Posts
Module 02
Electronic Payment Systems
Electronic Payment Systems
Online Payment
Basics:
ü Cash,
checks, credit cards, and debit cards account for more than 90 percent of all
consumer payments in the United States.
ü Most
popular consumer electronic transfers are automated payments of:
ä
Auto loans
ä
Insurance payments
ä
Mortgage payments made from
consumers’ checking accounts.
ü Scrip
ä
Digital cash minted by a company
instead of by a government
ä
Cannot be exchanged for cash
ä
Like a gift certificate that is good
at more than one store
Payment
Cards:
ü The
term payment card describes all types of plastic cards used to make purchases
ä
Credit card: Has a spending limit
based on a user’s credit history.
ä
Debit card:
ü Removes
an amount from a cardholder’s bank account
ü Transfers
it to the seller’s bank account.
ä
Charge card:
ü Carries
no spending limit
ü Amount
charged is due at the end of the billing period
ü Advantages:
ä
Worldwide acceptance
ä
Built-in security for merchants
ü Disadvantage:
ä
Payment card service companies charge
merchants per-transaction fees and monthly processing fees.
Payment Acceptance
and Processing:
ü Steps
followed once a merchant receives a consumer’s payment card information:
ä
Merchant authenticates payment
card
ä
Merchant checks with payment card
issuer
-
To ensure that credit or funds are
available
-
Puts a hold on the credit line or the funds
needed to cover the charge
ä
Settlement occurs.
ü Closed loop systems
ä
Card issuer pays the merchants that
accept the card directly and does not use an intermediary
ü Open loop systems
ä
Involve three or more parties
ä
Systems using Visa or MasterCard are
examples
Merchant
Accounts:
ü To
process payment cards for Internet transactions an online merchant must set up
a merchant account
ü New
merchants must supply:
ä
Business plans
ä
Details about existing bank accounts
ä
Business and personal credit
histories
Why are controls
needed?
Processing Payment
Cards Online:
ü Internet
Secure:
ä
Provides secure payment card services
ü First
Data:
ä
Provides merchant payment card
processing services with the following programs:
ä
ICVERIFY and Web Authorize
ü Banks
connect to an Automated Clearing House (ACH) through highly secure, private leased telephone lines.
Electronic Cash:
ü Term
that describes any value storage and exchange system created by a private
entity that:
ä
Does not use paper documents or coins
ä
Can serve as a substitute for
government-issued physical currency
ü Attractive
in two arenas:
ä
Sale of goods and services of less
than $10
ä
Sale of goods and services to those
without credit cards
ü Concerns
about electronic payment methods include:
ä
Privacy and security
ä
Independence
ä
Portability
ä
Convenience
ü Advantages
of electronic cash include being:
ä
Independent and portable.
Micropayments and
Small Payments:
ü Micropayments:
ä
Internet payments for items costing
from a few cents to approximately a dollar
ü Small
payments:
ä
Payments of less than $10.
Holding Electronic
Cash: Online and Offline Cash:
ü Online
cash storage:
ä
Trusted third party is involved in
all transfers of electronic cash
ä
Holds consumers’ cash accounts
ü Offline
cash storage:
ä
Virtual equivalent of money kept in a
wallet
ä
No third party is involved in the
transaction
ü Double-spending:
ä
Spending electronic cash twice
ü Advantages
of electronic cash:
ä
Transactions are more efficient
ä
Transfer on the Internet costs less
than processing credit card transactions
ü Disadvantages
of electronic cash:
ä
Use provides no audit trail
ä
Problem of money laundering arises
ä
Susceptible to forgery.
Providing Security
for Electronic Cash:
ü Cryptographic
algorithms:
ä
Keys to creating tamperproof
electronic cash that can be traced back to its origins
ü Anonymous
electronic cash:
ä
Electronic cash that cannot be traced
back to the person who spent it
ü Creating
truly anonymous electronic cash:
ä
Requires a bank to issue electronic
cash with embedded serial numbers.
Electronic Cash
Systems:
ü Check
Free:
ä
Largest online bill processor in the
world
ä
Provides online payment processing
services
ü Click
share:
ä
An electronic cash system aimed at
magazine and newspaper publishers
ü PayPal:
ä
Provides payment processing services
to businesses and to individuals
ä
Peer-to-peer (P2P) payment system
ä
Free payment clearing service for
individuals.
Electronic Wallets:
ü Hold
credit card numbers, electronic cash, owner identification, and contact
information
ü Give
consumers the benefit of entering their information just once
ü Make
shopping more efficient
ü Server-side
electronic wallet:
ü Stores
a customer’s information on a remote server belonging to a particular merchant
or wallet publisher
ü Client-side
electronic wallet:
ü Stores
a consumer’s information on his or her own computer
Other Cards:
ü Stored
Value Cards:
ä
Stored-value cards can be an
elaborate smart card with a microchip that records currency balance
ä
Common stored-value cards include:
Prepaid phone, copy, subway, and bus cards
ü Magnetic
strip cards:
ä
Cannot send or receive information
ä
Cannot increment or decrement value
of cash stored on the card
ä
Processing must be done on a device
into which the card is inserted.
ü Smart
cards are better suited for Internet payment transactions
ä
Are stored-value cards
ä
Can hold private user data, such as
financial facts
ä
Can store about 100 times more
information than a magnetic strip plastic card
ä
Safer than conventional credit cards
Phishing Attacks:
ü Basic
structure:
ä
Attacker sends e-mail messages to a
large number of recipients
ä
Message states that an account has
been compromised and the matter should be corrected
ä
Message includes a link
ä
User enters a login name and
password, which the perpetrator captures
ä
Once inside a victim’s account, the
perpetrator can access personal information.
ü Countermeasures
ä
Most important step that companies
can take today is to educate Web site users
ä
Many companies contract consulting
firms that specialize in anti-phishing work
ä
Anti-phishing technique is to monitor
online chat rooms used by criminals
