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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

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

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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)

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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)

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

E-Business, Eighth Edition

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

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 “@”:

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

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

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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