Ch 11:Payment Systems for Electronic Commerce

1. Ch 11:Payment Systems for Electronic Commerce Presented by Sharon Taylor

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

3. Online Processing Basics • Most popular electronic transfers from consumer’s checking accounts • Automated payments for auto • Insurance and mortgage • Most popular Internet payment method: credit cards

4. 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.

5. 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”

6. 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

7. Charge Card • American Express, Diner’s Club • No spending limit • Entire balance due each month • No interest charge or line of credit • Issued by retailers

8. 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

9. 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

10. Disadvantages of Payment Cards • Issuer charges merchants per-transaction fees • And a monthly processing fee • Not cost effective for small transactions

11. 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

12. 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

13. 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

14. 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

15. 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

16. Processing a Payment Card Transaction

17. 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

18. 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

19. 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

20. 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

21. 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

22. 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

23. Detecting Double Spending of Electronic Cash

24. 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

25. 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

26. PayPal Payment Method Search Option on eBay Main Search Page

27. 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

28. Electronic Wallets (continued) • 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

29. 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

30. Microsoft .NET Passport Home Page

31. 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

32. 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

33. W3C Proposed Micropayment HTML Tags

34. 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

35. 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

36. 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

37. 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

38. Octopus Smart Card Information on the Hong Kong Citybus Site

39. 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

40. 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

41. 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 victim’s account, the perpetrator can access personal information

42. 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