Lesson 18Electronic Payment

Systems

Overview

• Data Transaction Systems• Securing the Transaction• Real World Examples

Data Transaction Systems

• Stored Account Systems– Modeled after existing electronic payment

systems such as credit/debit card transactions– New way of shifting funds electronically over

the internet (Paving Cow Paths)

• Stored Value Payment Systems– Use bearer certificates much like hard cash– Bearer certificates reside within PCs or smart

cards

Stored Account Systems

• Uses existing infrastructure for transactions

• Actual monetary value never leaves bank

• Accounting in the future through clearing houses and settlement systems

• Hallmarks are:– High accountability – Traceability

Stored Account Systems(2)

• Payment systems have defined their own secure technologies

• 1995: $13 trillion, in 3 billion transactions by 4 clearing houses

• Fed Reserve Fedwire transfers $1 trillion/day

• Fraud exists now but risk management models in place

Stored Account Systems(3)

• Protocols for supporting credit card types of transactions have been defined and implemented for E-commerce– First Virtual’s Internet Payment System– Cyber Cash’s Secure Internet Payment System– Secure Electronic Transaction (SET)

• Many new technologies emerge daily

• Security and convenience will rule the market place--it’s a balancing act

Stored Value Payment Systems(SVPS)

• Attempts to replace cash with electronic equivalent….E-Cash– No More Cow Paths

• Instantaneous transfer of value, does not require bank approval

• Security stakes are much higher than stored account systems

• Attributes: absence of control and auditing

SVPS(2)

• Possible to counterfeit E-Cash

• Typically used in small-value transaction– Small value transaction market = $8

trillion

• Lack of privacy bothers some

• Finding new cow paths not easy

SVPS(3)

• Author says: “most exciting, innovative, and risk forms of accepting payment”

• Replaces currency with digital equivalent

• Value placed directly on hardware tokens such as PCs or Smart Cards

• Goal: have the advantages of hard currency systems over an electronic medium

Attributes of Hard Currency

ADVANTAGES• Not easily traceable• Instantaneous payment• No bank interference

DISADVANTAGES• Costly to transport• Costly to protect• Easily lost or stolen• Can be forged• Parties must be in

close proximity to exchange

SVPS Pros/ConsPros

• Instantaneous (no approval needed)

• Potentially Anonymous (traceability hard)

• Supports low-value payment

Cons• Secret key from one can be

used for many• Secret key extraction makes

counterfeit money indistinguishable for E-Cash

• SVPS must strike balance between privacy and tracking illicit activity

How E-Cash Works

• E-Cash stored in an electronic device, called a hardware token– Secure processor and non-volatile memory

• Consumers load money into token – Token’s value counter is incremented– Or Value loaded as register-based cash &

electronic coins

• Payment can be made on-line or off-line

E-Cash Online Payment

• Purchaser deals directly with seller’s hardware token device

• Bank must be an intermediary– Allows for traceability

• The H/W devices must be interoperable

Off-line Payment

• Buyer’s H/W token interfaces with seller’s device– IR, dial-up modem, or the Internet

• Sellers device increases by transaction amount• Buyers’s device decreases by transaction amount• Safeguards needed to prevent “counter” malfunction• E-Cash ultimately must be sold back to issuing bank

E-Cash Representation

• A value stored in a counter of a H/W token (aka register-based)

• From of cryptographic tokens called electronic coins

Register BasedBasic unit = 1 centToken cntr = 10000Token value = $100.00

E-Coin System“A Purse”Cents = count + digital signature$ = count + digital signature5$ = count + digital signatureToken value is sum of all

Securing E-Cash

• Security concerns for SV PS>> SAPS– Main reason: lack of traceability fraud

potential

• Main concern: potential to illegally add value to the H/W token

• Physical Attacks on H/W token

• Protocol based attack that mimics a paying device

Physical Attacks

Physical

• An attempt to alter non-volatile memory– Device needs to be shielded so its tamper

resistant – or device needs to be tamper evident

Protocol Attacks

Protocol

• Device counter illegally incremented by “fake” paying device– Secure authentication needed to ensure “fakes”

don’t work– Best way is for both devices to share a symmetric

cryptographic key– All devices do not use a master key– Secret key = master key + device unique ID

Protocol Attacks(2)

• Key must be resistant to replay attacks– Wiretap captures key and “replays” the

session– Challenge/Response systems can thwart

replay attacks

• Gives motive for the token bearer to recover secret key– Greed is a powerful sin

Alternative Approach• PKE is an alternate

– Compromise of public key will not allow reconstruction of secret key

– Response to challenge is digital signature

• Disadvantage is that token cannot contain public keys for all paying devices

• Advantage is ability to prove that accumulated value is legit– Digital signatures from paying devices authorize the

accumulated values

Securing the TransactionWEB Protocols

• SSL: provides secure channel between Web clients and Web servers– Layered approach--remember protocol

stack

– Secures channel by providing end-to-end encryption of the data

– Prevents “easy” packet sniffing

• S-HTTP: application level protocol

Protocol and Security: SSL

HTTP

TCP

IP

NOT SECURE

SSL

TCP

IP

HTTP FTPSMTP

SECURE

Protocol and Security: SHTTP

HTTP

TCP

IP

NOT SECURE SECURE

HTTP

TCP

IP

Security

Securing the Transaction(2)

• Certificate Authority (CA)– Endorses identity of the Web server (or

user)

– No assurance of the quality of Web content

– Users implicitly trust any sites that come loaded in their browser

The Little Yellow Lock = Warm Fuzzy

Secure Payment Protocols (SPP) vs WEB Protocols

• SPPs provide a method to assure a merchants payment

• SPPs provide consumers assurance of credit card confidentiality

• Web protocols (like SSL) leave payment details up to the merchant

• Web protocols do not assure merchant will safeguard credit card number

Real World Examples

• First Virtual• Cybercash• Secure Electronic Transactions (SET)

• Others

First Virtual(FV)

• WWW.fv.com--circa 1994

• Does not use cryptography or secure communications

• Based on exchange of email messages and customer honesty

• Protocol I simple

• 1996: 180,000 buyers, 2650 merchants

FV IN ACTION(1)

Customer FV Merchant

First Value

1. Establish acct-$2with VISA/MC

2. Virtual PIN

3. Request Product

4. Send VPIN?

5. VPIN SENT

0. FV Merchant Setup

6. VPIN, Transactionvia email

FV IN ACTION(2)

Customer FV Merchant

First ValueSEVERAL DAYSLATER

1. TransactionConfirmation?

2. Yes, No, Fraud

3. MC/VISA Charge

3. Or Returnproduct

CyberCash

• Cybercash is a downloadable applications software

• Consumers must generate public/private key pair based on RSA encryption technology

• Merchants must also install CyberCash Library

• Software free to stimulate acceptance

• Future: could be integrated into browsers

• More to come…CyberCoin, and E-Cash Soln

CyberCash(2)

• Uses Cryptography to protect transaction data during a purchase (does not use SSL)

• Provides a secure protocol for credit card purchases over the internet

• Uses existing back-end credit card infrastructure for settling payment

• Payment details of credit card transaction are specified and implemented in the protocol

CyberCash(3)Merchant’s Perspective

• There is no separate back-office system for batch processing card transaction

• Payment assured for each transaction before product sold– Much like point-of-sale(POS) credit card

transactions in physical stores

CyberCash(4)

• Credit card number is protected--even from merchants

• Card number encrypted with CyberCash public key

• Only consumer, cybercahs and bank sees the credit card number

CYBERCASH IN ACTIONCustomer Merchant

CYBERCASH

BANKBANK

1. RegisterCredit Card

2. Go E-Shopping, Request Product

3. Invoice Sent5. Send Payment Info

4a. Select Cybercash Pay

button in browser

4b. Select Credit card from

E-wallet

4c. Encrypt payment

info with CyberCash Public Key

4d. Digitally Sign Payment

info

6a. Strip OrderForm6b. Digitally SignInfo

CYBERCASH IN ACTIONCustomer Merchant

BANKCard Holder BANK

2. Go E-Shopping, Request Product

3. Invoice Sent5. Send Payment Info

8. Decrypt payment info & verify signatures

Bank EDI

9. Brokering

9. Brokering

CYBERCASH

7. Transmit Payment info

10. Approval/Deny

20 SECONDS TOTAL

Secure Electronic Transaction (SET)

• SET is an emerging open standard for secure credit card payments over the internet

• Created by Mastercard and Visa

• Specifies the mechanism for securely processing internet-based credit card orders

• Does not specify the implementation

• Does not specify the shopping or order process for ordering goods, payment selection, and the platform or security procedures

SET Security Assurances

• Confidentiality -- secures payment info

• Data integrity -- uses digital signatures

• Client Authentication -- uses digital certificates: identity plus public key

• Merchant authentication -- uses digital certificate

SET Steps

1. The customer opens an account with a

certificate authority.2. An issuing authority, like a bank, issues a

digital certificate authenticating a customer.

3. Other third-party merchants also receive

their digital certificate when they open their

transaction accounts.

4. The customer places an order.

SET Steps

5. Customer verifies the merchant’s digital

certificate .

6. Customer sends encrypted purchase details.

7. When the merchant receives the order, the

customer’s own digital certificate is checked

for authenticity as well.

SET Steps

8. The merchant then returns its own certificate, order details, customer payment information, and the bank’s digital certificate back to the bank to be used to authenticate the transaction.

9. The bank will then verify the merchant certificate

and order information.

10. The bank will digitally sign and return an

authorization back to the merchant.

11. When these transactions are finished, the order is

completed.

SET IN ACTIONCustomer Merchant

BANK

2. Buyer Opens Acct

3. Buyer receivesDigital Certificate

1. Merchant receivesDigital Certificate

4. Place Order

5. Merchant Certificate Sent

6. Send encrypted purchase details w/ Certificate

7. Sends order to Bank w/customer payment info & digital certificate

SET IN ACTIONBuyer Merchant

BANK

2. Buyer Opens Acct

3. Buyer receivesDigital Certificate

9. Bank digitallysigns & sends authto merchant

4. Place Order

5. Merchant Certificate Sent

6. Send encrypted purchase details w/ Certificate

7. Sends order to Bank w/customer payment info & digital certificate

8. Bank verifies merchantcertificate and order info

10. ORDER COMPLETE

SET Summary

• Large industry backing

• Supports credit card transactions on-line

• Does not support debit card payments

• Does not address stored-value payment solutions

• Does not use SSL, but it could

• Implementations: – Cybercash– RSA Data Security’s: S/PAY

Other Examples

• DigiCash’s e-cash: stored-value cryptographic coin system

• CyberCoin--CyberCash’s payment system for on-line commerce– Designed for small-value payments

• Smart Cards– Conditional Access for Europe (CAFÉ)– Mondex– Visa Cash

Summary

• Data Transaction Systems– Stored Account Systems– Stored Value Payment Systems

• Securing the Transaction– SSL, S-HTTP and Secure Payment Protocols (SPP)

• Real World Examples– FV, CyberCash, SET, E-Cash, and others