Electronic Payment Systems

How do we make an electronic payment?

• Credit and debit cards

• Smart cards

• Electronic cash (digital cash)

• Electronic wallets

• Person-to-person payments

• Electronic billing systems

• Electronic cheques

Digital Wallet

• Located on user’s system• Stores:

– User identification information– Credit card details– Digital cash

• Automatically provides this information to vendor site in order to make a purchase

• E.g. Amazon.com’s 1-Click shopping service

Electronic cheque

• Check with secure digital signature

Smart cards

• Credit card-sized cards with an embedded microprocessor

• Stores identification data and monetary value

• Can be used to store health records, telephone numbers, etc.

• Can be used to receive payments and to make them

Electronic Cash

• Digital currency that may be used to make small payments – smaller sums than you would use a credit or debit card for

• User has special software on his computer that allows him to access his bank account for cash

• He will spend e-cash at a shop which accepts it and which has an account at a bank that redeems e-cash

Person-to-person payments

• You cannot pay a person with a credit card

• PayPal, Yahoo PayDirect and BillPoint have put up web sites to which one may direct a payment to another person

• The intended recipient logs on to the site, offers proof of identity, and directs where the payment should be sent – e.g. to a bank account

Electronic Billing Systems

• These are services offered by intermed-iaries who function as collection agents for companies that have made credit sales to customers over the web.

• They notify purchases as bills fall due, present the bills, and process the payments

Infrastructure

• Certificate authority

• Digital certificate

• Data encryption

• Secure Sockets Layer (SSL)

• Compliant banking system

• Merchant accounts

• Stable currency

Certificate Authority

• Issues digital certificates

• Verifies authenticity of a certificate

• Installs your certificate with public key accessible to your clients

• Saves your private key on your computer

Data encryption

• Data streaming into your computer is encrypted using your public key

• Prior to sending you data, the sender uses your public key to validate the authenticity of your site

• Encrypted data sent can only be decrypted via your private key

Secure Sockets Layer

• A communications protocol used to secure sensitive data– Authenticates the target computer– Determines the encryption algorithm– Transfers the encrypted data

Merchant accounts• An account which a firm establishes with a

bank allowing it to accept credit cards from customers

• Many firms fail to get merchant accounts

• They have recourse to Independent Sales Organisations (ISO)

• Risk assessment – can the firms handle charge back transactions?

Credit card payment

• Vendor swipes credit card and enters amount of purchase

• Transaction sent to vendor’s banker• Bank requests authorisation from the bank that

issued the credit card• If approved, issuing bank sends back approval

code to vendor’s bank• Code relayed to vendor, appears on sales draft• Buyer signs sales draft, collects credit card

Credit card payment

• Credit card company debits vendor’s bank with Interchange Fee

• Bank in turn debits vendor with a Merchant Discount

• Both are levied on the basis of a percentage of sales value

Questions

1. Given that individuals may not open accounts to receive credit card payments, describe a web-based option designed to meet their needs.

2. Describe the charges made for the provision of credit card services.

3. E-cash opens up the possibility of making payments as small as one cent or less for some item. Describe some uses for such a facility.

4. Describe the role of the Certificate Authority.