Comp2513 E-Payment Methods

1. Comp2513E-Payment Methods Daniel L. Silver, Ph.D.

2. Objectives • To introduce the basic methods of electronic payment • Reference: Deital Ch. 4 Daniel L. Silver

3. Outline • Trandition Payment Methods • E-Payment Methods Daniel L. Silver

4. Major Architectural Components of the Web Bank Server Client 1 Browser HTTP TCP/IP Server A HTTP Server App. Server Database Server Internet Client 2 Browser prog1.class prog2.jsp URL index.html Server B Bank Server Daniel L. Silver

5. Traditional Payment Methods Payment: The transfer of money from one individual or legal entity to another • Cash • Personal Cheques • Money orders (Bank note) • Credit cards • Debit cards Daniel L. Silver

6. Selection of Payment Method • Based on: • Convenience • Trace-ability • Repudiation • Financial risk • Fraud protection • Attacks on traditional methods? Daniel L. Silver

7. Credit Cards • A very common method of payment • Cards are issued by a bank • Unique 16-digit number (including check digits) and an expiration date • Third party authorization companies verify purchases Daniel L. Silver

8. Credit Card - Business ModelLogical Money Flow 3. Clearance/Settlement Visa (3rd Party) Customer Bank Store’s Bank 2. Credit Authorization 4. Payment Store Customer 1. Charge What can you do if your statement shows a fraudulent purchase? Daniel L. Silver

9. Credit Card - ITPhysical Data Flow 3rd Party Authorization System (Visa) Customer Bank System EFT Customer EFT Store’s Bank System Card Info, Signature CARD Authorization Reader Request Authorization Program 56k bps modem POS Terminal OK! Daniel L. Silver

10. Requirements ofE-Payment Methods • Enable an honest customer to convince a seller to accept payment • Prevent a dishonest customer from making unauthorized or fraudulent payments • Ensure the privacy of honest participants • Scalable to very large numbers of customers • Integrate with existing and evolving systems NOT EASY! Daniel L. Silver

11. E-Payment Pros/Cons • Pros: • Potential for great flexibility • Low transaction costs • Rapid and diverse purchase power • Cons: • Perfect copying of transactions is possible • Vulnerability to world-wide attack • Lack of anonymity, potential for privacy intrusion Daniel L. Silver

12. Various E-Payment Methods • Credit and Debit card • Digital Currency • E-Wallets • Peer-to-Peer Methods • Smart card • Micro-payments • B2B Daniel L. Silver

13. Use of Credit Card on the Web Store’s Bank System 3rd Party Authorization System cybercash.com EFT Customer Bank System Authorization Server A HTTP Server App. Server Database Server Internet Client 1 Browser prog.jsp URL index.html Daniel L. Silver

14. Credit Card Fraud • A major problem for E-commerce • The merchant has no legal proof of purchase unless the buyer uses authentication certificate • Companys such as Visa, nochargeback.com and CyberCash (now VeriSign) are working to limit fraud: • Visa has established high risk business models and best practices info for merchants • Nochargeback.com has lists of fraudlent cards, e-mail addresses and postal addresses • VeriSign/CyberCash has employed AI to catch frauders Daniel L. Silver

15. Digital Currency • Digital cash accounts like traditional bank accounts • Buyers deposit cash in the account and spend it at E-Commerce sites (acct # is passed using secure proprietary protocol) • E-Comm merchants can feel sure of payment • Customers do not need a credit card and spending is limited to account balance • www.ecash.com Daniel L. Silver

16. E-Wallets • Established by financial institutions in partnership with member E-Commerce sites • Allows customer to submit billing and shipping info with one click at member sites • Also can store e-Cheques, e-Cash and credit card information • Not as popular as originally projected • Entrypoint’s InfoGate offers an e-wallet Daniel L. Silver

17. Peer-to-Peer Methods • Digital cash via email (eCash.com) • PayPal.com – digital payment system • Acts as a trusted third party (e.g. auction purchase) • To send money: • Sender sets up an account and requests to send payment • Sender places payment into the receivers account by credit-card • Reciever is notified of payment via email • Receiver can transfer funds to bank account or request a cheque • There is also a request payment method • FOR FREE .. ? What is the their business model ? Daniel L. Silver

18. Smart Cards • Cards with computer chips embedded on their faces – very common in Europe • Used for health care, transportation, ID, retail, pay phones, loyalty programs, banking machines • Smart card readers interface with card and request user PIN for access • Bank machines can load cards with cash and then merchants can download cash from card • Returns anonymity of purchase to customer • GemPlus, MasterCard are leading supplier of SCs Daniel L. Silver

19. Micro-Payments • Long distance phone call charge is an example of a micro-payment • Digital Equipment Corporatiion (DEC) researchers originally envisioned MPs: • Payment per newspaper article ($0.005) • Payment by stock quote ($0.001) • Payment per click (Qpass, Inc) • Has not been popular, instead advertisers pay for info, or customers pay flat rates … Why? Daniel L. Silver

20. Why have micro-payments failed? • Overly complicated for customer and business – technology & accounting • Income is very dependent on customer use (difficulties in cashflow management) • Customer anxiety – could act as a deterent • Difficulties in standardization – lost of different approaches, variant media Daniel L. Silver

21. B2B • B2B transactions are the fastest area of $ growth on the web • B2B transactions are substantially larger than B2C • Paymantech is major provider: • 24/7 availability, all manner of EFT supported • many management tools and reporting methods • Ecredit.com offers real-time automated credit approval and financing • TradeCard offers comprehensive B2B E-commerce facilities on an international scale Daniel L. Silver

22. THE ENDdanny.silver@acadiau.ca