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E-Business Eighth Edition. Chapter 11 Payment Systems For E-Business. Learning Objectives. In this chapter, you will learn about: The basic functions of online payment systems The use of payment cards in electronic commerce The history and future of electronic cash

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E business eighth edition

E-BusinessEighth Edition

Chapter 11Payment Systems For E-Business


Learning objectives

Learning Objectives

In this chapter, you will learn about:

The basic functions of online payment systems

The use of payment cards in electronic commerce

The history and future of electronic cash

How electronic wallets work

The use of stored-value cards in electronic commerce

Internet technologies and the banking industry

E-Business, Eighth Edition

2


Online payment basics

Online Payment Basics

  • E-commerce

    • Exchange money for goods or services

    • Important function: handling Internet payments

    • B2B payment transactions

      • Electronic funds transfers (EFTs)

  • B2C payment transactions

    • Evolving and competing for dominance

    • Customer convenience, saves companies money

      • Bill mailed by mail costs $1.00 to $1.50

      • Internet billing cost: 50 cents

E-Business, Eighth Edition


Online payment basics cont d

Online Payment Basics (cont’d.)

  • Four basic means to purchase items in B2C (traditional and electronic)

    • Cash, checks, credit cards, debit cards

      • 90% of all United States consumer payments

  • Electronic transfer: small but growing

  • Most popular: automated payments

  • Credit cards

    • Worldwide: 90% of online payments

    • United States: 97% of online payments

E-Business, Eighth Edition


E business eighth edition

E-Business, Eighth Edition


Online payment basics cont d1

Online Payment Basics (cont’d.)

  • Scrip

    • Digital cash minted by a company

      • Cannot be exchanged for cash

      • Exchanged for goods or services by company issuing scrip

    • Like a gift certificate: good at more than one store

    • Current scrip offerings (eScrip)

      • Focus: not-for-profit fundraising market

  • Merchant should offer customers payment options

    • Safe, convenient, widely accepted

    • Companies sell payment processing package service

E-Business, Eighth Edition


E business eighth edition

E-Business, Eighth Edition


Payment cards

Payment Cards

  • General term describing all types of plastic cards consumers (businesses) use to make purchases

    • Categories: credit cards, debit cards, charge cards

  • Credit card (Visa, MasterCard)

    • Spending limit based on user’s credit history

      • Charge purchases against credit line

    • Options for user billing cycle payments

      • Pay off entire credit card balance; pay minimum amount

      • Card issuers charge unpaid balance interest

    • Accepted worldwide, 30-day dispute period

E-Business, Eighth Edition


Payment cards cont d

Payment Cards (cont’d.)

  • Credit card(cont’d.)

    • Card not present transactions

      • Cardholder not present during transaction

      • Requires extra security

  • Debit card

    • Removes sales amount from cardholder’s bank account

    • Transfers sales amount to seller’s bank account

    • Issued by cardholder’s bank

      • Carries major credit card issuer name

E-Business, Eighth Edition


Payment cards cont d1

Payment Cards (cont’d.)

  • Charge card (American Express)

    • No spending limit

    • Entire balance due at end of billing period

    • No line of credit or interest charges

    • Examples: department store, oil company cards

  • “Payment card”

    • Refers to credit cards, debit cards, and charge cards

E-Business, Eighth Edition


Payment cards cont d2

Payment Cards (cont’d.)

  • Single-use cards

    • Cards with disposable numbers

      • Addresses concern of giving online vendors payment card numbers

    • Not used much anymore

      • Problem: required consumers to behave differently

E-Business, Eighth Edition


Advantages and disadvantages of payment cards

Advantages and Disadvantages of Payment Cards

  • Advantage for merchants

    • Fraud protection (built-in security)

      • Charge paid through issuer of payment card

  • Advantage for U.S. consumers

    • Liability of fraudulent card use: $50

      • Card issuer frequently waives $50 charge if card stolen

  • Good for merchants and consumers

    • Worldwide acceptance

      • Currency conversion handled by card issuer

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Advantages and disadvantages of payment cards cont d

Advantages and Disadvantages of Payment Cards (cont’d.)

  • Disadvantage for merchants

    • Per-transaction fees, monthly processing fees

      • Cost of doing business

    • Goods and services prices are slightly higher

      • As opposed to environment free of payments cards

    • For payment:

      • Merchant must first set up merchant account

  • Disadvantage for consumers

    • Annual fee

E-Business, Eighth Edition


Payment acceptance and processing

Payment Acceptance and Processing

  • Internet payment card process easier than physical store process

  • EMV standard

    • Single standard handling payment card transactions

    • Visa, MasterCard, MasterCard International

  • United States online stores, mail order stores

    • Must ship merchandise within 30 days of charging payment

      • Violation penalties are significant

      • Most do not charge payment card accounts until merchandise shipped

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Payment acceptance and processing cont d

Payment Acceptance and Processing (cont’d.)

  • General steps in payment card transactions

    • Merchant receives payment card information

    • Merchant authenticates payment

    • Merchant ensures funds are available and puts hold on credit line or funds to cover charge

    • Settlement occurs (few days after purchase); funds travel between banks and are placed into merchant’s account

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Payment acceptance and processing cont d1

Payment Acceptance and Processing (cont’d.)

  • Open and closed loop systems

    • Closed loop systems

      • Card issuer pays merchant directly

      • Does not use intermediary

      • American Express, Discover Card

    • Open loop systems (three or more parties)

      • Third party (intermediary bank) processes transaction

      • Visa, MasterCard: not issued directly to consumers

      • Credit card associations: operated by association member banks

      • Customer issuing banks: member banks

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Payment acceptance and processing cont d2

Payment Acceptance and Processing (cont’d.)

  • Merchant accounts (acquiring bank)

    • Bank doing business with sellers (Internet, non-Internet) wanting to accept payment cards

    • Merchant account

      • Required for online merchant to process payment cards

    • Acceptance by bank of merchant account

      • Merchant must provide business information

      • Risk of business type assessed

    • Bank collects credit card receipts on merchant’s behalf

      • Credits value in merchant’s account

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Payment acceptance and processing cont d3

Payment Acceptance and Processing (cont’d.)

  • Merchant accounts (cont’d.)

    • Chargeback

      • Cardholder successfully contests charge

      • Merchant bank must retrieve money from merchant account

      • Merchant may have to cover chargeback potential

    • Problem facing online businesses

      • Level of online transaction fraud

      • Fewer than 5 percent of credit card transactions completed online; accounts for 60 percent of total credit card dollar amount fraud

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Payment acceptance and processing cont d4

Payment Acceptance and Processing (cont’d.)

  • Processing payment cards online

    • Payment processing service providers

      • Companies offering payment card processing

    • Example: InternetSecure

      • Supports Visa and MasterCard payments for Canadian and U.S. accounts

      • Provides risk management and fraud detection

      • Handles online merchants transactions

      • Uses existing bank-approved payment card processing infrastructure, secure links, and firewalls

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Payment acceptance and processing cont d5

Payment Acceptance and Processing (cont’d.)

  • Processing payment cards online (cont’d.)

    • First Data

      • Provides merchant payment card processing services with ICVERIFY and WebAuthorize programs

      • ICVERIFY: for small retailers using Microsoft Windows electronic cash registers, point-of-sale terminal systems

      • WebAuthorize: for large enterprise-class merchant sites

    • ICVERIFY, WebAuthorize connect directly to:

      • Network of banks: Automated Clearing House (ACH)

      • Credit card authorization companies

      • Connect to ACH through highly secure, private leased telephone lines

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Payment acceptance and processing cont d6

Payment Acceptance and Processing (cont’d.)

  • Processing payment cards online (cont’d.)

    • Merchant Warehouse’s PayFlow Linksystem

      • Online payment system developed by CyberCash

      • Now operated by VeriSign

    • InfoSpace’s Authorize.Net

      • Online, realtime payment card processing service

      • Merchants link to system by inserting small HTML code block into transaction page

      • Order encrypted, transferred to Authorize.Net server

      • Server relays transaction to bank network

      • Customers not aware of third-party supplier (usually)

E-Business, Eighth Edition


Electronic cash

Electronic Cash

  • Electronic cash (e-cash, digital cash)

    • Describes any value storage and exchange system created by private (nongovernmental) entity

      • Does not use paper documents or coins

      • Can serve as substitute for government-issued physical currency

  • Readily exchanged for physical cash on demand

  • Problem

    • No standard among all electronic cash issuers

    • Not universally accepted

E-Business, Eighth Edition


Electronic cash cont d

Electronic Cash (cont’d.)

  • Small purchases not profitable for merchants

    • Bank fees greater than profits

  • Factors in favor of electronic cash

    • Potentially significant market for electronic cash

      • Market for Internet small purchases (below $10)

    • Most of world’s population does not have credit cards

      • Electronic cash: solution to paying for online purchases

  • Idea of electronic cash refuses to die

    • Despite failures

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Micropayments and small payments

Micropayments and Small Payments

  • Micropayments

    • Internet payments for items

      • Costing few cents to a dollar

  • Micropayments barriers

    • Not implemented very well on the Web yet

    • Human psychology

      • People prefer to buy small value items in fixed price chunks

      • Example: mobile phone has fixed monthly payment plans

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Micropayments and small payments cont d

Micropayments and Small Payments (cont’d.)

  • Small payments

    • All payments of less than $10

  • Companies that have developed micropayment systems

    • Millicent, DigiCash, Yaga, BitPass

      • All have failed

    • No company has gained broad acceptance of its system despite industry observers seeing such a need

    • No company devoted solely to offering micropayment services

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Privacy and security of electronic cash

Privacy and Security of Electronic Cash

  • Electronic payment methods concerns

    • Privacy and security, independence, portability, convenience

    • Privacy and security: most important to consumers

      • Transactions vulnerable

      • Electronic currency: copied, reused, forged

  • Unique security problems of electronic cash

    • Possible to spend only once

      • Not counterfeit; used in two different transactions

    • Anonymous use

      • Prevents sellers from collecting information

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Privacy and security of electronic cash cont d

Privacy and Security of Electronic Cash (cont’d.)

  • Electronic cash companies

    • eCharge, InternetCash, Valista

  • Advantages of electronic cash

    • Independent

      • Unrelated to any network or storage device

      • Ideally pass transparently across international borders; converted automatically to recipient country’s currency

    • Portable

      • Freely transferable between any two parties

  • Credit and debit cards: not portable or transferable

  • Important characteristic of cash: convenience

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Holding electronic cash online and offline cash

Holding Electronic Cash: Online and Offline Cash

  • Online cash storage

    • Consumer has no personal possession of electronic cash

      • Trusted third party (online bank) involved in all transfers, holds consumers’ cash accounts

  • Online system payment

    • Merchants contact consumer’s bank

      • Helps prevent fraud (confirm valid cash)

      • Resembles process of checking with consumer’s bank to ensure valid credit card and matching name

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Holding electronic cash online and offline cash cont d

Holding Electronic Cash: Online and Offline Cash (cont’d.)

  • Offline cash storage

    • Virtual equivalent of money kept in wallet

    • Customer holds it

      • No third party involved in transaction

    • Protection against fraud concern

      • Hardware or software safeguards needed

    • Double-spending

      • Spending electronic cash twice

      • Too late to prevent fraudulent act by time same electronic currency clears bank for second time

      • Prevent double-spending: use encryption techniques

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Advantages and disadvantages of electronic cash

Advantages and Disadvantages of Electronic Cash

  • Traditional brick-and-mortar billing methods

    • Costly

      • Generate invoices, stuff envelopes, buy and affix postage to envelopes, send invoices to customers

    • Accounts payable department

      • Keeps track of incoming payments, posts accounts in database, ensures current customer data

  • Online stores have the same payment collection inefficiencies

    • Online customers use credit cards to pay for purchases

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Advantages and disadvantages of electronic cash cont d

Advantages and Disadvantages of Electronic Cash (cont’d.)

  • Online auction customers use conventional payment methods

    • Checks, money orders

  • Electronic cash system

    • Less popular than other payment methods

    • Provides unique advantages and disadvantages

  • Advantages of electronic cash transactions

    • More efficient (less costly)

      • Efficiency fosters more business (lower prices)

    • Occurs on existing infrastructure (Internet)

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Advantages and disadvantages of electronic cash cont d1

Advantages and Disadvantages of Electronic Cash (cont’d.)

  • Advantages of electronic cash transactions (cont’d.)

    • Internet spans globe

      • Distance transaction travels does not affect cost

    • Does not require one party to obtain authorization

  • Disadvantages of electronic cash transactions

    • No audit trail

    • Money laundering

      • Technique criminals use to convert money illegally obtained into spendable cash

      • Purchase goods, services with ill-gotten electronic cash

      • Goods sold for physical cash on open market

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Advantages and disadvantages of electronic cash cont d2

Advantages and Disadvantages of Electronic Cash (cont’d.)

  • Disadvantages of electronic cash transactions (cont’d.)

    • Susceptible to forgery

    • Other potentially damaging digital economic factors

      • Expansion of money supply when banks loan electronic cash on consumer and merchant traditional bank accounts

  • Electronic cash has not yet become a global success

    • Will require wide acceptance and solution to problem of multiple electronic cash standards

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How electronic cash works

How Electronic Cash Works

  • Consumer opens account with electronic cash issuer

    • Presents proof of identity

  • Consumer withdraws electronic cash using issuer’s Web site

    • Presents proof of identity

      • Digital certificate issued by certification authority

      • Combination of credit card number and verifiable bank account

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How electronic cash works cont d

How Electronic Cash Works (cont’d.)

  • After consumer identity is verified:

    • Electronic cash amount is issued

      • Amount deducted from consumer’s account

      • Issuer may charge small processing fee

  • Consumer stores electronic cash

    • In electronic wallet

    • On his or her computer

    • On stored-value card

  • Consumer can authorize issuer to make third-party payments

    • From electronic cash account

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Providing security for electronic cash

Providing Security for Electronic Cash

  • Significant electronic cash problem

    • Potential for double-spending

  • Main deterrent

    • Threat of detection and prosecution

  • Keys to creating tamperproof electronic cash that can be traced back to origins

    • Cryptographic algorithms

    • Two-part lock

      • Provides anonymous security

      • Signals someone is attempting to double-spend cash

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Providing security for electronic cash cont d

Providing Security for Electronic Cash (cont’d.)

  • When second transaction occurs

    • Complicated process reveals:

      • Attempted second use

      • Identity of original electronic cash holder

  • Electronic cash used correctly

    • Maintains user’s anonymity

  • Double-lock procedure

    • Protects anonymity of electronic cash users

    • Simultaneously provides built-in safeguards to prevent double-spending

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Providing security for electronic cash cont d1

Providing Security for Electronic Cash (cont’d.)

  • Double-spending

    • Neither detected nor prevented with truly anonymous electronic cash

  • Anonymous electronic cash

    • Cannot be traced back to person who spent it

  • Tracing electronic cash

    • Attach serial number to each electronic cash transaction

      • Cash positively associated with particular consumer

      • Does not solve double-spending problem

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Providing security for electronic cash cont d2

Providing Security for Electronic Cash (cont’d.)

  • Single issuing bank can detect when two deposits of same electronic cash are about to occur

    • Impossible to ascertain fault (consumer or merchant)

  • Electronic cash contains serial numbers

    • No longer anonymous

      • One reason to acquire electronic cash

    • Raises privacy issues

      • The use of serial numbers to track consumers’ spending habits

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Providing security for electronic cash cont d3

Providing Security for Electronic Cash (cont’d.)

  • Creating truly anonymous electronic cash

    • Bank issues electronic cash with embedded serial numbers

      • Bank digitally signs electronic cash while removing association of cash with particular customer

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Electronic cash systems

Electronic Cash Systems

  • Electronic cash

    • More successful in Europe and Japan

      • Consumers prefer to use cash (does not work well for online transactions)

      • Electronic cash fills important need

    • Not successful in United States

      • Consumers have payment cards and checking accounts

  • KDD Communications (KCOM)

    • Internet subsidiary: Japan’s largest phone company

    • Offers electronic cash through NetCoin Center

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Electronic cash systems cont d

Electronic Cash Systems (cont’d.)

  • Reasons for failure of United States electronic cash systems

    • Electronic cash systems implementation

      • Required to download and install complicated client-side software that ran in conjunction with browser

    • Number of competing technologies

      • No standards developed

      • Array of proprietary electronic cash alternatives

    • No interoperable software

      • That runs transparently on variety of hardware configurations and different software systems

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Electronic cash systems cont d1

Electronic Cash Systems (cont’d.)

  • CheckFree

    • Largest online bill processor (in the world)

    • Payment processing services since 1981 to:

      • Large corporations, individual Internet users

    • 2007 Fiserv bought CheckFree ($4.4 billion)

      • Offers online bill processing under CheckFree brand

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Electronic cash systems cont d2

Electronic Cash Systems (cont’d.)

  • Clickshare

    • Electronic cash system for magazines and newspaper publishers

    • Uses technology called micropayment-only system

    • An ISP supporting Clickshare automatically registers users

    • When users click links leading to Clickshare sites

      • They can make purchases without registering again

      • Clickshare keeps track of transactions and bills user’s ISP

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Electronic cash systems cont d3

Electronic Cash Systems (cont’d.)

  • Clickshare (cont’d.)

    • Tracks user on the Internet

      • Significant value to advertisers, marketers

      • Defeats anonymity

    • Micropayment capability

      • By-product of core functionality of tracking identified users

      • Tracks users with standard HTTP Web protocol

      • Does not require cookies or software wallets

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Electronic cash systems cont d4

Electronic Cash Systems (cont’d.)

  • PayPal

    • Payment processing services to businesses, individuals

    • Earns profit from float

      • Money deposited, not used immediately

    • Charges transaction fee

      • Businesses using service to collect payments

    • Peer-to-peer (P2P) payment system

      • Free payment clearing service for individuals

      • Payments from one type of entity to another of the same type

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Electronic cash systems cont d5

Electronic Cash Systems (cont’d.)

  • PayPal (cont’d.)

    • Eliminates writing and mailing checks or payment cards

    • Send money instantly and securely to anyone with an e-mail address

    • Convenient for auction bidders to pay for purchases

    • Convenient for auction sellers

      • Eliminates risks posed by other online payment types

    • Transactions clear instantly

    • Redemption

      • PayPal check

      • Direct deposit to checking accounts

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Electronic cash systems cont d6

Electronic Cash Systems (cont’d.)

  • PayPal (cont’d.)

    • Merchants and consumers first register for PayPal account

      • No minimum amount account balance

      • Add money by authorizing checking accounts transfer, using credit card

      • Merchants need PayPal accounts to accept PayPal payments

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Electronic cash systems cont d7

Electronic Cash Systems (cont’d.)

  • PayPal (cont’d.)

    • Competition from Billpoint

      • Joint venture between eBay, Wells Fargo

      • PayPal maintained first-mover advantage

        • Remained most widely used eBay payment processing system

      • eBay purchased PayPal

    • Other peer-to-peer payment business companies

      • First Data Corporation offered electronic money orders through BidPay site (closed in 2007)

      • Citibank’s c2it payments service (closed in 2003)

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Electronic wallets

Electronic Wallets

  • Concerns of consumers when shopping online

    • Entering detailed shipping and payment information for each online purchase

    • Filling out forms

  • Solution

    • Electronic commerce sites allows customer to store name, address, credit card information on the site

    • Problem

      • Consumers must enter information at each site

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Electronic wallets cont d

Electronic Wallets (cont’d.)

  • Electronic wallet (e-wallet)

    • Holds credit card numbers, electronic cash, owner identification, owner contact information

    • Provides information at electronic commerce site checkout counter

    • Benefit: consumer enters information once

      • More efficient shopping

  • Server-side electronic wallet

    • Stores customer’s information on remote server of merchant or wallet publisher

    • No download time or installation on user’s computer

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Electronic wallets cont d1

Electronic Wallets (cont’d.)

  • Server-side electronic wallet (cont’d.)

    • Main weakness

      • Security breach can reveal thousands of users’ personal information (credit card numbers)

      • Servers must employ strong security measures to minimize possibility of unauthorized disclosure

  • Client-side electronic wallet

    • Stores information on consumer’s computer

    • Disadvantages

      • Must download wallet software onto every computer

      • Not portable

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Electronic wallets cont d2

Electronic Wallets (cont’d.)

  • Client-side electronic wallet (cont’d.)

    • Advantage

      • Sensitive information stored on user’s computer

    • Sensitive information safer on client machine

      • Attackers must launch many attacks on user computers (more difficult to identify)

      • Prevents easily identifiable wallet vendor’s servers from attack

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Electronic wallets cont d3

Electronic Wallets (cont’d.)

  • Characteristics of useful wallets

    • Wallet accessibility

      • Populate data fields in any merchant’s forms for any site consumer visits

    • Electronic wallet manufacturer and merchants from many sites must coordinate efforts

      • Wallet recognizes consumer information going into each field of given merchant’s forms

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Electronic wallets cont d4

Electronic Wallets (cont’d.)

  • Electronic wallets

    • Store shipping and billing information

      • Consumer’s first and last names, street address, city, state, country, postal code

    • Hold credit card names, numbers

      • Offers consumer choice of credit cards at online checkout

    • Hold electronic cash from various providers

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Electronic wallets cont d5

Electronic Wallets (cont’d.)

  • Electronic wallet used by business companies

    • Example: MasterCard

    • Most abandoned efforts

      • Current major browsers include feature to remember names, addresses, other commonly requested information

      • Browsers provides one-click Web form field completion

    • Two e-wallet arena survivors

      • Microsoft Windows Live ID

      • Yahoo! Wallet

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Microsoft windows live id

Microsoft Windows Live ID

  • Formerly called Passport, Microsoft .NET Passport

  • Single sign-in service

    • Includes server-side electronic wallet

      • Operated by Microsoft

  • All personal data entered into Windows Live ID wallet

    • Encrypted and password protected

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Microsoft windows live id cont d

Microsoft Windows Live ID (cont’d.)

  • Four integrated services

    • Single sign-in service (SSI)

      • Allows user to sign in at participating Web site using username and password

    • Wallet service

      • Provides electronic wallet functions (secure storage, form completion of credit card, address information)

    • Kids service

      • Helps parents protect, control children’s online privacy

    • Public profiles

      • Allows consumers to create public page of information about themselves

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Yahoo wallet

Yahoo! Wallet

  • Server-side electronic wallet offered by Yahoo!

  • Completes order forms automatically

    • Identifying information, credit card payment information

  • Stores information

    • Several major credit, charge cards, Visa and MasterCard debit cards

  • Accepted by:

    • Thousands of Yahoo! Store merchants, Yahoo! Travel

    • Yahoo! Services

      • Premium e-mail storage, Web hosting fees

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Yahoo wallet cont d

Yahoo! Wallet (cont’d.)

  • Yahoo! Advantage

    • Number of services and shops accommodate own wallet

      • Large number of merchants accept wallet

  • Privacy concern

    • Company issuing wallet has access to great deal of information about individual using wallet

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Stored value cards

Stored-Value Cards

  • Microchip smart card or magnetic strip plastic card

    • Records currency balance

  • Microchip versus magnetic strip

    • Microchip stores more information

    • Tiny microchip computer processor

      • Performs calculations and storage operations on card

    • Different microchip card reader needed

  • Examples: prepaid phone, copy, subway, bus cards

  • “Stored-value card” and “smart card” used interchangeably

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Magnetic strip cards

Magnetic Strip Cards

  • Holds rechargeable value

  • Passive magnetic strip cards cannot:

    • Send or receive information

    • Increment or decrement cash value stored

  • Processing done on device into which card inserted

  • Magnetic strip cards and smart cards store electronic cash

    • Smart card better suited for Internet payment transactions

      • Has processing capability

E-Business, Eighth Edition


Smart cards

Smart Cards

  • Stored-value card

    • Plastic card with embedded microchip

  • Credit, debit, charge cards store limited information on magnetic strip

  • Store information

    • About 100 times more than magnetic strip plastic card

  • Hold private user data

    • Financial facts, encryption keys, account information, credit card numbers, health insurance information, medical records

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Smart cards cont d

Smart Cards (cont’d.)

  • Safer than conventional credit cards

    • Information encrypted on smart card

  • Popular in Europe, parts of Asia

    • Public telephone calls, cable television programs

    • Hong Kong

      • Retail counters, restaurant cash registers have smart card readers

      • Octopus is the public transportation smart card: can be reloaded at transportation locations, 7-Eleven stores

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Smart cards cont d1

Smart Cards (cont’d.)

  • Beginning to appear in United States

    • San Francisco TransLink integrated ticketing system for public transportation

    • Smart Visa card (2000)

    • Target Visa smart card (2002)

  • Smart Card Alliance

    • Advances smart card benefits

    • Promotes widespread acceptance of multiple-application smart card technology

    • Promotes compatibility among smart cards, card reader devices, applications

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Internet technologies and the banking industry

Internet Technologies and the Banking Industry

  • Paper checks

    • Largest dollar volume of payments

    • Processed through world’s banking system

  • Other major payment forms

    • Involve banks one way or another

  • Banking industry Internet technologies

    • Providing new tools

    • Creating new threats

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Check processing

Check Processing

  • Physical check processing (banks, clearinghouses)

    • Person wrote check; retailer deposited check in bank account

    • Retailer’s bank sent paper check to clearinghouse

      • Clearinghouse managed fund transfer (consumer’s bank to retailer’s account)

    • Paper check transported to consumer’s bank

    • Send cancelled check to consumer

  • Many banks stopped sending cancelled checks to consumer

    • Provide PDF images of processed checks

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Check processing cont d

Check Processing (cont’d.)

  • Disadvantage of paper checks

    • Cost of transporting tons of paper checks

    • Float

      • Delay between the time person writes check and the time check clears person’s bank

      • Bank’s customer obtains free use of funds for few days

      • Bank loses use of funds for same time period

      • Can become significantly longer than a few days

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Check processing cont d1

Check Processing (cont’d.)

  • Technologies helping banks reduce float

    • 2004 U.S. law: Check Clearing for the 21st Century Act (Check 21)

      • Banks eliminate movement of physical checks entirely

  • Check 21-compliant world

    • Retailer scans customer's check

    • Scanned image transmitted instantly

      • Through clearing system

    • Posts almost immediately to both accounts

      • Eliminates transaction float

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Phishing attacks

Phishing Attacks

  • Phishing expedition

    • Technique for committing fraud against online businesses customers

    • Launched against all online business types

    • Particular concern to financial institutions

      • Customers expect high degree of personal information security

  • Basic structure

    • Attacker sends e-mail message

      • Large number of recipients

      • Account at targeted Web site

E-Business, Eighth Edition


Phishing attacks cont d

Phishing Attacks (cont’d.)

  • Basic structure (cont’d.)

    • E-mail message tells recipient account is compromised

      • Recipient must log on to account to correct problem

    • E-mail message includes link

      • Appears to be Web site login page

      • Actually disguised perpetrator’s Web site

    • Recipient enters login name, password

      • Perpetrator captures

      • Uses to access recipient’s account

      • Access personal information, make purchases, withdraw funds

E-Business, Eighth Edition


E business eighth edition

E-Business, Eighth Edition


Phishing attacks cont d1

Phishing Attacks (cont’d.)

  • Spear phishing

    • Phishing expedition that is carefully designed to target particular person or organization

    • Requires considerable research

    • Increases chance of e-mail being opened

    • Example: 2008 government stimulus checks

      • Phishing e-mails appeared within one week of passage

E-Business, Eighth Edition


Phishing attacks cont d2

Phishing Attacks (cont’d.)

  • E-mail link disguises and tricks

    • Example of Web server that ignores all characters preceding [email protected]:

      https:[email protected]/fl/login.html

    • Example of disguised link:

      https:[email protected]/fl/login.html

    • Example of invisible phony site displayed due to JavaScript code:

      http://leasurelandscapes.com/snow/webscr.dll

E-Business, Eighth Edition


Phishing attacks cont d3

Phishing Attacks (cont’d.)

  • E-mail link disguises and tricks (cont’d.)

    • Pop-up windows

      • Look exactly like browser address bar

    • Including Web site graphics of financial institutions

      • Looks more convincing

E-Business, Eighth Edition


E business eighth edition

E-Business, Eighth Edition


Organized crime identity theft and phishing attacks

Organized Crime, Identity Theft, and Phishing Attacks

  • Organized crime (racketeering)

    • Unlawful activities conducted by highly organized, disciplined association for profit

    • Differentiated from less organized terrorist groups

    • Internet providing new criminal activity opportunities

      • Generates spam, phishing, identity theft

    • Identity theft

      • Criminal act where perpetrator gathers victim’s personal information

      • Uses information to obtain credit

      • Perpetrator runs up account charges and disappears

E-Business, Eighth Edition


E business eighth edition

E-Business, Eighth Edition


Organized crime identity theft and phishing attacks cont d

Organized Crime, Identity Theft, and Phishing Attacks (cont’d.)

  • Large criminal organizations

    • Efficient perpetrators of identity theft

      • Exploit large amounts of personal information quickly and efficiently

    • Sell or trade information that is not of immediate use

      • Other worldwide organized crime entities

    • Zombie farm

      • Large number of computers implanted with zombie programs

    • Pharming attack

      • Hacker sells right to use zombie farm to organized crime association

E-Business, Eighth Edition


Organized crime identity theft and phishing attacks cont d1

Organized Crime, Identity Theft, and Phishing Attacks (cont’d.)

  • Two elements in phishing

    • Collectors: collect information

    • Cashers: use information

    • Require different skills

  • Crime organizations facilitate transactions between collectors and cashers

    • Increases phishing activity efficiency, volume

  • Each year

    • More than a million people fall victim

    • Financial losses exceed $500 million

E-Business, Eighth Edition


Phishing attack countermeasures

Phishing Attack Countermeasures

  • Change protocol

    • Improve e-mail recipients’ ability to identify message source

    • Reduce phishing attack threat

  • Educate Web site users

  • Contract with consulting firms specializing in anti-phishing work

  • Monitor online chat rooms used by criminals

E-Business, Eighth Edition


Summary

Summary

  • Online stores payment forms

    • Credit, debit, charge cards (payment cards)

      • Ubiquitous, convenient, easy to use

    • Electronic cash advantages and potential uses

      • Making micropayments, stored online or offline

    • Convenience of electronic wallets

    • Stored-value cards

      • Smart cards, magnetic strip cards

  • Banks process most monetary transactions

    • Use Internet technologies to process checks

  • Concerns: phishing expeditions, identity theft

E-Business, Eighth Edition


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