Comp2513 E-Payment Methods

Comp2513Comp2513

E-Payment MethodsE-Payment Methods

Daniel L. Silver, Ph.D.Daniel L. Silver, Ph.D.

2001 Daniel L. Silver 2

ObjectivesObjectives

To introduce the basic methods of To introduce the basic methods of electronic paymentelectronic payment

Reference: Deital Ch. 4Reference: Deital Ch. 4


OutlineOutline

Trandition Payment MethodsTrandition Payment Methods E-Payment MethodsE-Payment Methods


Major Architectural Components Major Architectural Components of the Webof the Web

Internet

Browser

DatabaseServer

Client 1

Server A

Server BBank

Server

URL

HTTPTCP/IP

Browser

Client 2 HTTPServer

App.Server

index.html

BankServer

prog1.classprog2.jsp


Traditional Payment MethodsTraditional Payment Methods

Payment: Payment: The transfer of money from one The transfer of money from one individual or legal entity to anotherindividual or legal entity to another

CashCash Personal ChequesPersonal Cheques Money orders (Bank note)Money orders (Bank note) Credit cardsCredit cards Debit cardsDebit cards


Selection of Payment MethodSelection of Payment Method

Based on:Based on:– ConvenienceConvenience– Trace-abilityTrace-ability– RepudiationRepudiation– Financial riskFinancial risk– Fraud protectionFraud protection

Attacks on traditional methods?Attacks on traditional methods?


Credit CardsCredit Cards

A very common method of payment A very common method of payment Cards are issued by a bankCards are issued by a bank Unique 16-digit number (including check Unique 16-digit number (including check

digits) and an expiration date digits) and an expiration date Third party authorization companies verify Third party authorization companies verify

purchasespurchases


Credit Card - Business ModelCredit Card - Business ModelLogical Money FlowLogical Money Flow

Customer

CustomerBank

Store

Visa(3rd Party)

1. Charge

2. Credit Authorization

3. Clearance/Settlement

4. Payment

What can you do if your statement shows a fraudulent purchase?

Store’sBank


Credit Card - ITCredit Card - ITPhysical Data FlowPhysical Data Flow

CARD

Reader56k bps modem

3rd Party Authorization

System(Visa)

Customer Bank

System

Card Info,Signature

AuthorizationProgram

RequestAuthorization

EFT

POS Terminal OK!

Store’s Bank

System

CustomerEFT


Requirements ofRequirements ofE-Payment MethodsE-Payment Methods

Enable an honest customer to convince a seller to Enable an honest customer to convince a seller to accept paymentaccept payment

Prevent a dishonest customer from making Prevent a dishonest customer from making unauthorized or fraudulent paymentsunauthorized or fraudulent payments

Ensure the privacy of honest participantsEnsure the privacy of honest participants Scalable to very large numbers of customersScalable to very large numbers of customers Integrate with existing and evolving systemsIntegrate with existing and evolving systems

NOT EASY!NOT EASY!


E-Payment Pros/ConsE-Payment Pros/Cons Pros:Pros:

– Potential for great flexibilityPotential for great flexibility– Low transaction costsLow transaction costs– Rapid and diverse purchase powerRapid and diverse purchase power

Cons:Cons:– Perfect copying of transactions is possiblePerfect copying of transactions is possible– Vulnerability to world-wide attackVulnerability to world-wide attack– Lack of anonymity, potential for privacy Lack of anonymity, potential for privacy

intrusionintrusion


Various E-Payment MethodsVarious E-Payment Methods

Credit and Debit cardCredit and Debit card Digital CurrencyDigital Currency E-WalletsE-Wallets Peer-to-Peer MethodsPeer-to-Peer Methods Smart cardSmart card Micro-paymentsMicro-payments B2BB2B


Use of Credit Card on the WebUse of Credit Card on the Web

Internet

Browser

DatabaseServer

Client 1

Server A

URL

HTTPServer

App.Server

index.html prog.jsp

3rd PartyAuthorization

Systemcybercash.com

Customer Bank

System

EFTStore’s Bank

SystemAuthorization


Credit Card FraudCredit Card Fraud A major problem for E-commerceA major problem for E-commerce The merchant has no legal proof of purchase The merchant has no legal proof of purchase

unless the buyer uses authentication certificateunless the buyer uses authentication certificate Companys such as Visa, nochargeback.com and Companys such as Visa, nochargeback.com and

CyberCash (now VeriSign) are working to limit CyberCash (now VeriSign) are working to limit fraud:fraud:– Visa has established high risk business models and best Visa has established high risk business models and best

practices info for merchantspractices info for merchants– Nochargeback.com has lists of fraudlent cards, e-mail Nochargeback.com has lists of fraudlent cards, e-mail

addresses and postal addressesaddresses and postal addresses– VeriSign/CyberCashVeriSign/CyberCash has employed AI to catch frauders has employed AI to catch frauders

http://www.verisign.com/support/cyberCash/index.html


Digital CurrencyDigital Currency

Digital cash accounts like traditional bank Digital cash accounts like traditional bank accountsaccounts

Buyers deposit cash in the account and spend it at Buyers deposit cash in the account and spend it at E-Commerce sites (acct # is passed using secure E-Commerce sites (acct # is passed using secure proprietary protocol)proprietary protocol)

E-Comm merchants can feel sure of paymentE-Comm merchants can feel sure of payment Customers do not need a credit card and spending Customers do not need a credit card and spending

is limited to account balanceis limited to account balance www.ecash.comwww.ecash.com

http://www.ecash.com/


E-WalletsE-Wallets

Established by financial institutions in Established by financial institutions in partnership with member E-Commerce sitespartnership with member E-Commerce sites

Allows customer to submit billing and Allows customer to submit billing and shipping info with one click at member sitesshipping info with one click at member sites

Also can store e-Cheques, e-Cash and credit Also can store e-Cheques, e-Cash and credit card informationcard information

Not as popular as originally projectedNot as popular as originally projected Entrypoint’sEntrypoint’s InfoGateInfoGate offers an e-walletoffers an e-wallet

http://www.entrypoint.com/





Peer-to-Peer MethodsPeer-to-Peer Methods Digital cash via email (eCash.com)Digital cash via email (eCash.com) PayPal.com PayPal.com – digital payment system– digital payment system

– Acts as a trusted third party (e.g. auction purchase) Acts as a trusted third party (e.g. auction purchase) – To send money:To send money:

» Sender sets up an account and requests to send payment Sender sets up an account and requests to send payment » Sender places payment into the receivers account by credit-cardSender places payment into the receivers account by credit-card» Reciever is notified of payment via emailReciever is notified of payment via email» Receiver can transfer funds to bank account or request a chequeReceiver can transfer funds to bank account or request a cheque

– There is also a request payment methodThere is also a request payment method– FOR FREE .. ? What is the their business model ?FOR FREE .. ? What is the their business model ?

http://paypal.com/


Smart CardsSmart Cards Cards with computer chips embedded on their Cards with computer chips embedded on their

faces – very common in Europefaces – very common in Europe Used for health care, transportation, ID, retail, pay Used for health care, transportation, ID, retail, pay

phones, loyalty programs, banking machinesphones, loyalty programs, banking machines Smart card readers interface with card and request Smart card readers interface with card and request

user PIN for accessuser PIN for access Bank machines can load cards with cash and then Bank machines can load cards with cash and then

merchants can download cash from cardmerchants can download cash from card Returns anonymity of purchase to customerReturns anonymity of purchase to customer GemPlusGemPlus, , MasterCardMasterCard are leading supplier of SCs are leading supplier of SCs

http://www.gemplus.com/

http://www.mastercardintl.com/newtechnology/


Micro-PaymentsMicro-Payments

Long distance phone call charge is an example of Long distance phone call charge is an example of a micro-paymenta micro-payment

Digital Equipment Corporatiion (DEC) Digital Equipment Corporatiion (DEC) researchers originally envisioned MPs:researchers originally envisioned MPs:– Payment per newspaper article ($0.005)Payment per newspaper article ($0.005)– Payment by stock quote ($0.001)Payment by stock quote ($0.001)– Payment per click (Qpass, Inc)Payment per click (Qpass, Inc)

Has not been popular, instead advertisers pay for Has not been popular, instead advertisers pay for info, or customers pay flat rates … Why?info, or customers pay flat rates … Why?


Why have micro-payments failed?Why have micro-payments failed?

Overly complicated for customer and Overly complicated for customer and business – technology & accountingbusiness – technology & accounting

Income is very dependent on customer use Income is very dependent on customer use (difficulties in cashflow management) (difficulties in cashflow management)

Customer anxiety – could act as a deterentCustomer anxiety – could act as a deterent Difficulties in standardization – lost of Difficulties in standardization – lost of

different approaches, variant mediadifferent approaches, variant media


B2BB2B B2B transactions are the fastest area of $ growth B2B transactions are the fastest area of $ growth

on the webon the web B2B transactions are substantially larger than B2CB2B transactions are substantially larger than B2C PaymantechPaymantech is is major provider:major provider:

– 24/7 availability, all manner of EFT supported24/7 availability, all manner of EFT supported– many management tools and reporting methods many management tools and reporting methods

Ecredit.comEcredit.com offers real-time automated credit offers real-time automated credit approval and financing approval and financing

TradeCardTradeCard offers offers comprehensive B2B E-comprehensive B2B E-commerce facilities on an international scalecommerce facilities on an international scale

http://www.paymentech.net/index_page.jsp

http://www.paymentech.net/index_page.jsp

http://www.ecredit.com/

http://www.ecredit.com/

http://www.tradecard.com/

http://www.tradecard.com/

THE ENDTHE END

[email protected]@acadiau.ca

Documents

Comp2513 E-Payment Methods