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MIS 3090 IT for Financial Services

MIS 3090 IT for Financial Services. Digital Cash. November 3, 2014. Issues Involving Digital Cash. Secure e-transactions are vital to the success of electronic commerce Electronic money is a store of monetary value, held in digital form, which is readily available for exchange in transactions

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MIS 3090 IT for Financial Services

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  1. MIS 3090IT for Financial Services Digital Cash November 3, 2014

  2. Issues Involving Digital Cash • Secure e-transactions are vital to the success of electronic commerce • Electronic money is a store of monetary value, held in digital form, which is readily available for exchange in transactions • It is a new form of currency that acts as a generalized medium of exchange • Gold – paper notes – plastic – digital cash • It is an electronic replacement for physical cash (a file) • It is easily stored, transferred, and difficult to forge

  3. Digital Currency • Stored electronically, used to make online electronic payments • Digital cash accounts are similar to traditional bank accounts • Digital cash used with other payment means (digital wallets) • Digital cash allows those with no credit cards to shop online • Merchants accepting digital-cash payments avoid credit-card transaction fees • Gift cash, often sold as points, can be redeemed at leading shopping sites… potentially a way to prevent kids from spending their allowances on things their parents would prefer they avoid (Rocketcash – bought by NetZero)

  4. E-Cash Specifics • Electronic cash is token money in the form of bits, except unlike token money it can be copied • Bank issues character strings containing: • denomination • serial number • bank ID + encryption of the above • First person to return string to bank gets the money

  5. E-Cash Overview ALICE SEND UNSIGNED BLINDED COINS TO THE BANK WALLET SOFTWARE Withdrawal: ALICE BUYS DIGITAL COINS FROM A BANK BANK SIGNS COINS, SENDS THEM BACK. ALICE UNBLINDS THEM BOB VERIFIES COINS NOT SPENT ALICE PAYS BOB Spending: BOB DEPOSITS CINDY VERIFIES COINS NOT SPENT ALICE TRANSFERS COINS TO CINDY PersonalTransfer: CINDY GETS COINS BACK

  6. Smart Cards • Smart card processors hold more information than credit card magnetic strips • Store credit-card numbers, contact information, etc. • Contact smart cards • Placed in smart-card reader for information transfer • Contactless smart cards • Antenna enables information transfer, faster than contact cards • Disposable and re-loadable cards • Security • Password protection • Encryption

  7. Smart Cards in Practice

  8. Micropayments • Merchants pay fee for each credit-card transaction • Micropayments • Payments that generally do not exceed $1, allows companies offering nominally priced products to profit • To offer micropayments, some companies form strategic partnerships with utility companies • eCharge and Peppercoin enables companies to offer this option to customers • eCharge uses ANI (Automatic Number Identification) to verify the identity of the customer and the purchases they make

  9. Merchant examples: Classmates.com, HomeworkHelp.com, Jennifer Lover Hewitt fan club Takes the place of a credit card: eCharge Net, eCharge Phone

  10. Focused primarily at merchants Market size: $2.8 B in online sub $5 transactions (2003) – growing to $6.7 B by 2009 At POS: in 2003, consumers spent $1.32 T in transactions of $5 or less Opportunities: iTunes, WSJ, cell phone games, ringtones, coffee & fastfood outlets Source: http://www.peppercoin.com/marketvision/pov.shtml

  11. Alternative Payment Options • Outside US, many opt for prepaid cards instead of cash or credit cards • Wireless-payment cards enable transactions with POS devices • Convenience and grocery stores can add monetary value to some pre-paid accounts • Example: CashX (www.cashx.com) (gone out of business) • AmeriNet (www.debit-it.com): allows checking account number as form of payment

  12. Secure Electronic Transactions • SET is a standard that allows secure credit card transactions on the net • Jointly developed by Visa and Mastercard; supported by GTE, Microsoft, Netscape, Verisign, IBM… • Using digital signatures, SET enables merchants to verify that buyers are who they claim to be • It protects buyers by providing a mechanism for their credit card number to be transferred directly to the credit card issuer for verification • It allows billing without the merchant being able to see the number

  13. http://www.byte.com/art/9706/img/067csd2.htm

  14. For Next Class… • Read • Read the Capital One case • Write out answers to case questions and be ready to discuss • Will start on Check 21 topic if there is time

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