1. Electronic Commerce I. Secured Electronic Payment Systems

2. Electronic Payments

3. 3 Payments, Protocols and Related Issues Payment Cards (credit, debit, charge) Electronic Cash and Micropayments Electronic Fund Transfer on the Internet Electronic Check Systems

4. 4 The E-Payment Chain internet merchant merchant acquirer gatewaysissuer banks touch point WEB POS Telephone Wireless ATM settlement agent

5. 5 There are three basic configurations for processing online payments used by merchants: Own the payment software Use a point of sale system (POS) operated by an acquirer Use a POS operated by a payment service provider  payment service provider (PSP) A third-party service connecting a merchant’s EC system to the appropriate acquiring bank or financial institution. PSPs must be registered with the various card associations they support

6. 6 payment cards Electronic cards that contain information that can be used for payment purposes Three forms of payment cards: 1.Credit cards 2.Debit cards 3.Charge cards

7. 7 1. Electronic Credit Card System on the Internet The Players: Cardholder Merchant (seller) Issuer (your bank) Acquirer (merchant’s financial institution, acquires the sales slips) Brand (VISA, Master Card)

8. 8 The process of using credit cards offline A cardholder requests the issuance of a card brand (like Visa and MasterCard) to an issuer bank in which the cardholder may have an account. 1. Electronic Credit Card System on the Internet (cont.) The authorization of card issuance by the issuer bank, or its designated brand company, may require customer’s physical visit to an office. A plastic card is physically delivered to the customer’s address by mail. The card can be in effect as the cardholder calls the bank for initiation and signs on the back of the card. The cardholder shows the card to a merchant to pay a requested amount. Then the merchant asks for approval from the brand company. Upon the approval, the merchant requests payment to the merchant’s acquirer bank, and pays fee for the service. This process is called a “capturing process” The acquirer bank requests the issuer bank to pay for the credit amount.

9. 9 Cardholder Merchant 2. show credit card Card Brand Company 3.Payment authorization payment data Issuer Bank Cardholder Account Acquirer Bank Merchant Account account debit data payment data Credit Card Procedure (offline and online) 9 5. payment data 6. amount transfer 1. Issue card 4. Capture

10. 10 PROCESSING CARDS ONLINE authorization Determines whether a buyer’s card is active and whether the customer has sufficient funds settlement Transferring money from the buyer’s to the merchant’s account Electronic Credit Card System on the Internet (cont.)

11. 11 2. Debit Cards The amount is drawn immediately from your bank account No transaction fee, so it is preferred by merchants Less protection than credit card purchases Preferred for B2B over credit cards as it saves transaction fees

12. 12 3. Electronic Cash and Micropayments stored-value cards A card that has monetary value loaded onto it and that is usually rechargeable An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card

13. 13 E-Cash Smart Cards The concept of e-cash is used in the non-Internet environment Plastic cards with magnetic stripes (old technology) Includes IC chips with programmable functions on them which makes cards “smart” Recharge the card only at designated locations, such as bank office. Future: recharge at your PC or Mobile phone e.g. Mondex & VisaCash

14. 14 contact card A smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip Used to access buildings and for paying in buses and other transportation systems: Bus, subway and toll card in many cities contactless (proximity) card A smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader Good for a range of up to 100 feet, and can be used for tolling moving vehicles at gates: Pay toll without stopping (e.g. Highway 91 in California) TYPES OF SMART CARDS Smart Cards

15. 15 Can be recharged at home through the Internet Money is drawn from the card owner bank account and is transferred to the receiver's bank account Can be used on the Internet as well as in a non- Internet environment Ceiling of Stored Values No transfer from one country to another To prevent the abuse of stored values in money laundry Multiple Currencies Can be used for cross border payments Smart card-based e-cash

16. 16 smart card reader Activates and reads the contents of the chip on a smart card, usually passing the information on to a host system smart card operating system Special system that handles file management, security, input/output (I/O), and command execution, and provides an application programming interface (API) for a smart card System Requirements Smart Cards

17. 17 Stored Value Cards and E-Cash Digi-Cash is like an electronic bill but has a conflict with the role of central bank Mondex, VisaCash applied this approach (a variance of the debit card) CyberCash has commercialized a debit card named CyberCoin as a medium of micropayments on the Internet Examples of e-Payment Cards:

18. 18 Electronic Money DigiCash (electronic bills) The analogy of paper money or coins Expensive, as each payment transaction must be reported to the bank and recorded Conflict with the role of central bank’s bill issuance Illegal; DigiCash is not supposed to issue more than an electronic gift certificate even though it may be accepted by a wide number of member stores

19. 19 Mondex Makes Shopping Easy Shopping with Mondex Adding money to the card Payments in a new era of electronic shopping Paying on the Internet

20. 20 Stored Value Cards 4. Electronic Micropayments No issuance of money – prepaid card Debit card — a delivery vehicle of cash in an electronic form Either anonymous or onymous Advantage of an anonymous card: the card may be given from one person to another Also implemented on the Internet without employment of an IC card The electronic purse (or e-wallet) is stored on the PC (doesn’t have to use smart cards) CyberCash issued CyberCoin for micropayments: Small online payments, typically under $10

21. 21 5. Electronic Fund Transfer (EFT) on the Internet An Architecture of Electronic Fund Transfer on the Internet Internet Payer Cyber Bank Bank Cyber Bank Payee Automated Clearinghouse VAN Bank VAN Payment Gateway Payment Gateway ACH

22. 22 5. Electronic Fund Transfer (EFT) on the Internet Automated Clearing House (ACH) Network A nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions

23. 23 5. Electronic Check Systems Check Signature Remittance Invoice Secure Envelope Remittance Check Signature Certificate Remittance Secure Envelope Certificate Endorsement Certificate Signature “Card” Signature “Card” Workstation Mail statement E-Check line item Payer’s Bank Debit account Payee’s Bank Credit account E- Mail WWW ACH ECP Clear Check Deposit check PayerPayee E-mail Account Receivable A legally valid electronic version or representation of a paper check

24. 24 5. Electronic Check Systems (cont.) E-Checks: A legally valid electronic version or representation of a paper check Example : SafeCheck Used mainly in B2B Electronic Checkbook Counterpart of electronic wallet To be integrated with the accounting information system of business buyers and with the payment server of sellers To save the electronic invoice and receipt of payment in the buyers and sellers computers for future retrieval

25. 25 Payer’s checkbook agent Payee’s check-receipt agent PayerPayee Issue a check Receipt A/C DB A/C DB control agent of payer’s bank control agent of payee’s bank clearing Checkbook, screened result Request of screening check issuance present report payer’s bankpayee’s bank Internet The Architecture of SafeCheck 25 ACH

26. 26 Few Security Tips Don’t reveal your online Passcode to anyone. If you think your online Passcode has been compromised, change it immediately. Don’t walk away from your computer if you are in the middle of a session. Once you have finished conducting your banking on the internet, always sign off before visiting other internet sites. If anyone else is likely to use your computer, clear your cache or turn off and re-initiate your browser in order to eliminate copies of web pages that have been stored in your hard drive. Bank of America strongly recommends that you use a browser with 128-bit encryption to conduct secure financial transactions over the internet.