Dr. Péter Dobay dobay@ktk.pte.hu

1. Dr. Péter Dobaydobay@ktk.pte.hu E-Gazdaság – B2C – B2B – eVállalat – e-IA – Üzleti komp. – eICT komp. – A siker 9. e - Business: Electronic Payment SystemsEPS E. Turban: Electronic Commerce 2006 A Managerial PerspectiveChapter 10

2. Electronic Payment Systems A/ OverviewB/ Electronic Fund TransferC/ Payment CardsD/ e-Cash and ChecksE/ Security in ePaymentF/ Other solutionsA case study: Microsoft systemsChapter6

3. Areas involved A The traditional „brick & mortar” process: find the place - enter a shop – watch and test – select – pay cash (card, check) – carry home – claim (if…) In e-Commerce world: search – gain more information – select item online - - decide how to pay & deliver – send a „virtual message” Differences: partners do not meet F2F – no way of authentication – no ways of direct testing and comparison – no ways of direct payment – no way of direct claims – no immediate payment is possible (delays!) B C D E F

4. EPS: the history of progress A Main objectives: • Efficient payment process • Secure methods • Enhance convenience of customer • Ease of use for business & banks Online methods: • Electronic fund transfer EFT • Payment cards with „stored” value • Normal credit cards with secure transmission of data • E-money solutions for online purchases • Electronic gift certificates to pay in online stores • Online payments via telephone bills, Internet monthly fee, etc. • Smart cards with stored values and other info • E-wallets with stored values for online payments • Micro-payment systems for very small amounts to pay easily B C D E F

5. A/ Overview A Paying with credit cards online • Until recently: consumers were extremely reluctant to use their credit card numbers on the Web • This is changing because: • Many of people who will be on the Internet tomorrow have not even had their first Web experience today • 85% of the transactions that occur on the Web are B2B rather than B2C (and credit cards are rarely used in B2B transactions) B C D E F

6. Electronic Payments (cont.) • Four parties involved in e-payments • Issuer • Customers must obtain e-payment accounts from an issuer • Issuers are usually involved in authenticating a transaction and approving the amount involved • Customer/payer/buyer • Merchant/payee/seller • Regulator institute/authorities

7. Key issue of trust must be addressed PAIN Privacy Authentication and authorization Integrity Nonrepudiation (hard to refuse if payed) Characteristics of successful e-payment methods Independence Interoperability and portability Security Anonymity Divisibility(smaller parts to pay) Ease of use Transaction fees Electronic Payments (cont.)

8. The problem of payments A • Money can be transferred between banks with secure messages (EFT) for long time • E-Commerce needs online transaction – the payment has to be involved in process • About 95% of online sales were made by credit cards in 1999: this technology is ready and safe. • Versions of „e-cash”, an electronically registered credit, are numerous: eCoins, eCash, Cyber-Cash, Digicash, MilliCent • Other solutions use e-forms of a check or different security solutions B C D E F

9. B/ Electronic Fund Transfer A • The oldest solution: having a bank account, companies and banks can transfer money as „messages” to & from, even to individuals (paycheck) • EFT refers to ANY transfer of money: bill payments, online payments, pension fee, payroll, travel fees, ATM, POS terminals, etc. • In narrower sense: banks-to-banks systems, corporate – to – bank secure transmission e.g.: ACH (USA) and SWIFT (EU) • Advantages: • reduced cost - short respose time • efficient administration - simple bookkeping • and as a result: high security • An SWIFT money transfer takes 20 sec. None mis-addressing has happened since 1977! B C D E SWIFT F

10. Use of EFT payments A B US general EFT in 2004 C D US Medicare E F

11. C/ Paying with cards A • Credit cardIntroduced by Flatbush Nat.Bank, 1947, Diners Club 1950, American Express 1958 – now MasterCard, Visa, DiscoverToday: issued by a cc company or a major bank.The „credit” is based on financial history, „credibility”Credit amount is limited to a contracted volume • Debit cards: sum is deducted from the live account • Charge cards: pay and pay back in a period (e.g. monthly)Smart cards: multi-purpose use by a built-in chip • Co-branding: a bank + a company • Affiliate cards: a university, a company B C D E F

12. Electronic Cards • The Players • Cardholder • Merchant (seller) • Issuer (your bank) • Acquirer (merchant’s financial institution, acquires the sales slips) • Card association (VISA, MasterCard) • Third-party processors (outsourcers performing same duties formerly provided by issuers, etc.) • The ROI period for the magnetic-strip cards was 50 years! Today appr. 100m transactions/day run through!

13. Online Credit Card Processing

14. Paying with a card on the Internet Customer selects a product A Customer selects CC payment B Secure Socket Layersw initialized Merchant eComm site registers request C Merchant Bankis called / informed D Customer Bank is called / informed Customer is informed of approval Transaction is approved E F Product is shippedwith certification

15. Credit card gateway—an online connection that ties a merchant’s systems to the back-end processing systems of the credit card issuer Virtual credit card—an e-payment system in which a credit card issuer gives a special transaction number that can be used online in place of regular credit card numbers The cardholder transfers the exact amount to the temporarily-numbered VC only for the transaction time (Virtual) Electronic Cards

16. Electronic Cards: Risks A • Security risks with credit cards • Stolen cards, used for small amounts to pay • Reneging/withdrawal by the customer—authorizes a payment and later denies it • Theft of card details stored on merchant’s computer—isolate computer storing information so it cannot be accessed directly from the Web • One simple solution: purchase card • Companies give solely for specific small purchases to employees – easy to immediate control of purchase • Has an amount limited • Good selection for some B2B trading B C D E F

17. Process of Using a Purchasing Card

18. The future of cards: smartcard A • Technology: an e-card containing an embedded microchip, that enables predefined operations or the addition, deletion, or manipulation of information on the card, like periodically being re-charged when used • „Contact” versions need direct insertinginto a reader tool; „contactless” or proximity cards use antennas and RF • Applications: healthcare, IT authorization, transport, e-wallet with e-cash, paying toll-fees, phonecard, parking, etc. • Safe, has large capacities,convenient, low cost, accurate information B C D E F

19. Electronic cash solutions A • E-cash - the digital equivalent of paper currencyand coins, which enables secure and anonymous purchaseof low-priced items • A smart card can be „charged” (using cash…) with information of a value • The card can be used for POS payments, without PIN codes, etc. :this is an immediate, direct payment („cash”) • Loading is possible directly, or on phone or over the Web (with a sw) – see e.g. Mondex /MC or InternetCash stored-value card • The embedded chip keeps track on transactions B C D E F

20. F/ More solutions A • Electronic walletsOnline shoppers use PC, palmtop to store personal and financial information with e.g. a MS „Passport” and „Wallet”. Transferring some money to the „wallet” makes it possible to pay from it.e.g.: PayPal accepts CC transfer fro eBay users • MicropaymentMany shoppers need only small money (< 5 USD).E.g. IBM is offering a service with as low as 1 cent.Some vendors: QPass, Cybergold, Flooz, 1ClickCharge, Trintech,Millicent, AuricWeb, CyBank, etc. Electronic gift service is sending a „gift certificate” e-value. B eBay C D E F

21. Summary of Terms A • BE SURE, this is really YOU • BE SURE, the message was not modified • BE SURE, nobody is watching on the way Authentication CertificatesCertificate authorities Cards, types Digital signatures e-Cash e-check EFT e-wallets micropayments SET Protocol SSL Protocol public key / private key smart cards B C D E F ePay

22. Places to visit • Beenz.com : e-loyalty reward program • MyPoints • CyberGold • RocketCash • Teenager InternetCash stored value cards • TradeCard B2B ePayment System • eCheck Securewww.vantaguard.com