MANAGEMENT INFORMATION SYSTEM

Third Year Information Technology

Part 10Electronic Payment System

Tushar B Kute,Department of Information Technology,Sandip Institute of Technology and Research Centre, Nashikhttp://www.tusharkute.com

WHAT IS ELECTRONIC PAYMENT? Is a system that permits online payment

between parties using an electronic surrogate of a financial tender

The electronic surrogate is backed by financial institutions and/or trusted intermediaries

The intent is to act as an alternative form of payment to the physical cash, cheque or other financial tender

ELECTRONIC PAYMENT SYSTEM

An e-commerce payment system facilitates the acceptance of electronic payment for online transactions. Also known as a sample of Electronic Data Interchange (EDI), e-commerce payment systems have become increasingly popular due to the widespread use of the internet-based shopping and banking.

In the early years of B2C transactions, many consumers were apprehensive of using their credit and debit cards over the internet because of the perceived increased risk of fraud.

E-PAYMENT SYSTEMS

There are numerous different payments systems available for online merchants. These include the traditional credit, debit and charge card but also new technologies such as digital wallets, e-cash, mobile payment and e-checks.

Another form of payment system is allowing a 3rd party to complete the online transaction for you. These companies are called Payment Service Providers (PSP).

E-PAYMENT SYSTEMS TYPES

E-PAYMENTS

CREDIT CARDS AND SMART CARDS

Over the years, credit cards have become one of the most common forms of payment for e-commerce transactions. In North America almost 90% of online B2C transactions were made with this payment type.

A Smartcard is similar to a credit card; however it contains an embedded 8-bit microprocessor and uses electronic cash which transfers from the consumers’ card to the sellers’ device. A popular smartcard initiative is the VISA Smartcard.

ELECTRONIC BILL PRESENTMENT AND PAYMENT

Electronic bill presentment and payment (EBPP) is a fairly new technique that allows consumers to view and pay bills electronically. There are a significant number of bills that consumers pay on a regular basis, which include: power bills, water, oil, internet, phone service, mortgages, car payments etc.

EBPP systems send bills from service providers to individual consumers via the internet. The systems also enable payments to be made by consumers, given that the amount appearing on the e-bill is correct.

CURRENT STATUS ePayment opportunities are growing albeit

slowly New players are entering ePayment

marketplace Variety of ePayment mechanisms and devices

- creating state of chaos Infrastructure for ePayment is complex and

expensive to deploy Lack of critical mass adoption and

acceptance Online payment is hard to implement globally

EPAYMENT IS STILL EVOLVING ...

New ePayment Solutions

Security Infrastructure

Business Realities

Authentication Models

Spa

Customer Profiles

Payment Types

EPAYMENT CHANNELS

Defined as ‘touch points’ where a payment transaction is originated or initiated

Can be executed through a variety of channels Internet based Kiosks Contactless or proximity sensors Mobile e.g. mobile phones, PDA

EPAYMENT INSTRUMENTS Defined as the medium in which the value is

recognised in a payment transaction

Card-based such as Credit and charge cards

buy now, pay later

Debit cards

buy now, pay now

Cash cards, stored-valued, e-cash buy now, prepaid or pay before

CREDIT CARDS Most widely used

banks able to leverage existing card infrastructure

appears ‘defacto’ online payment Largely unencrypted

‘card-not-present’ transactions processed without customer & merchant authentication

Charge back risk for merchants charge-back is when customer demands a

refund banks transfer liabilities of charge-backs

to the merchants merchants need to have a bond to cover

such charges

DEBIT CARDS

Direct electronic transfer of account - direct account debiting

Uses chip/smart eWallets

Digital signature to secure access

Connected to eBanking solution

DIGITAL CASH A system of purchasing cash and

storing the credits in consumer’s computer

Computerised stored value is used as a form of cash to be spent in small increments

A third party is involved in the payment transactions

Examples: Beenz, Billpoint, Paypal

CAZH

A project by ABN-Amro

A debit system that creates network between merchant and bank to allow customers pay for the goods by direct debit of customers’ bank account

Once customer has been authenticated by his/her bank, he/she can authorise the bank to pay the merchant on the goods purchase

Similar to Nets POS but in cyberspace

CASH CARD

Payment solution on a proprietary protocol that allows payment over the Internet

A digital/virtual wallet with prepaid credit-based/token-based payment system

Enables low-value electronic payments on the Internet

Limited distribution, proprietary solutions Needs to install card reader and download

free eWallet

ECHEQUE

A formatted email message that consists of payee name, amount, payment date, payer’s account number, and payer’s bank

Digital certificate and signature are used to secure the cheque so that the contents are not tampered with

A signed electronic cheque is exchanged between the parties’ financial institutions through automated clearing house

MOBILE WALLET Relatively new space exploited by telcos and

non-financial enterprises Provides ePurse functionality to replace card-

type payments Aggregating micro-payments onto the mobile

phone bill Can use mobile access device to authenticate

payer’s identity SIM card well placed to function and control

payment process and authentication

COMPONENTS OF ONLINE PAYMENT SYSTEM

Online Merchants

Consumer Payment Clearinghouses

Payment Enablers

• Payment Gateways

• Merchant Acquirers

• Shopping Cart Vendors

• Non-bank payment Processors

Competing Authenticatio

n Services

                        

EPAYMENT RISKS

Internet

Private network

Internet

Bank network

•Use of stolen card

•Credit card number or password stolen from computer

•Unauthorised access

• Information modified in transit

•Payment info stolen from merchant

•Masquerading as legitimate merchant

•Key info stolen by merchant staff

• Information modified in transit

• Information stolen

Buyer MerchantPayment gateway

60% of non-buyers said “credit card security,” the highest factor cited.

Factors that would convert non-buyers to buyers online?

Odyssey, 2000

58% of new Internet users said “better security,” the 3rd highest factor cited.

Factors that would motivate new users to purchase online?

Jupiter Research, May 2000

68% of Internet users said “hackers getting credit card number,” 2nd highest concern cited

Worries and concerns regarding online activities?

Pew Internet & Am Life Project, June 2000

47% of Internet users said “credit card security,” the 3rd highest barrier cited.

Barriers to online purchasing?Greenfield Online, 2000

79% of Internet users said “credit card security,” the number one cited barrier.

Barriers to online purchasing?Pricewaterhouse Coopers, 2000

85% of online shoppers said “secure transactions,” the highest cited feature.

Important features of online shopping sites?

Cyber Dialogue, 2000

88% of online shoppers said “guaranteed credit card security”, 2nd highest feature cited.

Features that will increase the likelihood to buy online?

Odyssey, 2000

ResultsQuestion AskedSurvey By

Research on online shopping

HOW CAN WE SECURE EPAYMENT? The Trust Principle

The parties to the transaction must trust each other

Buyer must believe that seller is legitimate and will deliver the goods

Buyer must believe that goods are as represented and are worth the price

Seller must believe that buyer is legitimate and will pay for the goods purchased

HOW CAN WE SECURE EPAYMENT?

The Security Principle Parties need a secure environment in

which to conduct the electronic transactions

Seller needs to protect the details of the transactions

Buyer needs to be certain that his/her information is securely handled and stored

Buyer needs to be certain that information is not stolen that it can be inappropriately used

EPAYMENT SOLUTIONS

Must provide security: resistance to fraud and online attacks

Reliable: highly available and accessible at all times

Cost effective: cost per transaction should be low even for micro-payment

Integrated and scaleable: interoperable amongst different systems, payment methods and multiple servers distributed across the Internet

Convenient and easy to use: should support several devices

Anonymity: should protect the identities of parties to the transactions and should not monitor the sources of finance

SECURING EPAYMENTS Identification and authenticate

the ability to verify both the transacting parties

Authorization the ability to validate the rightful owner

to the transaction Integrity and confidentiality

the ability to transmit the transaction securely

the ability to store the transaction properly

Accountability The ability to provide audit trail as

evidence in dispute Policies for sharing risks and liabilities

the mechanism to settle disputes/non-repudiation

AUTHENTICATION MODELS

Something you have and something you know – ATM card model

Known to the back-end (server), synchronize with each transaction using a one time random number – Secur-ID model

“Sign” each transaction – PKI-model

Tie into a real person – Biometrics

EPAYMENT TRANSACTION CYCLE

Buyer

Issu

ing

Bank

Merchant

Acqui

ring

Bank

Visa/Mastercard

Bills buyerPays bank

Orders goods

Deliver goods

Reimburses merchant

Voucher to Acquiring Bank

Transaction voucher to Issuing Bank

Issuing Bank pays Visa / Mastercard

Sends transaction voucher to Visa / Mastercard

Visa / Mastercard reimburses Acquiring Bank

1

2 745

3

6

8

9

SECURE SOCKETS LAYER (SSL)

A security protocol to protect sensitive data transmitted over the Internet

Uses encryption to protect the transmission of data

When SSL session starts, server sends key to the browser, which returns random key to the server

Ensures that data are not tampered with or stolen en route

SECURE ELECTRONIC TRANSFER - SET

Protocol by Visa and MasterCard released in 1996

3 party system - cardholder, merchant and bank using SET-enabled systems

Uses digital certificate to ensure cardholder is who he/she says he/she is or claims to be

Credit card details are invisible to merchants, protected by encryption for clearing bank