Chapter 3
E-Payment Systems
eb-course.weebly.com
Agenda
• Definition of electronic payment
• Security for e-payments
• Types of electronic payment methods
• Which electronic payments to accept?
Payment Methods
Payment: The transfer of money from one individual
or legal entity to another
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Cash
Personal Cheques
Money orders (Bank note)
Credit cards
Debit cards
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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
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
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
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
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
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
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
Purchase
is Requested
Transaction
is Approved
SET Encryption
Request is Sent to
E-commerce Server
Merchant
Sends Record
to Bank
Bank Credits
Merchant’s Account
E-Commerce Server
Verifies Transaction
The SET protocol
The SET protocol coordinates the activities of the customer,
merchant, merchant’s bank, and card issuer. [Source: Stein]
Secure Electronic Transaction (SET) Protocol
• SET is much more complex
– Success of SSL
– Expensive overhead
Types of Electronic Payment
• B2B
– Small to large payments
• B2C
– Small to medium payments
– Credit card transactions
• Micropayments
– Very small payments
Types of Electronic payments (B2B)
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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
Types of Electronic Payments (B2C)
• Electronic Payment Cards
– (credit, debit, charge)
• Smart Cards
– (phone cards, bank cards)
• P2P payments
– (paypal, c2it)
• Other payment methods
Electronic payment cards (1)
• Credit cards
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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
Electronic payment cards (2)
• How credit card works
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
Smart Card (2)
• Smart Card for E-Commerce
– Advantages
• 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
Smart Card (3)
• NTT-DoCoMo, Japan’s leading communications
company have tied up with coca-cola company
and developed a mobile commerce platform (cmode) that allow purchasing soft drinks using cell
phones.
http://www.nttdocomo.com/corebiz
/imode/alliances/cmode.html
P2P Payments
• Person to person payments are newest and fastest
growing e-payment schemes.
• Able to transmit funds to anyone with an email
address
– ex) Paypal
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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
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
Other E-payment methods
• Wireless payments
– “M-pay bill” from Vodafone
• E-check
– Electronic version of paper check
• www.electracash.com
• E-charge
– Charge purchases to local phone bill
• www.echarge.com
Accepting Electronic Payments
(B2C)
• Merchant Account
– Payment processing opened through a bank
• Ex) www.1stamericancardservice.com
• Third Party Processor
– Payment processor that accepts credit cards on behalf
of your company
• Ex) www.2checkout.com, www.paypal.com
Merchant Account
• Advantages
– 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
Third Party Processor
• Advantages
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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
Things to consider
• Monthly sales volume
– 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