2Agenda Definition of electronic payment Security for e-payments Types of electronic payment methodsWhich electronic payments to accept?
3Payment MethodsPayment: The transfer of money from one individual or legal entity to anotherCashPersonal ChequesMoney orders (Bank note)Credit cardsDebit cards
4What is electronic payment Electronic payment methods are the payments made electronically rather than by paper (cash, checks, vouchers, etc)Allows global reach, high speed, low transaction cost and high automatibilityFor some people, these are payments linked to e-commerce transactions.This definition raises two problems1. Many of e-commerce transactions are neither paid or settled over the internet.reason: most e-commerce site uses credit cards that uses internet only on the initial stage.2. Electronic payments are broad.
5Security for E-payments If you are running an e-commerce site, you need to worry aboutAuthenticationAuthenticity of businessConfidentialityInformation privacyData IntegrityData must not be alteredAudit TrailData should be trailed
6Security for E-payments Standards for E-paymentsIt is a must to have a generally accepted protocol for securing e-payments such as SSL / SETImplemented protocolsSSL (Secure Sockets Layer)Security protocol used by web browser and web server to transmit sensitive information over the internetUses private key to encrypt dataSET (Secure Electronic Transaction)Built with SSLUses digital wallet that holds customers certificatesHow do you tell if a website is secure?S after httpLock symbol
7Secure Sockets Layer (SSL) Created by Netscape for secure message transmission.Uses public-key encryptionBrowser is the clientNetscape servers can be enabled for SSLOther servers can be enabled by installing the Netscape SSLRef program library
8Secure Socket Layers (SSL) protocol Certificate AuthorityEx) VerisignSecures credit card paymentsProvides 40 bit and 128 bit SSL EncryptionAuthenticates the business for customer confidenceVerisign verifies merchant by performing authentication procedures such asCheck to see if the business is legal entityIf organization has the right to use the domain nameVerifies the individual who requested SSL certificate
9Secure Electronic Transaction (SET) Visa and MasterCard developed SET specifically to handle electronic paymentsBased on cryptography and digital certificatesDigital certificates uniquely identify the parties to a transactionAn electronic credit cardRegistries for authenticationA digital signature is used to guarantee a sender’s identity
10Secure Electronic Transmission (SET) SET involves interaction among credit card holders, merchants, issuing banks, payment processing organizations, and public key certificate authorities so it’s much more secure than SSLSET EncryptionRequest is Sent toE-commerce ServerE-Commerce ServerVerifies TransactionPurchaseis RequestedMerchantSends Recordto BankTransactionis ApprovedBank CreditsMerchant’s Account
11The SET protocolThe SET protocol coordinates the activities of the customer,merchant, merchant’s bank, and card issuer. [Source: Stein]
12Secure Electronic Transaction (SET) Protocol SET is much more complexSuccess of SSLExpensive overheadSSL is essentially point-to-point between buyer and seller, and makes no explicit provisions for involving financial institutions.Success of SSL reduced the need for SETExpense of heavy computational overhead makes SET based system slow and difficult to use
13Types of Electronic Payment B2BSmall to large paymentsB2CSmall to medium paymentsCredit card transactionsMicropaymentsVery small payments
14Types of Electronic payments (B2B) Electronic checksPurchasing cardsElectronic letters of creditElectronic Funds TransferTransfer of fundsEx) ATM, Internet bankingElectronic Benefits TransferTransfer of benefitsEx) Debit card for food stampsB2B paymentsElectronic Funds TransferDesigned to transfer funds form one account to anotherInternet bankingElectronic Benefits Transfer
15Types of Electronic Payments (B2C) Electronic Payment Cards(credit, debit, charge)Smart Cards(phone cards, bank cards)P2P payments(paypal, c2it)Other payment methodsThe basic e-payment methods is electronic payment cards using credit cards which is similar to off-line methodsbut there are some innovative methods exist only on the internet.
16Electronic payment cards (1) Credit cardsMost popular online paymentConvenient for both merchant and customerQuicker payments 24/7Safest recommended methodLiability is limited by federal law to $50for unauthorized charge on credit cardIf you have an unauthorized charge on your credit card, under federal law your liability is limited to $50.In fact, some credit card issuers and web site operators say that under certain circumstances they will even pay this amount for you.
18Electronic payment cards (2) How credit card worksThe consumer enters credit card information into a form on the merchant’s website2.Real time - Server sends the transaction to the payment processing center for authorization, customer is notified for approval or disapproval.Non real time – Merchant checks authorization manually like they do at brick and mortar.3. Payment Processing center process the credit card information to merchant bank or 3rd party processor4. Funds are transferred from card holder’s bank to merchant bank
19Smart Card (1)A type of computer embedded chip card that stores and transacts encrypted data between users.Smart card are used in healthcare, banking, entertainment and transportation industries.Offers enhanced security, convenience and economic benefitsRechargeable stored value cardExamplesMondex in UKVisaCash in USStorage of encryption keysElectronic pursesUser profile portability
20Smart Card (2) Smart Card for E-Commerce Advantages Disadvantages Carry personal AccountsCredit and buying preferencesManage and control expenditures with automatic limits and reportingDisadvantagesCosts 2 to 7 times more than magnetic stripe cardsNeed a smart card readerCompanies such as IBM and Dell are already adding smart card readers into some of their corporate models
21Smart Card (3)NTT-DoCoMo, Japan’s leading communications company have tied up with coca-cola company and developed a mobile commerce platform (c-mode) that allow purchasing soft drinks using cell phones./imode/alliances/cmode.htmlHowever, what the three companies have created is a far more sophisticated user interface combining payment systems, coupons (advertising) and personal identification. That makes it "my i-mode CokeMachine" and moves the state-of-art from user's perspective. This is certainly important.
22P2P PaymentsPerson to person payments are newest and fastest growing e-payment schemes.Able to transmit funds to anyone with an addressex) PaypalFree to send money to anyoneOver 50 million account holders in 45 countriesState of the art security technologyBuyer protection up to $1,000 with no extra charge
23Types of Electronic Payments (Micropayments) Allows very small charges for goods and servicesVery small payments usually below $10Ex) Digital musicCredit cards or EFT are too expensiveCredit card charges 25 cents to 35 cents and 2 to 3 percent of purchase priceDifficult to allocate paymentHard to split between issuing bank, paying bank, card processor, and etc)New business model made possible by innovation of ITHard to allocate transactions of 1 cent or less
24Other E-payment methods Wireless payments“M-pay bill” from VodafoneE-checkElectronic version of paper checkE-chargeCharge purchases to local phone billPays bills using cell phonesSends electronic checks
25Accepting Electronic Payments (B2C) Merchant AccountPayment processing opened through a bankEx)Third Party ProcessorPayment processor that accepts credit cards on behalf of your companyEx)
26Merchant Account Advantages Disadvantages Increase credibility FlexibilityAble to sell any kind of products and servicesOwn shopping cartLow discount rateAverage 2-3%DisadvantagesDifficult to obtainExpensiveLarge set up fee, application fee, gateway fee, monthly statement fee and monthly minimum feeEx) 1stAmericanCardService: $185 start up fee, $9 statement fee and etc
27Third Party Processor Advantages Disadvantages Easy to obtain Small set up fee, no monthly fees, no gateway feesAccepts most credit card, debit card, checksLess administrative workDisadvantagesDon’t have public acceptanceMust use their shopping cart systemGives less confidence to purchaserLimited itemsPaypal restricted item’s listHigher transaction fees2checkout: 5.5% of sale amount plus 45 cents per saleDigibuy: 13.9% of sales amountThird Party payment processors can accept credit cards on behalf of your company
28Things to consider Monthly sales volume Types of products or services Low volume: Third party processorHigh volume: Merchant accountTypes of products or servicesInternational supportMulti-currencyMulti-languageMarketing assistance or reseller affiliates2checkout shopping mallYahoo! Shopping