Figure 15.1 Conventional Cryptography KEY ENCRYPT DECRYPT SIGNER RECIPIENT PLAINTEXT CIPHERTEXT PLAINTEXT

Figure 15.2 Asymmetric Cryptography PUBLIC KEY PRIVATE KEY ENCRYPT DECRYPT SIGNER RECIPIENT PLAINTEXT CIPHERTEXT PLAINTEXT

+ Figure 15.3 Message Digest HASH FUNCTION DIGEST DIGEST SAME? PLAINTEXT PLAINTEXT PLAINTEXT DIGEST HASH FUNCTION

Encrypt Decrypt Figure 15.4 Digitally Signed Document Plaintext Function One-way Hash Step 4 Plaintext Step 1 One-way Hash Function Message Digest Step 6 Verify? Message Digest Message Digest Signature Encrypt Decrypt Step 2 Step 3 Step 5 PUBLIC KEY PRIVATE KEY

Step 1: Signer uses one-way hash function to create message digest from plaintext. Step 2: Singer encrypts message digest with private key to create signature. Step 3: Signer sends plaintext and signature to recipient. Step 4: Recipient uses one-way has function to create message digest from plaintext. Step 5: Recipient decrypts signature with public key to create message digest. Step 6: Recipient compares message digest generated by one-way hash function to message digest generated by public key.

Figure 15.5 Certificate Authority Signer Step 2 Certificate Authority PUBLIC KEY Request Certificate Step 3 Issue CA Certificate PRIVATE KEY This is signer’s public key Step 1 PUBLIC KEY Sign (Private Key) Isl Certificate Authority Step 4 Step 6 Verify? Step 5 Signature Signature + + Plaintext Plaintext

Step 1: Signer creates its own public key and private key. Step 2: Signer requests certificate from certification authority (CA). Step 3: CA issues a certificate of signer’s public key, signed by CA’s private key. Step 4: Singer uses one-way hash function to create message digest from plaintext (Step 1 from Diagram 14.4) and encrypts message digest with private key to create signature (Step 2 from Diagram 15.4). Step 5: Signer sends plaintext and signature to recipient (Step 3 form Diagram 15.4). Step 6: Recipient uses one-way hash function to create message digest from plaintext (Step 4 from Diagram 15.4), decrypts signature with public key to create message digest (Step 5 from Diagram 15.4), and compares the two message digests (Step 6 from Diagram 15.4).

CA 1 2 3 4 Figure 15.6 SSL Consumer Web Merchant Root CA Cert installed in browser CA cert for Merchant Sig 3 Merchant Cert to Consumer Browser Consumer Web Merchant 4 Symmetric key encrypted with Merchant public key to encrypt communications

Figure 19.1 Sight Draft for Documentary Collection At Sight Any City, Ks. May 2, 1997 Pay to the order of Seller Ten Thousand and no/100 U.S. Dollars Through Banco di Roma Buer Seller Any City, Italy Exporter

Figure 19.3 Issuing the Letter of Credit Issuing Bank Beneficiary’s Bank 3. Issues Letter of Credit 2. Applies for Letter of Credit 4. Informs Seller Letter of Credit Has Been Issued 5. Goods Applicant/ Purchaser Beneficiary/ Seller 1. Contract Calling for Payment by Letter of Credit

Figure 19.4 Payment by Letter of Credit Issuing Bank Beneficiary’s Bank 3. Documents Evidencing Shipment 4. Payment 2. Documents Evidencing Shipment 6. Payment 5. Reimbursement Applicant/ Purchaser Beneficiary/ Seller 1. Shipment of Goods

Figure 27.1 Direct Presentment Payor Bank Step 2 Step 3 Step 1 Payee Payee Step 1: Payee provides goods and services to payor; payor gives check to payee. Step 2: Payee presents check to payor bank; payor bank gives cash to payee. Step 3: Payor bank removes funds from payor’s account.

Figure 27.2 Clearinghouse Collection Step 3 Step 3 Bank 1 Clearinghouse Bank 2 Step 2 Step 2 Step 4 Step 1 Step 1 Step 4 Bank 1 Customer Bank 2 Customer Step 1: Customers deposit checks at their banks. Their banks credit their accounts. Step 2: Banks send to the clearinghouse checks they have received for deposit. Clearinghouse credits banks for those checks. Step 3: Clearinghouse sends to banks checks drawn on them. Clearinghouse debits banks for those checks. Step 4: Banks debit customer accounts for checks received from clearinghouse.

Figure 27.3 Direct-Send Collection S.F. Bank N.Y. Bank Step 3 Step 2 Step 4 Step 2 Step 1 Step 4 S.F. Payor N.Y. Payee S.F. Payee N.Y. Payor Step 1 Step 1: Payees provide goods and services to payors. Payors give checks to payees. Because the process proceeds simultaneously on checks in each city, it can apply when a New York payor sends a check to a San Francisco payee and also when a San Francisco payor sends a check to a New York payee. Step 2: Payees deposit checks (one in San Francisco and one in New York). Their banks credit their accounts. Step 3: Each bank sends to the other the checks the first bank has received that are drawn on the other. Specifically, the San Francisco bank sends to New York the checks that the San Francisco bank has received that are drawn on the New York bank; the New York bank sends to San Francisco the checks that the New York bank has received that are drawn on the San Francisco bank. Funds are transferred to settle the difference in amount. Step 4: Both banks remove funds from the payors’ accounts: the San Francisco bank from its customers and the New York bank from its customers.

Figure 27.4 Federal- Reserve Collection Bank Depository Bank Step 3 Step 4 Payor Bank Step 2 Step 5 Step 1 Payee Payor Step 1: Payee provides goods and services to payor; payor gives check to payee. Step 2: Payee deposits check. Depositary bank credits payee’s account. Step 3: Depositary bank sends check to the Federal Reserve bank. The Federal Reserve bank credits the depositary bank for the check. Step 4: The Federal Reserve bank sends the check to the payor bank and debits it for the check. Step 5: The payor bank debits the payor for the check.

Figure 28.1 POS Conversion Customer’s Bank Merchant’s Bank Customer Step 4 Customer’s Bank Merchant’s Bank Step 3 Step 5 Step 4 Step 2 Step 1 Customer Merchant Step 1: The Customer gives a check to the Merchant. The Merchant runs the check through a reader (capturing the information on the MICR line of the check) and returns the paper check to the Customer. Step 2: The Merchant sends to its bank a message including both the amount of the transaction and the data from the check about the Customer’s bank account. Step 3: The Merchant’s Bank sends an ACH debit entry to the Customer’s Bank. Step 4: The Customer’s Bank responds to that entry by removing funds from the Customer’s account and sending them to the Merchant’s Bank (through the ACH network). Step 5: The Merchant’s Bank credits the Merchant’s account.

Figure 28.2 ACH “Checks” Customer’s Bank Merchant’s Bank ACH Provider Step 4 Customer’s Bank Merchant’s Bank Step 3 ACH Provider Step 4 Step 5 Step 1 Step 1 Customer Merchant Step 2 Step 1: The Customer sends payment information to the ACH Provider (probably through a link at the merchant’s website). The information should include the information from the MICR line of Customer’s check (the ABA routing number of the Customer’s Bank and the Customer’s account number at the bank). Step 2: Based on the commitment to pay represented by that information, the Merchant completes the transaction. It might ship the goods at that time, or it might wait a few days to receive payment. Step 3: The ACH Provider sends the ACH debit entry to the Customer’s Bank. Step 4: The Customer’s Bank responds to that entry by removing funds form the Customer’s account and sending them to the Merchant’s Bank (through ACH network).

Figure 31.1 Bill Aggregators Biller Step 1 Customer Step 2 Step 4 Customer’s Bank Aggregator Step 5 Step 3 Step 1 Biller Step 1: Billers send bills to Aggregator (perhaps through intermediary service providers). Step 2: Aggregator advises Customer of bills Step 3: Customer views bills and authorizes payment. Step 4: Aggregator directs Customer’s Bank to pay bills. Step 5: Customer’s Bank pays Billers (directly or through a financial institution.

Figure 32.1 Using Stored-Value Cards Merchant’s Bank Operator Step 4 Step 3 Step 1 Step 2 Customer Merchant Step 1: Cardholder obtains card and stores value on it. Step 2: Cardholder transfers transaction data to Merchant and receives goods or services. Step 3: Merchant sends transaction data to Operator. Step 4: Operator sends funds to account at Merchant's Bank. In accountable systems, Operator deducts funds from Cardholder’s shadow balance.

Figure 32.2 Using Electronic Money Step 5 Merchant’s Bank Issuer Step 3 Step 1 Step 2 Customer Merchant Step 4 Step 1: Customer opens account and creates ecoins. Step 2: Customer sends coins to Merchant. Step 3: Merchant confirms authenticity of coins by communication with Issuer. Step 4: Merchant releases product to Customer. Step 5: Issuer sends funds to account at Merchant’s Bank.

Figure 34.1 Software Leasing Financier Payments over time One-time payment Software License Licensor User

Figure 34.2 Article 9 View of General Intangibles Financier/ Secured Party Promissory Note $ Licensor/ Account Debtor Software License User/ Debtor

Figure 34.3 Finance Licensing Software License Sublicense Licensor Financier User One-time payment Payments over time

Figure 38.1 Account-Based Lending Systems Step 1: Borrower deposits assets with Intermediary. Step 2: Lender arranges with Intermediary to have control of assets. Step 3: On default, Lender takes assets or directs Intermediary to dispose of them on Lender’s behalf.