Comp2513
E-Payment Methods
Daniel L. Silver, Ph.D.
Objectives
To introduce the basic methods of electronic
payment
 Reference: Deital Ch. 4
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2001
Daniel L. Silver
2
Outline
Trandition Payment Methods
 E-Payment Methods

2001
Daniel L. Silver
3
Major Architectural Components
of the Web
Bank
Server
Client 1
Browser
Client 2
HTTP
TCP/IP
Server A
Internet
HTTP
Server
Browser
App.
Server
URL index.html
Server B
2001
Database
Server
prog1.class
prog2.jsp
Bank
Server
Daniel L. Silver
4
Traditional 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
2001
Daniel L. Silver
5
Selection of Payment Method

Based on:
– Convenience
– Trace-ability
– Repudiation
– Financial risk
– Fraud protection
 Attacks
2001
on traditional methods?
Daniel L. Silver
6
Credit Cards
A very common method of payment
 Cards are issued by a bank
 Unique 16-digit number (including check
digits) and an expiration date
 Third party authorization companies verify
purchases

2001
Daniel L. Silver
7
Credit Card - Business Model
Logical Money Flow
3. Clearance/Settlement
Customer
Bank
Visa
(3rd Party)
Store’s
Bank
2. Credit
Authorization
4. Payment
Store
Customer
1. Charge
What can you do if your statement shows
a fraudulent purchase?
2001
Daniel L. Silver
8
Credit Card - IT
Physical Data Flow
Customer
CARD
3rd Party
Customer
EFT
Authorization EFT
Bank
System
System
(Visa)
Card Info,
Signature
Store’s
Bank
System
Authorization
Reader
Authorization
Program
Request
56k bps
modem
POS Terminal OK!
2001
Daniel L. Silver
9
Requirements of
E-Payment Methods

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
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Enable an honest customer to convince a seller to
accept payment
Prevent a dishonest customer from making
unauthorized or fraudulent payments
Ensure the privacy of honest participants
Scalable to very large numbers of customers
Integrate with existing and evolving systems
NOT EASY!
2001
Daniel L. Silver
10
E-Payment Pros/Cons

Pros:
– Potential for great flexibility
– Low transaction costs
– Rapid and diverse purchase power

Cons:
– Perfect copying of transactions is possible
– Vulnerability to world-wide attack
– Lack of anonymity, potential for privacy
intrusion
2001
Daniel L. Silver
11
Various E-Payment Methods
Credit and Debit card
 Digital Currency
 E-Wallets
 Peer-to-Peer Methods
 Smart card
 Micro-payments
 B2B

2001
Daniel L. Silver
12
Use of Credit Card on the Web
Customer
Bank
System
3rd Party
Authorization
System
cybercash.com
Store’s
Bank
System
EFT
Authorization
Server A
HTTP
Server
Internet
App.
Server
Database
Server
Client 1
Browser
2001
URL
Daniel L. Silver
index.html
prog.jsp
13
Credit Card Fraud

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
A major problem for E-commerce
The merchant has no legal proof of purchase
unless the buyer uses authentication certificate
Companys such as Visa, nochargeback.com and
CyberCash (now VeriSign) are working to limit
fraud:
– Visa has established high risk business models and best
practices info for merchants
– Nochargeback.com has lists of fraudlent cards, e-mail
addresses and postal addresses
– VeriSign/CyberCash has employed AI to catch frauders
2001
Daniel L. Silver
14
Digital Currency



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Digital cash accounts like traditional bank
accounts
Buyers deposit cash in the account and spend it at
E-Commerce sites (acct # is passed using secure
proprietary protocol)
E-Comm merchants can feel sure of payment
Customers do not need a credit card and spending
is limited to account balance
www.ecash.com
2001
Daniel L. Silver
15
E-Wallets
Established by financial institutions in
partnership with member E-Commerce sites
 Allows customer to submit billing and
shipping info with one click at member sites
 Also can store e-Cheques, e-Cash and credit
card information
 Not as popular as originally projected
 Entrypoint’s InfoGate offers an e-wallet

2001
Daniel L. Silver
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Peer-to-Peer Methods


Digital cash via email (eCash.com)
PayPal.com – digital payment system
– Acts as a trusted third party (e.g. auction purchase)
– To send money:
» Sender sets up an account and requests to send payment
» Sender places payment into the receivers account by creditcard
» Reciever is notified of payment via email
» Receiver can transfer funds to bank account or request a
cheque
– There is also a request payment method
– FOR FREE .. ? What is the their business model ?
2001
Daniel L. Silver
17
Smart Cards
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Cards with computer chips embedded on their
faces – very common in Europe
Used for health care, transportation, ID, retail, pay
phones, loyalty programs, banking machines
Smart card readers interface with card and request
user PIN for access
Bank machines can load cards with cash and then
merchants can download cash from card
Returns anonymity of purchase to customer
GemPlus, MasterCard are leading supplier of SCs
2001
Daniel L. Silver
18
Micro-Payments


Long distance phone call charge is an example of
a micro-payment
Digital Equipment Corporatiion (DEC)
researchers originally envisioned MPs:
– Payment per newspaper article ($0.005)
– Payment by stock quote ($0.001)
– Payment per click (Qpass, Inc)

Has not been popular, instead advertisers pay for
info, or customers pay flat rates … Why?
2001
Daniel L. Silver
19
Why have micro-payments failed?
Overly complicated for customer and
business – technology & accounting
 Income is very dependent on customer use
(difficulties in cashflow management)
 Customer anxiety – could act as a deterent
 Difficulties in standardization – lost of
different approaches, variant media

2001
Daniel L. Silver
20
B2B

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B2B transactions are the fastest area of $ growth
on the web
B2B transactions are substantially larger than B2C
Paymantech is major provider:
– 24/7 availability, all manner of EFT supported
– many management tools and reporting methods


Ecredit.com offers real-time automated credit
approval and financing
TradeCard offers comprehensive B2B Ecommerce facilities on an international scale
2001
Daniel L. Silver
21
THE END
danny.silver@acadiau.ca