Dr.R.BASKARAN,DCSE1 E-Commerce Dr.R.BASKARAN Senior Lecturer Department of Computer Science and Engineering, Anna University, Chennai – 600025. [email protected]

Dr.R.BASKARAN,DCSE 1

E-Commerce

Dr.R.BASKARANSenior Lecturer

Department of Computer Science and Engineering,Anna University,

Chennai – [email protected]


UNIT III

DIGITAL CURRENCY


Real-World Cash• Money

– Medium of exchange to simplify transactions– Standard of value– Store of value to facilitate the concept of saving

• Cash continues to be the most widely used form of payment– Convenience– Wide acceptance– Anonymity– No cost of use– No audit trail


DIGITAL CURRENCY

• Electronic money (also known as e-money, electronic cash, electronic currency, digital money, digital cash or digital currency) refers to money or scrip which is exchanged only electronically.

• use of computer networks, the internet and digital stored value systems.

• it is a collective term for financial cryptography and technologies enabling it.


Motivation

Conventional Cash is:

Counterfeitable

Slow

Costly

Vulnerable

Bad for Remote Transactions


Off-line Electronic Cash refers to two-party payment

Deposit

PaymentWithdrawal

• Low Communication Requirements


When commerce goes electronic, the means of paying for goods and services must also go electronic. Paper-based payment systems cannot support the speed, security, privacy, and internationalization necessary for electroniccommerce. In this section, we discuss four methods of electronic payment:• electronic funds transfer (EFT)• digital cash• ecash• credit card

Characteristics of Electronic Money

Electronic money


Electronic funds transfer (EFT), introduced in the late 1960s, uses the existing banking structure to support a wide variety of payments. For example, consumers can establish monthly checking account deductions for utility bills, and banks can transfer millions of dollars.

EFT is essentially electronic checking. Instead of writing a check and mailing it, the buyer initiates an electronic checking transaction (e.g., using a debit card at a point-of-sale terminal).The transaction is then electronically transmitted to an intermediary (usually the banking system), which transfers the funds from the buyer's account to the seller's account.

A banking system has one or more common clearinghouses that facilitate the flow of funds between accounts in different banks.

Electronic Funds Transfer


Digital Cash

• One of the first forms of alternative payment systems

• Not really “cash” – rather, are forms of value storage and value exchange that have limited convertibility into other forms of value, and require intermediaries to convert

• Many of early examples have disappear; concepts survive as part of P2P payment systems

• Digital cash is an electronic parallel of notes and coins.

• Two variants of digital cash are presently available: prepaid cards and smart cards.


Digital Cash

• The phonecard, the most common form of prepaid card, was first issued in 1976 by the forerunner of Telecom Italia.

• The problem with special-purpose cards, such as phone and photocopy cards, is that people end up with a purse or wallet full of cards.

• A smart card combines many functions into one card.

• A smart card can serve as personal identification, credit card, ATM card, telephone credit card, critical medical information record and as cash for small transactions.

• A smart card, containing memory and a microprocessor, can store as much as 100 times more data than a magnetic-stripe card. The microprocessor can be programmed.


Smart Cards

• Smart card – plastic card (the size of a credit card) that contains an embedded chip on which digital information can be stored and updated

– Debit cards are an implementation


Smart Cards

• Stored-value cards

• Can hold private user data, such as financial facts

• Can store about 100 times more information than a magnetic strip plastic card

• Safer than conventional credit cards


Credit Card

• Represents an account that extends credit to consumers, permitting consumers to purchase items while deferring payment, and allows consumers to make payments to multiple vendors at one time

• Credit card associations – Nonprofit associations (Visa, MasterCard) that set standards for issuing banks

• Issuing banks – Issue cards and process transactions

• Processing centers (clearinghouses) – Handle verification of accounts and balances


How an Online Credit Card Transaction Works

• Processed in much the same way that in-store purchases are

• Major difference is that online merchants do not see or take impression of card, and no signature is available (CNP transactions)

• Participants include consumer, merchant, clearinghouse, merchant bank (acquiring bank) and consumer’s card issuing bank


How an Online Credit Transaction Works


Limitations of Online Credit Card Payment Systems

• Security – neither merchant nor consumer can be fully authenticated

• Cost – for merchants, around 3.5% of purchase price plus transaction fee of 20-30 cents per transaction

• Social equity – many people do not have access to credit cards (young adults, plus almost 100 million other adult Americans who cannot afford cards or are considered poor risk)


Electronic payments: Issues

• Secure transfer across internet

• High reliability: no single failure point

• Atomic transactions

• Anonymity of buyer

• Economic and computational efficiency: allow micropayments

• Flexiblility: across different methods

• Scalability in number of servers and users


• Online payment systems for monthly bills

• Electronic Bill Presentment and Payment (EBPP) – system that sends bills over the Internet and provides an easy-to-use mechanism (perhaps a button) to pay for them if the amount looks correct

Electronic Bill Presentment and Payment


Growth of the EBPP Market


Business Office

On line Payments

Mail In Payments

Automatic Bank Draft

Walk In business offices

2001

Payment Methods



Pay Agent

On line Payments

Mail In Payments

Automatic Bank Draft

Pay agent Walk Ins

Kiosk

IVR

2007

Payment Methods



Old Bill New Bill


Security

• Security is very important when moving money

• Common security measures– Encryption– Secure Sockets Layers– Secure Electronic Transactions


Encryption

• Encryption – scrambles the contents of a file so that you can’t read it without having the right decryption key

• Often through public key encryption (PKE) – uses two keys: a public key for everyone and private key for only the recipient of the encrypted information


Secure Sockets Layers

• Secure Sockets Layer (SSL)…– Creates a secure connection between a

Web client and server– Encrypts the information– Sends the information over the Internet

• Denoted by lock icon on browser or https:// (notice the “s)


Secure Electronic Transactions

• Secure Electronic Transaction (SET) – transmission method that ensures transactions are legitimate as well as secure– Helps verify use of a credit card, for

example, by sending the transaction to the credit issuer as well as the seller/supplier


E-Payments: Secure transfer

• SSL: Secure socket layer

– below application layer

• S-HTTP: Secure HTTP:

– On top of http


SSL: Secure Socket Layer

• Application protocol independent• Provides connection security as:

– Connection is private: Encryption is used after an initial handshake to define secret (symmetric) key

– Peer's identity can be authenticated using public (asymmetric) key

– Connection is reliable: Message transport includes a message integrity check (hash)

• SSL Handshake protocol:– Allows server and client to authenticate each other

and negotiate a encryption key


SSL Handshake Protocol

• 1. Client "Hello": challenge data, cipher specs

• 2. Server "Hello": connection ID, public key certificate, cipher specs

• 3. Client "session-key": encrypted with server's public key

• 4. Client "finish": connection ID signed with client's private key

• 5. Server "verify": client's challenge data signed with server's private key

• 6. Server "finish": session ID signed with server's private key

• Session IDs and encryption options cached to avoid renegotiation for reconnection


S-HTTP: Secure HTTP

• Application level security (HTTP specific)• "Content-Privacy-Domain" header:

– Allows use of digital signatures &/ encryption

– Various encryption options

• Server-Browser negotiate– Property: cryptographic scheme to be used

– Value: specific algorithm to be used

– Direction: One way/Two way security


Secure end to end protocols


Credit Card Basics

• A credit card is part of a system of payments named after the small plastic card issued to users of the system.

• The issuer of the card grants a line of credit to the consumer (or the user) from which the user can borrow money for payment to a merchant or as a cash advance to the user.

• A credit card is different from a charge card, which requires the balance to be paid in full each month.

• In contrast, credit cards allow the consumers to 'revolve' their balance, at the cost of having interest charged.


Credit Card Basics

• Most credit cards are issued by local banks or credit unions, and are the same shape and size, as specified by the ISO 7810 standard.

• A credit card statement arrives every month, listing all charges and payments.

• Understand that cash advances may cost you a fee and a higher interest rate.

• Compare offers to determine which card offers you the best interest rate (also referred to as APR or finance charges).


Did You Know

• The percentage of undergraduate students carrying at least 1 credit card has risen 24% since 1998

• 92% of college students have a credit card by their sophomore year

• Almost half (47%) of all college students carry four or more credit cards

• 21% of undergrads owed between $3000 & $7000 on their credit card – a 61% increase from 2000


What are Credit Cards?

Pre-approved credit which can be used for the purchase of items now and

payment of them later.


Are Debit Cards a type ofCredit Card?

NO!

Debit=Credit

Debit cards allow payment and purchase

to happen simultaneously

Debit Cards are:• Not the same as credit

cards• Not a form of credit at

all• Directly linked to your

bank account.


Why Use a Credit Card?

• Proper use can help establish good credit rating• Conveniently accepted across United States

and abroad• Emergency buying power• Additional form of identification• Record of purchases on bill statement• Often required to hold a reservation


Why Not Use a Credit Card?

• Improper use can damage credit rating• Higher risk for impulsive buying and overspending• Debt trap when used unwisely• Expensive way to borrow due to high interest rates• Less to spend in the future due to paying off

purchases from past• Possible hidden fees & surcharges• Privacy is an increasing concern• Identity theft easier


Types of Credit Cards

Cards where purchases can be made in many locationsCards where purchases can be made in many locations• Bank Credit Cards

– Card issued by financial institution– Credit is issued by service provider (Wells Fargo Visa

card) – Balance paid-off at end of month or extended over period

of time• Travel and Entertainment Credit Cards

– Credit and card issued by service provider (Diner’s Club)– Not accepted at as many locations as bank cards– Entire balance must be repaid in 30 days


Types of Credit Cards

Cards where purchases are made in particular locationCards where purchases are made in particular location• Retail Credit Cards

– Credit and card issued by particular retailer (Old Navy, The Bon, Home Depot, Shell Oil)

– Balance paid-off at end of month or extended over period of time


Obtaining a Credit Card

• Comparison shop when choosing the right card• Know the facts

– Terms and conditions of credit card accounts differ– Be aware of “hidden” costs of card(s)

• Federal Truth in Lending Act– Requires card issuer to display the cost of credit card– Schumer Box: easy to read box format


A Schumer Box you May Expect To See

Annual Percentage Rate for purchases and balance transfers*

2.99% APR (.00819% daily periodic rate) on purchases and balance transfers until the first day of the billing cycle that includes the six (6) month anniversary date of the opening of your account. In the absence of the introductory rate, 12.99% APR(.03559% daily periodic rate) on purchases and balance transfers.**

Grace period for repayment of the balance for purchases

You will have a minimum of 25 days without a finance charge on new purchases if the total New Balance is paid in full each month by the statement closing date.

Method of computing the balance used in calculating finance charges for purchases

Average daily balance (including new purchases)

Annual fee $25

Minimum finance charge For each Billing Period that your Account is subject to a finance charge, a minimum total Finance Charge of $0.50 will be imposed.

Miscellaneous fees Cash advance fee: 2.5% of amount of the cash advance, but not less than $2.50.Late payment fee: $25 Over-the-credit-limit fee: $25 Returned check fee: $25


• Annual Percentage Rate (APR): interest rate charged for amount borrowed in terms of percentage per year

• Grace Period: amount of time allowed before finance charges (interest or cost of credit) are applied

Annual Percentage Rate for Purchases

Grace

Period for Purchases

Minimum Finance Charges

Balance

Calculation Method

for Purchases

Annual Fees

Transaction Fees for

Cash Advances

Late

Payment Fees

19.9%

Not less than

25 days

$.50 when a finance

charge at a periodic rate is charged

Average daily

balance method

(including new

purchases)

$20 per year

2% with a minimum fee of $3

$29

A Schumer Box and Credit Card Terms Explained


• Minimum Finance Charge: minimum amount charged for card use

• Balance Calculation Method: method used to determine balance including finance charges


Grace



Balance

Calculation Method

for Purchases

Annual Fees


Cash Advances

Late

Payment Fees

19.9%

Not less than

25 days

$.50 when a finance

charge at a periodic rate is

charged

Average daily

balance method

(including new

purchases)

$20 per year


$29



Balance Calculation Methods

Creditors use a number of ways to determine howCreditors use a number of ways to determine howinterest, often called finance charges, accumulateinterest, often called finance charges, accumulate• Average Daily Balance Method (including new purchases with

a grace period)– If the balance is not zero, interest is applied to new purchases

when they are made, if balance is zero, a grace period is allowed before interest is charged

• Average Daily Balance Method (including new purchases withno grace period)– Regardless of the previous month’s balance, interest is

appliedto new purchases as they are made


Balance Calculation Methods (continued)

• Previous Balance Method– Interest is only paid on the previous balance, not on

purchasesmade since the last payment

• Two-cycle Average Daily Balance (including new purchases)– This method should be avoided by consumers! – The interest is paid on the current balance as well as the

previous month’s balance, this leads to double finance charges

– A zero-balance must be held for two months in order to avoidcharges


• Annual Fees: yearly charge for credit card ownership• Cash Advance Transaction Fees: cash withdrawal

fees• Late Payment Fees: penalty fee for payments not

made by the due date


Grace



Balance

Calculation Method

for Purchases

Annual Fees


Cash Advances

Late

Payment Fees

19.9%

Not less than

25 days

$.50 when a finance

charge at a periodic rate is charged

Average daily

balance method

(including new

purchases)

$20 per year


$29



Opening a Credit Account

1. Applicant completes a credit application

2. Lender conducts a credit investigation

3. Applicant is given a credit rating

4. Lender accepts or denies the credit request

5. If accepted, applicant evaluates the credit card details (USE THE SCHUMER BOX!)

6. Applicant accepts or refuses credit terms


Understanding the Bill

• Minimum Payment Due: minimum amount to be paid – If this amount is paid and a balance is left on the

account, additional finance charges will be included in the following month’s balance

• Past Due Amount: the previous amount due which was not paid before the due date

• Due Date: the day by which the company requires a payment to be made

• New Balance: the total amount owed on a credit card


Understanding the Bill (continued)

• Credit Line: the maximum amount of charges allowed to an account

• Closing Date: last day for transactions to be reported on the statement

• Charges, Payments, and Credits: the transactions which occur with the use of a credit card

• Finance Charge: charges assessed for credit card use

Documents

Dr.R.BASKARAN,DCSE1 E-Commerce Dr.R.BASKARAN Senior Lecturer Department of Computer Science and Engineering, Anna University, Chennai – 600025. [email protected]