Electronic Payment Systems

Electronic Payment Systems Lecture 8 Supakorn Kungpisdan ITEC5611

Outline • The Payment Evolution • Using Payment Cards Online • Secure Electronic Transaction (SET) • E-Micropayment • E-Checking • Electronic Bill Presentment and Payment • PayPal ITEC5611

The Payment Revolution • Crucial Factors • 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 ITEC5611

Using Payments Cards Online payment card Electronic card that contains information that can be used for payment purposes • Three forms of payment cards: • Credit cards • Debit cards • Stored-Value Cards ITEC5611

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 ITEC5611

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 ITEC5611

Using Payments Cards Online • 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 • Result in a number of false positive • Only available in US and Canada ITEC5611

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 ITEC5611

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 ITEC5611

Smart Card An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card ITEC5611

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 ITEC5611

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 ITEC5611

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 ITEC5611

Securing Smart Cards • 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 ITEC5611

Secure Electronic Transaction ITEC5611

Services Provided by SET • Secure communications channelamong involved parties • Trust by using X.509 certs • Party privacy: parties will receive only the information that they are intended to receive ITEC5611

Secure Electronic Transaction 4, 6 3 5, 10, 11 2 7 9 1 12 8 ITEC5611

SET Transaction Overview • 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) ITEC5611

Stored-Value Cards • A card that has monetary value loaded onto it and that is usually rechargeable ITEC5611

E-Micropayments • Small online payments, typically under US $10 • Companies with e-micropayment products: • BitPass (bitpass.com) • Paystone (paystone.com) • PayLoadz (payloadz.com) • Peppercoin (peppercoin.com) ITEC5611

Millicent ITEC5611

Outline • The Payment Evolution • Using Payment Cards Online • Secure Electronic Transaction (SET) • E-Micropayment • Electronic Check • Electronic Bill Presentment and Payment • PayPal ITEC5611

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 ITEC5611

Benefits of e-check processing • 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) ITEC5611

Processing E-Checks with Authorize.Net ITEC5611

Electronic Bill Presentment and Payment (EBPP) Presenting and enabling payment of a bill online. Usually refers to a B2C transaction ITEC5611

E-Bill Presentment ITEC5611

Types of E-Billing • Online banking • Biller Direct • Bill Consolidator ITEC5611

Advantages of E-Billing • Reduction in expenses related to billing and processing payments • Electronic advertising inserts can be customized to the individual customer • Reduces customer’s expenses ITEC5611

E-Billing Process for Single Biller ITEC5611

E-Billing Processes for Bill Consolidator ITEC5611

PayPal ITEC5611

PayPal Interface ITEC5611

Send Money Person-to-Person ITEC5611

Request Money ITEC5611

PayPal Website Payment ITEC5611

PayPal Website Payment (cont’d) ITEC5611

Receiving money • A merchant who wants to withdraw money from Paypal account must add bank account to Paypal first. ITEC5611

Withdraw Fund ITEC5611

Withdraw Fund (cont’d) ITEC5611

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. Paypal Virtual Terminal ITEC5611

Paypal Sandbox • Go to https://developers.paypal.com/ ITEC5611

Electronic Payment Systems