1. Electronic Payment Systems
ITEC5611
Electronic Payment Systems

2. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

3. The Payment Revolution
Crucial Factors
Independence
Some e-payment systems require specialized software or hardware to make payment
Interoperability and portability
Security
Anonymity
Divisibility
Ease of use
Transaction fees
Regulations
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

4. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

5. Using Payments Cards Online
payment card
Electronic card that contains information that can be used for payment purposes
Three forms of payment cards:
Credit cards
Debit cards
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

6. Using Payments Cards Online
Processing Credit 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
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

7. Using Payments Cards Online
Processing Credit Cards Online
payment service provider (PSP)
A third-party service connecting a merchant’s EC systems to the appropriate acquirers. PSPs must be registered with the various card associations they support
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

8. Using Payments Cards Online
Key participants in processing credit card payments online include the following:
Acquiring bank
Credit card association
Customer
Issuing bank
Merchant
Payment processing service
Service provides connectivity among merchants, customers and financial network
Processor
Data center that processes credit-card transactions and settles funds to merchants
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

9. Using Payments Cards Online
Fraudulent Credit Card Transactions
Address Verification System (AVS)
Detects fraud by comparing the address entered on a Web page with the address information on file with cardholder’s issuing bank
Result in a number of false positive
Only available in US and Canada
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

10. Using Payments Cards Online
card verification number (CVN)
Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

11. Using Payments Cards Online
Fraudulent Credit Card Transactions
Additional tools used to combat fraud include:
Manual review
Negative files
check to see if customer’s transaction is matched against the file containing customer’s information
Card association payer authentication services
3D (3-domain) Secure
E.g. Verified by Visa, MasterCard SecureCode, JCB J/Secure
Require cardholders to register with the systems and merchants to adopt and support both existing systems and the new systems
Cardholder needs to have an additional password to authenticate him/herself
Merchant must also enroll itself to the program
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

12. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
smart card
An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card
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ITEC5611 Electronic Commerce Systems Implementation

13. ITEC5611 Electronic Commerce Systems Implementation
Exhibit 12.2 Smart Card
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ITEC5611 Electronic Commerce Systems Implementation

14. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
Types of Smart Cards
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
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
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

15. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
Applications of Smart Cards
Retail Purchases
e-purse
Smart card application that loads money from a card holder’s bank account onto the smart card’s chip
Common Electronic Purse Specification (CEPS)
Standards governing the operation and interoperability of e-purse offerings
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

16. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
Applications of Smart Cards
Transit Fares
To eliminate the inconvenience of multiple types of tickets used in public transportation, most major transit operators in the United States are implementing smart card fare-ticketing systems
E-Identification
Because they have the capability to store personal information, including pictures, biometric identifiers, digital signatures, and private security keys, smart cards are being used in a variety of identification, access control, and authentication applications
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

17. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
Applications of Smart Cards in Health Care
Storing vital medical information in case of emergencies
Preventing patients from obtaining multiple prescriptions from different physicians
Verifying a patient’s identity and insurance coverage
Speeding up the hospital or emergency room admissions process
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

18. ITEC5611 Electronic Commerce Systems Implementation
Smart Cards
Securing Smart Cards
Smart cards store or provide access to either valuable assets or to sensitive information
Because of this, they must be secured against theft, fraud, or misuse
The possibility of hacking into a smart card is classified as a “class 3” attack, which means that the cost of compromising the card far exceeds the benefits
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

19. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

20. Secure Electronic Transaction
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

21. Services Provided by SET
Secure communications channel among involved parties
Trust by using X.509 certs
Party privacy: parties will receive only the information that they are intended to receive
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ITEC5611 Electronic Commerce Systems Implementation

22. ITEC5611 Electronic Commerce Systems Implementation
SET Requirements
Provide confidentiality of payment and ordering information
Ensure the integrity of all transmitted data
Provide authentication that a cardholder is a legitimate user of a credit card account
Provide authentication that a merchant can accept credit card transactions through its relationship with a financial institution
Ensure the use of the best security practices and system design techniques to protect all legitimate parties in an e-commerce transactions
Create a protocol that neither depends on transport security mechanisms nor prevents their use
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ITEC5611 Electronic Commerce Systems Implementation

23. Secure Electronic Transaction
4, 6 3
5, 10, 11 2 7 9 1 12 8
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ITEC5611 Electronic Commerce Systems Implementation

24. SET Transaction Overview
Client opens an account
Client receives a certificate
Merchants have their own certs
The client places an order (C  M)
The merchant is verified (M  C)
The order and payment are sent (C  M)
The merchant requests payment authorization (M  PG)
Payment is approved (PG  I, I  A, I,A  PG)
The merchant receives authorization response (PG  M)
The merchant confirms the order (M  C)
The merchant provides goods or service (M  C)
The merchant requests payment (M  A)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

25. ITEC5611 Electronic Commerce Systems Implementation
Dual Signature
In SET, two messages for two intended recipients are sent in one message
Order Information (OI) from client to merchant -> not revealed to the bank
Payment Information (PI) from client to the bank -> not revealed to the merchant
DS = EKRc[H(H(PI)||H(OI))]
DS provides link btw OI and PI for the client
If merchant receives DS, H(PI), merchant can prove that client has sent purchase request (because merchant has OI).
If bank receives DS, H(OI), the bank can prove that client has request it to deduct money from client’s account (because the bank has PI).
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

26. ITEC5611 Electronic Commerce Systems Implementation
Stored-Value Cards
stored-value card
A card that has monetary value loaded onto it and that is usually rechargeable
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

27. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

28. ITEC5611 Electronic Commerce Systems Implementation
E-Micropayments
e-micropayments
Small online payments, typically under US $10
Companies with e-micropayment products:
BitPass (bitpass.com)
Paystone (paystone.com)
PayLoadz (payloadz.com)
Peppercoin (peppercoin.com)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

29. ITEC5611 Electronic Commerce Systems Implementation
Millicent
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

30. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

31. ITEC5611 Electronic Commerce Systems Implementation
E-Checking
e-check
A legally valid electronic version or representation of a paper check
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
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

32. ITEC5611 Electronic Commerce Systems Implementation
E-Checking
Benefits of e-check processing:
It reduces the merchant’s administrative costs by providing faster and less paper-intensive collection of funds
It improves the efficiency of the deposit process for merchants and financial institutions
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

33. ITEC5611 Electronic Commerce Systems Implementation
E-Checking
Benefits of e-check processing:
It speeds the checkout process for consumers
It provides consumers with more information about their purchases on their account statements
It reduces the float period and the number of checks that bounce because of insufficient funds (NSFs)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

34. Exhibit 12.3 Processing E-Checks with Authorize.Net
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

35. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

36. Electronic Bill Presentment and Payment
electronic bill presentment and payment (EBPP)
Presenting and enabling payment of a bill online. Usually refers to a B2C transaction
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

37. Exhibit 12.4 E-Bill Presentment
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

38. Electronic Bill Presentment and Payment
Types of E-Billing
Online banking
Biller direct
Bill consolidator
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

39. Electronic Bill Presentment and Payment
Advantages of E-Billing
Reduction in expenses related to billing and processing payments
Electronic advertising inserts can be customized to the individual customer
Reduces customer’s expenses
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

40. Exhibit 12.5 E-Billing Process for Single Biller
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

41. Exhibit 12.6 E-Billing Processes for Bill Consolidator
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

42. ITEC5611 Electronic Commerce Systems Implementation
Outline
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

43. ITEC5611 Electronic Commerce Systems Implementation
PayPal
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

44. Send money person to person
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ITEC5611 Electronic Commerce Systems Implementation

45. PayPal Website Payment
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ITEC5611 Electronic Commerce Systems Implementation

46. PayPal Website Payment (cont’d)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

47. PayPal Website Payment (cont’d)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

48. PayPal Website Payment (cont’d)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

49. ITEC5611 Electronic Commerce Systems Implementation
Receiving money
A merchant who wants to withdraw money from Paypal account must add bank account to Paypal first.
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

50. Paypal Virtual Terminal
It’s an online version of the credit card swipe machines used in stores. But it gives you added advantages:
Increase sales. Expand your business beyond the internet.
Save money. There’s no need to invest in expensive equipment.
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ITEC5611 Electronic Commerce Systems Implementation

51. ITEC5611 Electronic Commerce Systems Implementation
Paypal Sandbox
Go to
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ITEC5611 Electronic Commerce Systems Implementation

52. Paypal Sandbox (cont’d)
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ITEC5611 Electronic Commerce Systems Implementation

53. Paypal Sandbox (cont’d)
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ITEC5611 Electronic Commerce Systems Implementation

54. Paypal Sandbox (cont’d)
S. Kungpisdan
ITEC5611 Electronic Commerce Systems Implementation

55. Questions? Next lecture
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