Electronic Payment Systems
Lecture 8
Supakorn Kungpisdan
S. Kungpisdan
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Outline
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The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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The Payment Revolution
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Crucial Factors
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Independence
• Some e-payment systems require specialized software or
hardware to make payment
Interoperability and portability
Security
Anonymity
Divisibility
Ease of use
Transaction fees
Regulations
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Outline
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The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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Using Payments Cards Online
payment card
Electronic card that contains information that
can be used for payment purposes
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Three forms of payment cards:
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Credit cards
Debit cards
Stored-Value Cards
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Using Payments Cards Online
• Key participants in processing credit card
payments online include the following:
– Acquiring bank
– Credit card association
– Customer
– Issuing bank
– Merchant
– PSP or Payment Gateway
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Using Payments Cards Online
• Processing Credit Cards Online
authorization
Determines whether a buyer’s card is active
and whether the customer has sufficient funds
settlement
Transferring money from the buyer’s to the
merchant’s account
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Using Payments Cards Online
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Fraudulent Credit Card Transactions
Address Verification System (AVS)
Detects fraud by comparing the address
entered on a Web page with the address
information on file with cardholder’s issuing
bank
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Result in a number of false positive
Only available in US and Canada
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Using Payments Cards Online
card verification number (CVN)
Detects fraud by comparing the verification
number printed on the signature strip on the
back of the card with the information on file
with the cardholder’s issuing bank
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Using Payments Cards Online
• Fraudulent Credit Card Transactions
– Additional tools used to combat fraud include:
• Manual review
• Negative files
– check to see if customer’s transaction is matched against the file
containing customer’s information
• Card association payer authentication services
– 3D (3-domain) Secure
– E.g. Verified by Visa, MasterCard SecureCode, JCB J/Secure
– Require cardholders to register with the systems and merchants to
adopt and support both existing systems and the new systems
– Cardholder needs to have an additional password to authenticate
him/herself
– Merchant must also enroll itself to the program
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Smart Card
An electronic card containing an embedded
microchip that enables predefined operations
or the addition, deletion, or manipulation of
information on the card
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Types of 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
contactless (proximity) card
A smart card with an embedded antenna, by means
of which data and applications are passed to and
from a card reader unit or other device without
contact between the card and the card reader
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Applications of Smart Cards
• e-purse or e-wallet
Smart card application that loads money from a card holder’s
bank account onto the smart card’s chip
• Transit Fares
To eliminate the inconvenience of multiple types of tickets used
in public transportation, most major transit operators in the
United States are implementing smart card fare-ticketing
systems
• E-Identification
Because they have the capability to store personal information,
including pictures, biometric identifiers, digital signatures, and
private security keys, smart cards are being used in a variety of
identification, access control, and authentication applications
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Applications of Smart Cards
• Health Care
– Storing vital medical information in case of emergencies
– Preventing patients from obtaining multiple prescriptions
from different physicians
– Verifying a patient’s identity and insurance coverage
– Speeding up the hospital or emergency room admissions
process
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Securing Smart Cards
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Smart cards store or provide access to either valuable
assets or to sensitive information
Because of this, they must be secured against theft,
fraud, or misuse
The possibility of hacking into a smart card is classified
as a “class 3” attack, which means that the cost of
compromising the card far exceeds the benefits
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Outline
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The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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Secure Electronic Transaction
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Services Provided by SET
• Secure communications channel among
involved parties
• Trust by using X.509 certs
• Party privacy: parties will receive only the
information that they are intended to receive
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Secure Electronic Transaction
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5, 10, 11
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SET Transaction Overview
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Client opens an account
Client receives a certificate
Merchants have their own certs
The client places an order (C  M)
The merchant is verified (M  C)
The order and payment are sent (C  M)
The merchant requests payment authorization (M  PG)
Payment is approved (PG  I, I  A, I,A  PG)
The merchant receives authorization response (PG  M)
The merchant confirms the order (M  C)
The merchant provides goods or service (M  C)
The merchant requests payment (M  A)
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Stored-Value Cards
• A card that has monetary value loaded onto it
and that is usually rechargeable
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Outline
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The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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E-Micropayments
• Small online payments, typically under US $10
• Companies with e-micropayment products:
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BitPass (bitpass.com)
Paystone (paystone.com)
PayLoadz (payloadz.com)
Peppercoin (peppercoin.com)
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Millicent
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Outline
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The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
Electronic Check
Electronic Bill Presentment and Payment
PayPal
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E-Check
e-check
A legally valid electronic version or
representation of a paper check
Automated Clearing House (ACH) Network
A nationwide batch-oriented electronic funds
transfer system that provides for the interbank
clearing of electronic payments for
participating financial institutions
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Benefits of e-check processing
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Reduces the merchant’s administrative costs by
providing faster and less paper-intensive collection of
funds
Improves the efficiency of the deposit process for
merchants and financial institutions
Speeds the checkout process for consumers
Provides consumers with more information about their
purchases on their account statements
Reduces the float period and the number of checks
that bounce because of insufficient funds (NSFs)
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Processing E-Checks with Authorize.Net
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Outline
•
•
•
•
•
•
•
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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Electronic Bill Presentment and
Payment (EBPP)
Presenting and enabling payment of a
bill online. Usually refers to a B2C
transaction
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E-Bill Presentment
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Types of E-Billing
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Online banking
Biller Direct
Bill Consolidator
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Advantages of E-Billing
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Reduction in expenses related to billing and
processing payments
Electronic advertising inserts can be
customized to the individual customer
Reduces customer’s expenses
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E-Billing Process for Single Biller
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E-Billing Processes for Bill Consolidator
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Outline
•
•
•
•
•
•
•
The Payment Evolution
Using Payment Cards Online
Secure Electronic Transaction (SET)
E-Micropayment
E-Checking
Electronic Bill Presentment and Payment
PayPal
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PayPal
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PayPal Interface
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Send Money Person-to-Person
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Request Money
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PayPal Website Payment
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PayPal Website Payment (cont’d)
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PayPal Website Payment (cont’d)
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PayPal Website Payment (cont’d)
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Receiving money
• A merchant who wants to withdraw money from
Paypal account must add bank account to
Paypal first.
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Withdraw Fund
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Withdraw Fund (cont’d)
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Withdraw Fund (cont’d)
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Paypal Virtual Terminal
• It’s an online version of the
credit card swipe machines
used in stores. But it gives you
added advantages:
• Increase sales. Expand your
business beyond the internet.
• Save money. There’s no need
to invest in expensive
equipment.
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Paypal Sandbox
• Go to https://developers.paypal.com/
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Paypal Sandbox (cont’d)
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Paypal Sandbox (cont’d)
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Paypal Sandbox (cont’d)
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Question?
Next Lecture
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