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
2001 Daniel L. Silver 3
OutlineOutline
Trandition Payment MethodsTrandition Payment Methods E-Payment MethodsE-Payment Methods
2001 Daniel L. Silver 4
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
2001 Daniel L. Silver 5
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
2001 Daniel L. Silver 6
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?
2001 Daniel L. Silver 7
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
2001 Daniel L. Silver 8
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
2001 Daniel L. Silver 9
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
2001 Daniel L. Silver 10
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!
2001 Daniel L. Silver 11
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
2001 Daniel L. Silver 12
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
2001 Daniel L. Silver 13
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
2001 Daniel L. Silver 14
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
2001 Daniel L. Silver 15
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
2001 Daniel L. Silver 16
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
2001 Daniel L. Silver 17
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 ?
2001 Daniel L. Silver 18
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
2001 Daniel L. Silver 19
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?
2001 Daniel L. Silver 20
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
2001 Daniel L. Silver 21
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
THE ENDTHE END
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