1. © Prentice Hall, 2000 Chapter 8 Electronic Payment Systems and Security 1

2. 2 © Prentice Hall, 2000 Learning Objectives zDescribe typical electronic payment systems for EC zIdentify the security requirements for safe electronic payments zDescribe the typical security schemes used to meet the security requirements zIdentify the players and procedures of the electronic credit card system on the Internet zDiscuss the relationship between SSL and SET protocols

3. 3 © Prentice Hall, 2000 zDiscuss the relationship between electronic fund transfer and debit card zDescribe the characteristics of a stored value card zClassify and describe the types of IC cards used for payments zDiscuss the characteristics of electronic check systems Learning Objectives (cont.)

4. 4 © Prentice Hall, 2000 SSL Vs. SET: Who Will Win? zA part of SSL (Secure Socket Layer) is available on customers’ browsers yit is basically an encryption mechanism for order taking, queries and other applications yit does not protect against all security hazards yit is mature, simple, and widely use zSET ( Secure Electronic Transaction) is a very comprehensive security protocol yit provides for privacy, authenticity, integrity, and, or repudiation yit is used very infrequently due to its complexity and the need for a special card reader by the user yit may be abandoned if it is not simplified/improved

5. 5 © Prentice Hall, 2000 Payments, Protocols and Related Issues zSET Protocol is for Credit Card Payments zElectronic Cash and Micropayments zElectronic Fund Transfer on the Internet zStored Value Cards and Electronic Cash zElectronic Check Systems

6. 6 © Prentice Hall, 2000 zSecurity requirements Payments, Protocols and Related Issues (cont.) yAuthentication: A way to verify the buyer’s identity before payments are made yIntegrity: Ensuring that information will not be accidentally or maliciously altered or destroyed, usually during transmission yEncryption: A process of making messages indecipherable except by those who have an authorized decryption key yNon-repudiation: Merchants need protection against the customer’s unjustifiable denial of placed orders, and customers need protection against the merchants’ unjustifiable denial of past payment

7. 7 © Prentice Hall, 2000 Security Schemes zSecret Key Cryptography (symmetric) Scrambled Message Original Message Sender Internet Scrambled Message Key sender (= Key receiver ) Encryption Original Message Receiver Key receiver Decryption

8. 8 © Prentice Hall, 2000 zPublic Key Cryptography Sender Original Message Scrambled Message Public Key receiver Original Message Receiver Private Key receiver Internet Security Schemes (cont.) Message Sender Original Message Scrambled Message Private Key sender Original Message Receiver Public Key sender Internet Digital Signature

9. 9 © Prentice Hall, 2000 zDigital Signature A digital signature is attached by a sender to a message encrypted in the receiver’s public key The receiver is the only one that can read the message and at the same time he is assured that the message was indeed sent by the sender Sender encrypts a message with her private key Any receiver with senders public key can read it Security Schemes (cont.) yAnalogous to handwritten signature

10. 10 © Prentice Hall, 2000 zCertificate Name : “Richard” key-Exchange Key : Signature Key : Serial # : 29483756 Other Data : 10236283025273 Expires : 6/18/96 Signed : CA’s Signature Security Schemes (cont.) yIdentifying the holder of a public key (Key- Exchange) yIssued by a trusted certificate authority (CA)

11. 11 © Prentice Hall, 2000 zCertificate Authority - e.g. VeriSign RCA BCA GCA CCAMCA PCA RCA : Root Certificate Authority BCA : Brand Certificate Authority GCA : Geo-political Certificate Authority CCA : Cardholder Certificate Authority MCA : Merchant Certificate Authority PCA : Payment Gateway Certificate Authority Hierarchy of Certificate Authorities Certificate authority needs to be verified by a government or well trusted entity ( e.g., post office) Security Schemes (cont.) yPublic or private, comes in levels (hierarchy) yA trusted third party services yIssuer of digital certificates yVerifying that a public key indeed belongs to a certain individual

12. 12 © Prentice Hall, 2000 Electronic Credit Card System on the Internet zThe Players yCardholder yMerchant (seller) yIssuer (your bank) yAcquirer (merchant’s financial institution, acquires the sales slips) yBrand (VISA, Master Card)

13. 13 © Prentice Hall, 2000 zThe 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. 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.

14. Cardholder Merchant credit card Card Brand Company Payment authorization, payment data Issuer Bank Cardholder Account Acquirer Bank Merchant Account account debit data payment data Credit Card Procedure (offline and online) 14 payment data amount transfer © Prentice Hall, 2000

15. Secure Electronic Transaction (SET) Protocol 1. The message is hashed to a prefixed length of message digest. 2. The message digest is encrypted with the sender’s private signature key, and a digital signature is created. 3. The composition of message, digital signature, and Sender’s certificate is encrypted with the symmetric key which is generated at sender’s computer for every transaction. The result is an encrypted message. SET protocol uses the DES algorithm instead of RSA for encryption because DES can be executed much faster than RSA. 4. The Symmetric key itself is encrypted with the receiver’s public key which was sent to the sender in advance. The result is a digital envelope. 15 zSender’s Computer © Prentice Hall, 2000

16. Sender’s Computer Sender’s Private Signature Key Sender’s Certificate + + Message + Digital Signature  Receiver’s Certificate Encrypt Symmetric Key Encrypted Message  Receiver’s Key-Exchange Key Encrypt Digital Envelope  Message Message Digest  16 © Prentice Hall, 2000

17. 5. The encrypted message and digital envelope are transmitted to receiver’s computer via the Internet. 6. The digital envelope is decrypted with receiver’s private exchange key. 7. Using the restored symmetric key, the encrypted message can be restored to the message, digital signature, and sender’s certificate. 8. To confirm the integrity, the digital signature is decrypted by sender’s public key, obtaining the message digest. 9. The delivered message is hashed to generate message digest. 10. The message digests obtained by steps 8 and 9 respectively, are compared by the receiver to confirm whether there was any change during the transmission. This step confirms the integrity. zReceiver’s Computer Secure Electronic Transaction (SET) Protocol (cont.) 17 © Prentice Hall, 2000

18. Receiver’s Computer Decrypt Symmetric Key Encrypted Message  Sender’s Certificate + + Message compare  Digital Envelope Receiver’s Private Key-Exchange Key  Decrypt Message Digest Digital Signature Sender’s Public Signature Key  Decrypt Message Digest  18 © Prentice Hall, 2000

19. Entities of SET Protocol in Cyber Shopping IC Card Reader Customer x Customer y With Digital Wallets Certificate Authority Electronic Shopping Mall Merchant AMerchant B Credit Card Brand Protocol X.25 Payment Gateway 19 © Prentice Hall, 2000

20. 20 © Prentice Hall, 2000 SET Vs. SSL Secure Electronic Transaction (SET) Secure Socket Layer (SSL) ComplexSimple SET is tailored to the credit card payment to the merchants. SSL is a protocol for general- purpose secure message exchanges (encryption). SET protocol hides the customer’s credit card information from merchants, and also hides the order information to banks, to protect privacy. This scheme is called dual signature. SSL protocol may use a certificate, but there is no payment gateway. So, the merchants need to receive both the ordering information and credit card information, because the capturing process should be initiated by the merchants.

21. 21 © Prentice Hall, 2000 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

22. 22 © Prentice Hall, 2000 Debit Cards zA delivery vehicle of cash in an electronic form zMondex, VisaCash applied this approach zEither anonymous or onymous zCyberCash has commercialized a debit card named CyberCoin as a medium of micropayments on the Internet

23. 23 © Prentice Hall, 2000 Financial EDI zIt is an EDI used for financial transactions yEDI is a standardized way of exchanging messages between businesses yEFT can be implemented using a Financial EDI system zSafe Financial EDI needs to adopt a security scheme used for the SSL protocol zExtranet encrypts the packets exchanged between senders and receivers using the public key cryptography

24. 24 © Prentice Hall, 2000 Electronic Cash and Micropayments zSmart Cards yThe concept of e-cash is used in the non-Internet environment yPlastic cards with magnetic stripes (old technology) yIncludes IC chips with programmable functions on them which makes cards “smart” yOne e-cash card for one application yRecharge the card only at designated locations, such as bank office or a kiosk. Future: recharge at your PC ye.g. Mondex & VisaCash

25. 25 © Prentice Hall, 2000 Mondex Makes Shopping Easy zShopping with Mondex zAdding money to the card zPayments in a new era of electronic shopping zPaying on the Internet

26. 26 © Prentice Hall, 2000 Electronic Money zDigiCash yThe analogy of paper money or coins yExpensive, as each payment transaction must be reported to the bank and recorded yConflict with the role of central bank’s bill issuance yLegally, 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

27. 27 © Prentice Hall, 2000 zStored Value Cards Electronic Money (cont.) yNo issuance of money yDebit card — a delivering vehicle of cash in an electronic form yEither anonymous or onymous yAdvantage of an anonymous card xthe card may be given from one person to another yAlso implemented on the Internet without employment of an IC card

28. 28 © Prentice Hall, 2000 zSmart card-based e-cash yCan be recharged at home through the Internet yCan be used on the Internet as well as in a non- Internet environment zCeiling of Stored Values yTo prevent the abuse of stored values in money laundry yS$500 in Singapore; HK$3,000 in Hong Kong zMultiple Currencies yCan be used for cross border payments Electronic Money (cont.)

29. 29 © Prentice Hall, 2000 Contactless IC Cards zProximity Card yUsed to access buildings and for paying in buses and other transportation systems yBus, subway and toll card in many cities zAmplified Remote Sensing Card yGood for a range of up to 100 feet, and can be used for tolling moving vehicles at gates yPay toll without stopping (e.g. Highway 91 in California)

30. 30 © Prentice Hall, 2000 Electronic Check Systems Check Signature Remittance Invoice Secure Envelope Remittance Check Signature Certificate Remittance Secure Envelope Certificate Endorsement Certificate Signature “Card” Signature “Card” Workstation Mall 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 Procedure of Financial Service Technology Consortium Prototype

31. 31 © Prentice Hall, 2000 zElectronic Checkbook Electronic Check Systems (cont.) yCounterpart of electronic wallet yTo be integrated with the accounting information system of business buyers and with the payment server of sellers yTo save the electronic invoice and receipt of payment in the buyers and sellers computers for future retrieval yExample : SafeCheck yUsed mainly in B2B

32. 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 32 © Prentice Hall, 2000

33. 33 © Prentice Hall, 2000 Integrating Payment Methods zTwo potential consolidations: yThe on-line electronic check is merging with EFT yThe electronic check with a designated settlement date is merging with electronic credit cards zSecurity First Network Bank (SFNB) yFirst cyberbank yLower service charges to challenge the service fees of traditional banks zVisa yVisaCash is a debit card yePay is an EFT service

34. 34 © Prentice Hall, 2000 How Many Cards are Appropriate? An onymous card is necessary to keep the certificates for credit cards, EFT, and electronic checkbooks The stored value in IC card can be delivered in an anonymous mode Malaysia’s Multimedia Supper Corridor project pursues a One-Card system Relationship Card by Visa is also attempting a one card system

35. 35 © Prentice Hall, 2000 Five Security Tips zDon’t reveal your online Passcode to anyone. If you think your online Passcode has been compromised, change it immediately. zDon’t walk away from your computer if you are in the middle of a session. zOnce you have finished conducting your banking on the Internet, always sign off before visiting other Internet sites. zIf 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. zBank of America strongly recommends that you use a browser with 128-bit encryption to conduct secure financial transactions over the Internet.

36. Managerial Issues zSecurity solution providers can cultivate the opportunity of providing solutions for the secure electronic payment systems zElectronic payment system solution providers can offer various types of electronic payment systems to electronic stores and banks zElectronic stores should select an appropriate set of electronic payment systems zBanks need to develop cyberbank services to be compatible with the various electronic payment system zCredit card brand companies need to develop an EC standard like SET, and watch the acceptance by customers zSmart card brand should develop a business model in cooperation with application sectors and banks zCertificate authority needs to identify the types of certificate to provide 36 © Prentice Hall, 2000