user access to various areas of a network.

• Anti-virus software—a cheap and easy way to identify and eradicate the most common types of viruses as they enter a computer, as well as to destroy those already lurking on a hard drive.

Traditional payment systems include

• Cash, whose key feature is that it is instantly convertible into other forms of value without the intermediation of any other institution.

• Checking transfers, which are funds transferred directly through a signed draft or check from a consumer’s checking account to a merchant or other individual; these are the second most common forms of payment.

Traditional payment systems include

• Credit card accounts, which are accounts that extend credit to a consumer and allow consumers to make payments to multiple vendors at one time.

• Stored value systems, which are created by depositing funds into an account and from which funds are paid out or are withdrawn as needed. Stored value payments systems include debit cards, phone cards, and smart cards.

• Accumulating balance systems, which accumulate expenditures and to which consumers make periodic payments.

PayPal

• PayPal, which is an example of an online stored value payment system that permits consumers to make instant, online payments to merchants and other individuals based on value stored in an online account.

ACCOUNTHOLDER A

ACCOUNTHOLDER A’S

BANK

ACCOUNTHOLDER X

PAYPAL

ACCOUNT A

. . .

ACCOUNT X

ACCOUNTHOLDER X’S

BANK

ACHPROCESSOR

ACCOUNTHOLDER A’S

CREDIT CARD

INTERNET EMAIL

PAYPAL’SBANK

1. A PAYS X VIA PAYPAL (A HAS ENOUGH IN PAYPAL ACCOUNT)

6. PAYPAL NOTIFIES X OF PAYMENT. X CHOOSES PAYMENT METHOD

2. OR: PAYPAL CHARGES X’S CREDIT CARD

3. OR: PAYPAL INITIATES ACH DEBIT

4. FUNDS ARE DEPOSITED IN PAYPAL’S BANK

7. OR: PAYPAL INITIATES ACH CREDIT

5. PAYPAL CREDITS X’S PAYPAL ACCOUNT

8. OR: PAYPAL MAILS CHECK TO X

e-PAYMENT SYSTEM IN INDIA

• Ever-increasing technology changes.

• Growing Internet access and mobile subscriber base

• Rising consumer confidence.

• Convenient delivery/payment models

• India has been one of the fastest growing country for payment cards in the Asia-Pacific region.

• India currently has approximately 130 million cards (both debit and credit) in circulation.

Retail E-Payment

Processing Cards Online

• Authorization

Determines whether a buyer’s card is active and whether the customer has sufficient funds

• Settlement

Transferring money from the buyer’s to the merchant’s account

The key participants in processing card payments online include:• Acquiring bank

• Credit card association

• Customer

• Issuing bank

• Merchant

• Payment processing service

• Processor

Address Verification System (AVS)

Detects fraud by comparing the address entered on a Web page with the address information on file with the cardholder’s issuing bank

Card verification number (CVN)

• Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank

Smart Cards

• Contact card

A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip

• Contactless (proximity) card

A smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader

Smart Cards

• Smart card reader

Activates and reads the contents of the chip on a smart card, usually passing the information on to a host system

• Smart card operating system

Special system that handles file management, security, input/output (I/O), and command execution and provides an application programming interface (API) for a smart card

Stored-value card

• A card that has monetary value loaded onto it and that is usually rechargeable

• Anyone can obtain a stored-value card without regard to prior financial standing or having an existing bank account as collateral

Automated Clearing House (ACH) Network• A nationwide batch-oriented electronic funds

transfer system that provides for the interbank clearing of electronic payments for participating financial institutions

Electronic Payments

• Purchasing cards (p-cards)

Special-purpose payment cards issued to a company’s employees to be used solely for purchasing nonstrategic materials and services up to a preset dollar limit

• letter of credit (LC)

A written agreement by a bank to pay the seller, on account of the buyer, a sum of money upon presentation of certain documents

Encryption/Decryption of Transactions

Check Processing

Check

• A written order on a bank or other financial institution to pay money belonging to the signer to the presenter of the check

• The most popular offline settlement method

• Good for e-commerce?

• What is a cashier’s check?

• Checks have been around how long?

Money Order

• An order for the payment of a specified amount of money

• Usually issued by the post office or a bank or other financial institution

• Popular with people who do not have bank accounts or where checks are not acceptable

• Good for e-commerce?

Debit Cards

• Similar to credit card in operation from merchant’s perspective

• Similar to a check from customer’s perspective

• Pros & Cons

Payment Processing Software

• Software to facilitate authorization of customer charges to credit or debit charge account.

• Alternative is to outsource to 3rd party for a fee.

• Authorize.Net

• CyberCash

• ICVerify

Verification Software

A Digital Certificate