1. Comp2513 E-Payment Methods Daniel L. Silver, Ph.D.

2. 2001Daniel L. Silver2 Objectives To introduce the basic methods of electronic payment To introduce the basic methods of electronic payment Reference: Deital Ch. 4 Reference: Deital Ch. 4

3. 2001Daniel L. Silver3 Outline Trandition Payment Methods Trandition Payment Methods E-Payment Methods E-Payment Methods

4. 2001Daniel L. Silver4 Major Architectural Components of the Web Internet Browser Database Server Client 1 Server A Server B Bank Server URL HTTP TCP/IP Browser Client 2 HTTP Server App. Server index.html Bank Server prog1.class prog2.jsp

5. 2001Daniel L. Silver5 Traditional Payment Methods Payment: The transfer of money from one individual or legal entity to another Cash Cash Personal Cheques Personal Cheques Money orders (Bank note) Money orders (Bank note) Credit cards Credit cards Debit cards Debit cards

6. 2001Daniel L. Silver6 Selection of Payment Method Based on: Based on: –Convenience –Trace-ability –Repudiation –Financial risk –Fraud protection Attacks on traditional methods? Attacks on traditional methods?

7. 2001Daniel L. Silver7 Credit Cards A very common method of payment A very common method of payment Cards are issued by a bank Cards are issued by a bank Unique 16-digit number (including check digits) and an expiration date Unique 16-digit number (including check digits) and an expiration date Third party authorization companies verify purchases Third party authorization companies verify purchases

8. 2001Daniel L. Silver8 Credit Card - Business Model Logical Money Flow Customer Bank Store Visa (3 rd Party) 1. Charge 2. Credit Authorization 3. Clearance/Settlement 4. Payment What can you do if your statement shows a fraudulent purchase? Store’s Bank

9. 2001Daniel L. Silver9 Credit Card - IT Physical Data Flow CARD Reader 56k bps modem 3 rd Party Authorization System (Visa) Customer Bank System Card Info, Signature Authorization Program Request Authorization EFT POS Terminal OK! Store’s Bank System Customer EFT

10. 2001Daniel L. Silver10 Requirements of E-Payment Methods Enable an honest customer to convince a seller to accept payment Enable an honest customer to convince a seller to accept payment Prevent a dishonest customer from making unauthorized or fraudulent payments Prevent a dishonest customer from making unauthorized or fraudulent payments Ensure the privacy of honest participants Ensure the privacy of honest participants Scalable to very large numbers of customers Scalable to very large numbers of customers Integrate with existing and evolving systems Integrate with existing and evolving systems NOT EASY!

11. 2001Daniel L. Silver11 E-Payment Pros/Cons Pros: Pros: –Potential for great flexibility –Low transaction costs –Rapid and diverse purchase power Cons: Cons: –Perfect copying of transactions is possible –Vulnerability to world-wide attack –Lack of anonymity, potential for privacy intrusion

12. 2001Daniel L. Silver12 Various E-Payment Methods Credit and Debit card Credit and Debit card Digital Currency Digital Currency E-Wallets E-Wallets Peer-to-Peer Methods Peer-to-Peer Methods Smart card Smart card Micro-payments Micro-payments B2B B2B

13. 2001Daniel L. Silver13 Use of Credit Card on the Web Internet Browser Database Server Client 1 Server A URL HTTP Server App. Server index.html prog.jsp 3 rd Party Authorization System cybercash.com Customer Bank System EFT Store’s Bank System Authorization

14. 2001Daniel L. Silver14 Credit Card Fraud A major problem for E-commerce A major problem for E-commerce The merchant has no legal proof of purchase unless the buyer uses authentication certificate The merchant has no legal proof of purchase unless the buyer uses authentication certificate Companys such as Visa, nochargeback.com and CyberCash (now VeriSign) are working to limit fraud: Companys such as Visa, nochargeback.com and CyberCash (now VeriSign) are working to limit fraud: –Visa has established high risk business models and best practices info for merchants –Nochargeback.com has lists of fraudlent cards, e-mail addresses and postal addresses –VeriSign/CyberCash has employed AI to catch frauders VeriSign/CyberCash

15. 2001Daniel L. Silver15 Digital Currency Digital cash accounts like traditional bank accounts Digital cash accounts like traditional bank accounts Buyers deposit cash in the account and spend it at E-Commerce sites (acct # is passed using secure proprietary protocol) Buyers deposit cash in the account and spend it at E-Commerce sites (acct # is passed using secure proprietary protocol) E-Comm merchants can feel sure of payment E-Comm merchants can feel sure of payment Customers do not need a credit card and spending is limited to account balance Customers do not need a credit card and spending is limited to account balance www.ecash.com www.ecash.com www.ecash.com

16. 2001Daniel L. Silver16 E-Wallets Established by financial institutions in partnership with member E-Commerce sites Established by financial institutions in partnership with member E-Commerce sites Allows customer to submit billing and shipping info with one click at member sites Allows customer to submit billing and shipping info with one click at member sites Also can store e-Cheques, e-Cash and credit card information Also can store e-Cheques, e-Cash and credit card information Not as popular as originally projected Not as popular as originally projected Entrypoint’s InfoGate offers an e-wallet Entrypoint’s InfoGate offers an e-wallet Entrypoint’s InfoGate Entrypoint’s InfoGate

17. 2001Daniel L. Silver17 Peer-to-Peer Methods Digital cash via email (eCash.com) Digital cash via email (eCash.com) PayPal.com – digital payment system PayPal.com – digital payment system PayPal.com –Acts as a trusted third party (e.g. auction purchase) –To send money: »Sender sets up an account and requests to send payment »Sender places payment into the receivers account by credit- card »Reciever is notified of payment via email »Receiver can transfer funds to bank account or request a cheque –There is also a request payment method –FOR FREE.. ? What is the their business model ?

18. 2001Daniel L. Silver18 Smart Cards Cards with computer chips embedded on their faces – very common in Europe Cards with computer chips embedded on their faces – very common in Europe Used for health care, transportation, ID, retail, pay phones, loyalty programs, banking machines Used for health care, transportation, ID, retail, pay phones, loyalty programs, banking machines Smart card readers interface with card and request user PIN for access Smart card readers interface with card and request user PIN for access Bank machines can load cards with cash and then merchants can download cash from card Bank machines can load cards with cash and then merchants can download cash from card Returns anonymity of purchase to customer Returns anonymity of purchase to customer GemPlus, MasterCard are leading supplier of SCs GemPlus, MasterCard are leading supplier of SCs GemPlusMasterCard GemPlusMasterCard

19. 2001Daniel L. Silver19 Micro-Payments Long distance phone call charge is an example of a micro-payment Long distance phone call charge is an example of a micro-payment Digital Equipment Corporatiion (DEC) researchers originally envisioned MPs: Digital Equipment Corporatiion (DEC) researchers originally envisioned MPs: –Payment per newspaper article ($0.005) –Payment by stock quote ($0.001) –Payment per click (Qpass, Inc) Has not been popular, instead advertisers pay for info, or customers pay flat rates … Why? Has not been popular, instead advertisers pay for info, or customers pay flat rates … Why?

20. 2001Daniel L. Silver20 Why have micro-payments failed? Overly complicated for customer and business – technology & accounting Overly complicated for customer and business – technology & accounting Income is very dependent on customer use (difficulties in cashflow management) Income is very dependent on customer use (difficulties in cashflow management) Customer anxiety – could act as a deterent Customer anxiety – could act as a deterent Difficulties in standardization – lost of different approaches, variant media Difficulties in standardization – lost of different approaches, variant media

21. 2001Daniel L. Silver21 B2B B2B transactions are the fastest area of $ growth on the web B2B transactions are the fastest area of $ growth on the web B2B transactions are substantially larger than B2C B2B transactions are substantially larger than B2C Paymantech is major provider: Paymantech is major provider: Paymantech is Paymantech is –24/7 availability, all manner of EFT supported –many management tools and reporting methods Ecredit.com offers real-time automated credit approval and financing Ecredit.com offers real-time automated credit approval and financing Ecredit.com TradeCard offers comprehensive B2B E- commerce facilities on an international scale TradeCard offers comprehensive B2B E- commerce facilities on an international scale TradeCard offers TradeCard offers

22. THE END danny.silver@acadiau.ca