SCS B315 Lesson 5 Payment Systems
SCS B315 Lesson 5 Payment Systems
SCS B315 Lesson 5 Payment Systems
Ecommerce
PART 5
ELECTRONIC PAYMENT SYSTEMS
Electronic Payment Systems
Outline
• Types of money
– Fiduciary v. scriptural
– Token v. notational
• Types of payment systems
• Cash
• Credit cards
– SSL (TLS) protocol
• Intermediaries
– PayPal
• Smart cards
• Electronic Bill Presentment
Types of Money:
Fiduciary vs. Scriptural
• Fiduciary money (fiat money, legal tender)
– Issued by a central (government) bank
– Has real “discharging power” (to discharge debts)
– Cannot be refused
• Scriptural money (not legal tender)
– Money not issued by central bank
– Examples: bank accounts, travelers checks, gift certificates,
scrips (a sub or alt to legal tender that entitles the bearer to
receive sth in return)
– Discharging power based on trust in issuer
– Can be refused
Types of Money:
Token vs. Notational
• Token money (value represented by physical article)
– Represented by a physical article (e.g. cash, gift certificate,
traveler’s check)
– Can be lost
• Notational money (value held in account balance)
– Examples: bank accounts, frequent flyer miles
– Transferred by order
– Requires clearance (determining net effect of multiple orders)
– Requires settlement (payment in fiduciary money)
• Hybrid money
– Check, telephone card (carries promise of future service)
Cash Transaction
-2. CENTRAL BANK ISSUES CENTRAL
FIDUCIARY MONEY 4. SELLER’S BANK
(ANTI-FORGERY) + BANK SENDS CASH TO
(SERIAL NUMBERS) CENTRAL BANK 3. SELLER’S BANK
CREDITS SELLER’S
BANK ACCOUNT
• Atomicity
– Money is not lost or created during a transfer
• Good atomicity
– Money and good are exchanged atomically
• Non-repudiation
– No party can deny its role in the transaction
– Digital signatures
9
EMTM 553
2/16/00
Types of Payment Systems
• Ecash
• Electronic wallets
• Credit card
– SSL, SET protocols
• Payment orders, direct transfers, checks
– Automated Clearing House (ACH)
• Online Banking
– Wingspan
• Intermediaries
– PayPal
• Stored-Value Cards, Smart Cards, Wallets
– Mondex
– Octopus
Types of Payment Systems
Electronic Cash
E-cash Concept
Merchant
1. Consumer buys e-cash from Bank
2. Bank sends e-cash bits to consumer (after
5 charging that amount plus fee)
3. Consumer sends e-cash to merchant
4
4. Merchant checks with Bank that e-cash
Bank 3 is valid (check for forgery or fraud)
5. Bank verifies that e-cash is valid
6. Parties complete transaction: e.g., merchant
2 present e-cash to issuing back for deposit
1 once goods or services are delivered
• On-line
– Individual does not have possession personally of
electronic cash
– Trusted third party, e.g. online bank, holds customers’
cash accounts
• Off-line
– Customer holds cash on smart card or software wallet
– Fraud and double spending require tamper-proof
encryption
1
6
• Checkfree
– Allows payment with online electronic checks
• Clickshare
– Designed for magazine and newspaper publishers
– Miscast as a micropayment only system; only one
of its features
– Purchases are billed to a user’s ISP, who in turn
bill the customer
2
0
• CyberCash
– Combines features from cash and checks
– Offers credit card, micropayment, and check payment services
– Connects merchants directly with credit card processors to provide
authorizations for transactions in real time
• No delays in processing prevent insufficient e-cash to pay for
the transaction
• CyberCoins
– Stored in CyberCash wallet, a software storage mechanism located
on customer’s computer
– Used to make purchases between .25c and $10
– PayNow -- payments made directly from checking accounts
2
1
Electronic Wallets
Electronic Wallets
• Agile Wallet
– Developed by CyberCash
– Allows customers to enter credit card and identifying information
once, stored on a central server
– Information pops up in supported merchants’ payment pages,
allowing one-click payment
– Does not support smart cards or CyberCash, but company expects to
soon
• eWallet
– Developed by Launchpad Technologies
– Free wallet software that stores credit card and personal information
on users’ computer, not on a central server; info is dragged into
payment form from eWallet
– Information is encrypted and password protected
– Works with Netscape (now known as Firefox) and Internet Explorer
2
5
Electronic Wallets
• Microsoft Wallet
– Comes pre-installed in Internet Explorer 4.0, but
not in Netscape
– All information is encrypted and password protected
– Microsoft Wallet Merchant directory shows merchants
setup to accept Microsoft Wallet
Credit Cards
• The most expensive ePayment mechanism
• MasterCard: $0.29 + 2% of transaction value
• A $100 charge costs the merchant $2.29
• Currently the most convenient method
• Advantage: allows credit
• People can buy more than they can afford
• Disadvantages:
– doesn’t work for small amounts (too expensive)
– doesn’t work for large amounts (too expensive)
Parties to a Credit Card Transaction
CARD,
TELEPHONE,
INTERNET
BUYER SELLER
DIALUP OR
U.S. MAIL! LEASED LINE
BUYER’S SELLER’S
BANK BANK
CARD
ASSOCIATION
PROPRIETARY NETWORK
C
S
o
lp
y
ir
d
i
g
eh How an Online Credit Card
6©
t
Transaction Works
-
2
20
80 • Processed in much the same way that in-
4
store purchases are
P
e
a
• Major difference is that online merchants do
r
s not see or take impression of card, and no
o
n signature is available (CNP transactions)
E
d • Participants include consumer, merchant,
u
c
a
clearinghouse, merchant bank (acquiring
t
i bank) and consumer’s card issuing bank
o
n
,
I
C
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lp
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ir
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eh
t
How an Online Credit Transaction Works
6©
- Figure 6.4,
2 Page 317
20
90
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Limitations of Online Credit Card
6©
t
Payment Systems
-
2
30 • Security – neither merchant nor consumer
00
4 can be fully authenticated
P
e
• Cost – for merchants, around 3.5% of
a
r
purchase price plus transaction fee of 20-30
s
o
cents per transaction
• Social equity – many people do not have
n
E
d
u
access to credit cards (young adults, plus
c
a
almost 100 million other adult Americans who
t
i
cannot afford cards or are considered poor
o
n
risk)
,
I
PayPal
• Pay anyone, anywhere via email
• Draws funds from user’s bank account, places credit
hold on credit card for guarantee
• 16 million users
– Bank of America has 3.3. million
• Accounts insured up to $100,000
• Based on automated clearinghouse
• Withdraw funds anytime, or send to someone else
• Mobile payments (WAP)
PayPal
1. A PAYS X VIA 6. PAYPAL NOTIFIES
PAYPAL (A HAS X OF PAYMENT. X
ENOUGH IN PAYPAL CHOOSES PAYMENT
ACCOUNT) METHOD
ACCOUNT INTERNET
PAYPAL EMAIL
ACCOUNT
HOLDER A HOLDER X
ACCOUNT A
... 5. PAYPAL CREDITS
ACCOUNT X’S PAYPAL ACCOUNT
ACCOUNT X
HOLDER A’S 2. OR: PAYPAL
CHARGES X’S
CREDIT CARD CREDIT CARD
3. OR: PAYPAL
INITIATES ACH
DEBIT
ACCOUNT 7. OR: PAYPAL ACCOUNT
ACH INITIATES
HOLDER A’S HOLDER X’S
PROCESSOR ACH CREDIT
BANK BANK
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
3
5
Smart Cards
Smart Cards
SOURCE: HITACHI
Octopus
SONY RC-S833
CONTACTLESS SMART CARD
SONY READER/WRITER
SOURCE: SONY
Financial Aggregation
• Idea: allow access to all assets through a single portal
• Citigroup
• Electronic bill presentment payment systems (EBPP)
– CheckFree demo, EIPP
– Paytrust
• Mobile
– Vodaphone demo
4
6
• Types of E-Billing
– Online banking
– Biller direct
– Bill consolidator
4
8
DATA FLOW
BILL
INFO
PAYMENT
ORDERS
MONEY FLOW