ITEC5611

ITEC5611 Electronic Payment Systems

Outline • The Payment Evolution • Using Payment Cards Online • Secure Electronic Transaction (SET) • E-Micropayment • E-Checking • Electronic Bill Presentment and Payment • PayPal ITEC5611 Electronic Commerce Systems Implementation

The Payment Revolution • Crucial Factors • Independence • Some e-payment systems require specialized software or hardware to make payment • Interoperability and portability • Security • Anonymity • Divisibility • Ease of use • Transaction fees • Regulations ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online payment card Electronic card that contains information that can be used for payment purposes • Three forms of payment cards: • Credit cards • Debit cards ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online • Processing Credit 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 ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online • Processing Credit Cards Online payment service provider (PSP) A third-party service connecting a merchant’s EC systems to the appropriate acquirers. PSPs must be registered with the various card associations they support ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online • Key participants in processing credit card payments online include the following: • Acquiring bank • Credit card association • Customer • Issuing bank • Merchant • Payment processing service • Service provides connectivity among merchants, customers and financial network • Processor • Data center that processes credit-card transactions and settles funds to merchants ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online • Fraudulent Credit Card Transactions Address Verification System (AVS) Detects fraud by comparing the address entered on a Web page with the address information on file with cardholder’s issuing bank • Result in a number of false positive • Only available in US and Canada ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online 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 ITEC5611 Electronic Commerce Systems Implementation

Using Payments Cards Online • Fraudulent Credit Card Transactions • Additional tools used to combat fraud include: • Manual review • Negative files • check to see if customer’s transaction is matched against the file containing customer’s information • Card association payer authentication services • 3D (3-domain) Secure • E.g. Verified by Visa, MasterCard SecureCode, JCB J/Secure • Require cardholders to register with the systems and merchants to adopt and support both existing systems and the new systems • Cardholder needs to have an additional password to authenticate him/herself • Merchant must also enroll itself to the program ITEC5611 Electronic Commerce Systems Implementation

Smart Cards smart card An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card ITEC5611 Electronic Commerce Systems Implementation

Exhibit 12.2 Smart Card ITEC5611 Electronic Commerce Systems Implementation

Smart Cards • Types of 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 ITEC5611 Electronic Commerce Systems Implementation

Smart Cards • Applications of Smart Cards • Retail Purchases e-purse Smart card application that loads money from a card holder’s bank account onto the smart card’s chip Common Electronic Purse Specification (CEPS) Standards governing the operation and interoperability of e-purse offerings ITEC5611 Electronic Commerce Systems Implementation

Smart Cards • Applications of Smart Cards • Transit Fares To eliminate the inconvenience of multiple types of tickets used in public transportation, most major transit operators in the United States are implementing smart card fare-ticketing systems • E-Identification Because they have the capability to store personal information, including pictures, biometric identifiers, digital signatures, and private security keys, smart cards are being used in a variety of identification, access control, and authentication applications ITEC5611 Electronic Commerce Systems Implementation

Smart Cards • Applications of Smart Cards in Health Care • Storing vital medical information in case of emergencies • Preventing patients from obtaining multiple prescriptions from different physicians • Verifying a patient’s identity and insurance coverage • Speeding up the hospital or emergency room admissions process ITEC5611 Electronic Commerce Systems Implementation

Smart Cards • Securing Smart Cards • Smart cards store or provide access to either valuable assets or to sensitive information • Because of this, they must be secured against theft, fraud, or misuse • The possibility of hacking into a smart card is classified as a “class 3” attack, which means that the cost of compromising the card far exceeds the benefits ITEC5611 Electronic Commerce Systems Implementation

Secure Electronic Transaction ITEC5611 Electronic Commerce Systems Implementation

Services Provided by SET • Secure communications channelamong involved parties • Trust by using X.509 certs • Party privacy: parties will receive only the information that they are intended to receive ITEC5611 Electronic Commerce Systems Implementation

SET Requirements • Provide confidentiality of payment and ordering information • Ensure the integrity of all transmitted data • Provide authentication that a cardholder is a legitimate user of a credit card account • Provide authentication that a merchant can accept credit card transactions through its relationship with a financial institution • Ensure the use of the best security practices and system design techniques to protect all legitimate parties in an e-commerce transactions • Create a protocol that neither depends on transport security mechanisms nor prevents their use ITEC5611 Electronic Commerce Systems Implementation

Secure Electronic Transaction 4, 6 3 5, 10, 11 2 7 9 1 12 8 ITEC5611 Electronic Commerce Systems Implementation

SET Transaction Overview • Client opens an account • Client receives a certificate • Merchants have their own certs • The client places an order (C  M) • The merchant is verified (M  C) • The order and payment are sent (C  M) • The merchant requests payment authorization (M  PG) • Payment is approved (PG  I, I  A, I,A  PG) • The merchant receives authorization response (PG  M) • The merchant confirms the order (M  C) • The merchant provides goods or service (M  C) • The merchant requests payment (M  A) ITEC5611 Electronic Commerce Systems Implementation

Dual Signature • In SET, two messages for two intended recipients are sent in one message • Order Information (OI) from client to merchant -> not revealed to the bank • Payment Information (PI) from client to the bank -> not revealed to the merchant • DS = EKRc[H(H(PI)||H(OI))] • DS provides link btw OI and PI for the client • If merchant receives DS, H(PI), merchant can prove that client has sent purchase request (because merchant has OI). • If bank receives DS, H(OI), the bank can prove that client has request it to deduct money from client’s account (because the bank has PI). ITEC5611 Electronic Commerce Systems Implementation

Stored-Value Cards stored-value card A card that has monetary value loaded onto it and that is usually rechargeable ITEC5611 Electronic Commerce Systems Implementation

E-Micropayments e-micropayments Small online payments, typically under US $10 • Companies with e-micropayment products: • BitPass (bitpass.com) • Paystone (paystone.com) • PayLoadz (payloadz.com) • Peppercoin (peppercoin.com) ITEC5611 Electronic Commerce Systems Implementation

Millicent ITEC5611 Electronic Commerce Systems Implementation

E-Checking e-check A legally valid electronic version or representation of a paper check 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 ITEC5611 Electronic Commerce Systems Implementation

E-Checking • Benefits of e-check processing: • It reduces the merchant’s administrative costs by providing faster and less paper-intensive collection of funds • It improves the efficiency of the deposit process for merchants and financial institutions ITEC5611 Electronic Commerce Systems Implementation

E-Checking • Benefits of e-check processing: • It speeds the checkout process for consumers • It provides consumers with more information about their purchases on their account statements • It reduces the float period and the number of checks that bounce because of insufficient funds (NSFs) ITEC5611 Electronic Commerce Systems Implementation

Exhibit 12.3 Processing E-Checks with Authorize.Net ITEC5611 Electronic Commerce Systems Implementation

Electronic Bill Presentment and Payment electronic bill presentment and payment (EBPP) Presenting and enabling payment of a bill online. Usually refers to a B2C transaction ITEC5611 Electronic Commerce Systems Implementation

Exhibit 12.4 E-Bill Presentment ITEC5611 Electronic Commerce Systems Implementation

Electronic Bill Presentment and Payment • Types of E-Billing • Online banking • Biller direct • Bill consolidator ITEC5611 Electronic Commerce Systems Implementation

Electronic Bill Presentment and Payment • Advantages of E-Billing • Reduction in expenses related to billing and processing payments • Electronic advertising inserts can be customized to the individual customer • Reduces customer’s expenses ITEC5611 Electronic Commerce Systems Implementation

Exhibit 12.5 E-Billing Process for Single Biller ITEC5611 Electronic Commerce Systems Implementation

Exhibit 12.6 E-Billing Processes for Bill Consolidator ITEC5611 Electronic Commerce Systems Implementation

PayPal ITEC5611 Electronic Commerce Systems Implementation

Send money person to person ITEC5611 Electronic Commerce Systems Implementation

PayPal Website Payment ITEC5611 Electronic Commerce Systems Implementation

PayPal Website Payment (cont’d) ITEC5611 Electronic Commerce Systems Implementation

Receiving money • A merchant who wants to withdraw money from Paypal account must add bank account to Paypal first. ITEC5611 Electronic Commerce Systems Implementation

It’s an online version of the credit card swipe machines used in stores. But it gives you added advantages: Increase sales. Expand your business beyond the internet. Save money. There’s no need to invest in expensive equipment. Paypal Virtual Terminal ITEC5611 Electronic Commerce Systems Implementation

ITEC5611

ITEC5611

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