1. Chapter 3
E-Payment Systems
eb-course.weebly.com

2. Agenda Definition of electronic payment Security for e-payments
Types of electronic payment methods
Which electronic payments to accept?

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

4. What 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 automatibility
For some people, these are payments linked to e-commerce transactions.
This definition raises two problems
1. 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.

5. Security for E-payments
If you are running an e-commerce site, you need to worry about
Authentication
Authenticity of business
Confidentiality
Information privacy
Data Integrity
Data must not be altered
Audit Trail
Data should be trailed

6. Security for E-payments
Standards for E-payments
It is a must to have a generally accepted protocol for securing e-payments such as SSL / SET
Implemented protocols
SSL (Secure Sockets Layer)
Security protocol used by web browser and web server to transmit sensitive information over the internet
Uses private key to encrypt data
SET (Secure Electronic Transaction)
Built with SSL
Uses digital wallet that holds customers certificates
How do you tell if a website is secure?
S after http
Lock symbol

7. Secure Sockets Layer (SSL)
Created by Netscape for secure message transmission.
Uses public-key encryption
Browser is the client
Netscape servers can be enabled for SSL
Other servers can be enabled by installing the Netscape SSLRef program library

8. Secure Socket Layers (SSL) protocol
Certificate Authority
Ex) Verisign
Secures credit card payments
Provides 40 bit and 128 bit SSL Encryption
Authenticates the business for customer confidence
Verisign verifies merchant by performing authentication procedures such as
Check to see if the business is legal entity
If organization has the right to use the domain name
Verifies the individual who requested SSL certificate

9. Secure Electronic Transaction (SET)
Visa and MasterCard developed SET specifically to handle electronic payments
Based on cryptography and digital certificates
Digital certificates uniquely identify the parties to a transaction
An electronic credit card
Registries for authentication
A digital signature is used to guarantee a sender’s identity

10. Secure 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 SSL
SET Encryption
Request is Sent to
E-commerce Server
E-Commerce Server
Verifies Transaction
Purchase
is Requested
Merchant
Sends Record
to Bank
Transaction
is Approved
Bank Credits
Merchant’s Account

11. The SET protocol
The SET protocol coordinates the activities of the customer,
merchant, merchant’s bank, and card issuer. [Source: Stein]

12. Secure Electronic Transaction (SET) Protocol
SET is much more complex
Success of SSL
Expensive overhead
SSL 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 SET
Expense of heavy computational overhead makes SET based system slow and difficult to use

13. Types of Electronic Payment
B2B
Small to large payments
B2C
Small to medium payments
Credit card transactions
Micropayments
Very small payments

14. Types of Electronic payments (B2B)
Electronic checks
Purchasing cards
Electronic letters of credit
Electronic Funds Transfer
Transfer of funds
Ex) ATM, Internet banking
Electronic Benefits Transfer
Transfer of benefits
Ex) Debit card for food stamps
B2B payments
Electronic Funds Transfer
Designed to transfer funds form one account to another
Internet banking
Electronic Benefits Transfer

15. Types of Electronic Payments (B2C)
Electronic Payment Cards
(credit, debit, charge)
Smart Cards
(phone cards, bank cards)
P2P payments
(paypal, c2it)
Other payment methods
The basic e-payment methods is electronic payment cards using credit cards which is similar to off-line methods
but there are some innovative methods exist only on the internet.

16. Electronic payment cards (1)
Credit cards
Most popular online payment
Convenient for both merchant and customer
Quicker payments 24/7
Safest recommended method
Liability is limited by federal law to $50
for unauthorized charge on credit card
If 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.

18. Electronic payment cards (2)
How credit card works
The consumer enters credit card information into a form on the merchant’s website
2.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 processor
4. Funds are transferred from card holder’s bank to merchant bank

19. Smart 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 benefits
Rechargeable stored value card
Examples
Mondex in UK
VisaCash in US
Storage of encryption keys
Electronic purses
User profile portability

20. Smart Card (2) Smart Card for E-Commerce Advantages Disadvantages
Carry personal Accounts
Credit and buying preferences
Manage and control expenditures with automatic limits and reporting
Disadvantages
Costs 2 to 7 times more than magnetic stripe cards
Need a smart card reader
Companies such as IBM and Dell are already adding smart card readers into some of their corporate models

21. Smart 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.html
However, 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.

22. P2P Payments
Person to person payments are newest and fastest growing e-payment schemes.
Able to transmit funds to anyone with an address
ex) Paypal
Free to send money to anyone
Over 50 million account holders in 45 countries
State of the art security technology
Buyer protection up to $1,000 with no extra charge

23. Types of Electronic Payments (Micropayments)
Allows very small charges for goods and services
Very small payments usually below $10
Ex) Digital music
Credit cards or EFT are too expensive
Credit card charges 25 cents to 35 cents and 2 to 3 percent of purchase price
Difficult to allocate payment
Hard to split between issuing bank, paying bank, card processor, and etc)
New business model made possible by innovation of IT
Hard to allocate transactions of 1 cent or less

24. Other E-payment methods
Wireless payments
“M-pay bill” from Vodafone
E-check
Electronic version of paper check
E-charge
Charge purchases to local phone bill
Pays bills using cell phones
Sends electronic checks

25. Accepting Electronic Payments (B2C)
Merchant Account
Payment processing opened through a bank
Ex)
Third Party Processor
Payment processor that accepts credit cards on behalf of your company
Ex)

26. Merchant Account Advantages Disadvantages Increase credibility
Flexibility
Able to sell any kind of products and services
Own shopping cart
Low discount rate
Average 2-3%
Disadvantages
Difficult to obtain
Expensive
Large set up fee, application fee, gateway fee, monthly statement fee and monthly minimum fee
Ex) 1stAmericanCardService: $185 start up fee, $9 statement fee and etc

27. Third Party Processor Advantages Disadvantages Easy to obtain
Small set up fee, no monthly fees, no gateway fees
Accepts most credit card, debit card, checks
Less administrative work
Disadvantages
Don’t have public acceptance
Must use their shopping cart system
Gives less confidence to purchaser
Limited items
Paypal restricted item’s list
Higher transaction fees
2checkout: 5.5% of sale amount plus 45 cents per sale
Digibuy: 13.9% of sales amount
Third Party payment processors can accept credit cards on behalf of your company

28. Things to consider Monthly sales volume Types of products or services
Low volume: Third party processor
High volume: Merchant account
Types of products or services
International support
Multi-currency
Multi-language
Marketing assistance or reseller affiliates
2checkout shopping mall
Yahoo! Shopping