Chapter 11:
Payment Systems For Electronic
Commerce
Online Payment Basics
Cash, checks, credit cards, and Scrip
debit cards account for more
than 90 percent of all Digital cash minted by a
consumer payments in the company instead of by a
government
United States
Most popular consumer Cannot be exchanged for
electronic transfers are cash
automated payments of: Like a gift certificate that
Auto loans is good at more than one
store
Insurance payments
Mortgage payments made
from consumers’ checking
accounts
Payment Cards
The term payment card describes Advantages:
all types of plastic cards used to
make purchases Worldwide acceptance
Built-in security for
Credit card merchants
Has a spending limit based on Disadvantage:
a user’s credit history
Payment card service
Debit card companies charge merchants
Removes an amount from a per-transaction fees and
cardholder’s bank account monthly processing fees
Transfers it to the seller’s
bank account
Charge card
Carries no spending limit
Amount charged is due at the
end of the billing period
Payment Acceptance and Processing
Steps followed once a Closed loop systems
merchant receives a
consumer’s payment card Card issuer pays the
information: merchants that accept the
card directly and does not
Merchant authenticates use an intermediary
payment card
Open loop systems
Merchant checks with
payment card issuer Involve three or more
parties
To ensure that credit
or funds are available Systems using Visa or
MasterCard are examples
Puts a hold on the
credit line or the funds
needed to cover the
charge
Settlement occurs
Merchant Accounts
To process payment cards for Internet transactions an online
merchant must set up a merchant account
New merchants must supply:
Business plans
Details about existing bank accounts
Business and personal credit histories
Why are controls needed?
Processing Payment Cards Online
InternetSecure
Provides secure payment card services
First Data
Provides merchant payment card processing
services with the following programs:
ICVERIFY and WebAuthorize
Banks connect to an Automated Clearing House (ACH)
through highly secure, private leased telephone lines
Electronic Cash
Term that describes any value Concerns about electronic
storage and exchange system payment methods include:
created by a private entity Privacy and security
that:
Does not use paper Independence
documents or coins Portability
Can serve as a substitute Convenience
for government-issued
physical currency Advantages of electronic cash
include being:
Attractive in two arenas:
Sale of goods and services Independent and portable
of less than $10
Sale of goods and services
to those without credit
cards
Micropayments and Small Payments
Micropayments
Internet payments for items costing from a few
cents to approximately a dollar
Small payments
Payments of less than $10
Holding Electronic Cash: Online and Offline Cash
Online cash storage Advantages of electronic cash:
Trusted third party is Transactions are more
involved in all transfers of efficient
electronic cash Transfer on the Internet
Holds consumers’ cash costs less than processing
accounts credit card transactions
Offline cash storage Disadvantages of electronic
Virtual equivalent of money cash:
kept in a wallet Use provides no audit trail
No third party is involved
Problem of money
in the transaction
laundering arises
Double-spending
Susceptible to forgery
Spending electronic cash
twice
Providing Security for Electronic Cash
Cryptographic algorithms
Keys to creating tamperproof electronic cash that can be
traced back to its origins
Anonymous electronic cash
Electronic cash that cannot be traced back to the person
who spent it
Creating truly anonymous electronic cash
Requires a bank to issue electronic cash with embedded
serial numbers
Electronic Cash Systems
CheckFree
Largest online bill processor in
the world
Provides online payment
processing services
Clickshare
An electronic cash system
aimed at magazine and
newspaper publishers
PayPal
Provides payment processing
services to businesses and to
individuals
Peer-to-peer (P2P) payment
system
Free payment clearing
service for individuals
Electronic Wallets
Hold credit card numbers, Server-side electronic wallet
electronic cash, owner
identification, and contact Stores a customer’s
information information on a remote
server belonging to a
Give consumers the benefit of particular merchant or
entering their information just wallet publisher
once
Client-side electronic wallet
Make shopping more efficient
Stores a consumer’s
information on his or her
own computer
Other Cards
Stored Value Cards
Stored-value cards can be an elaborate smart card with a
microchip that records currency balance
Common stored-value cards include: Prepaid phone, copy, subway,
and bus cards
Magnetic strip cards
Cannot send or receive information
Cannot increment or decrement value of cash stored on the card
Processing must be done on a device into which the card is
inserted
Smart cards are better suited for Internet payment transactions
Are stored-value cards
Can hold private user data, such as financial facts
Can store about 100 times more information than a magnetic
strip plastic card
Safer than conventional credit cards
Phishing Attacks
Basic structure: Countermeasures
Attacker sends e-mail Most important step that
messages to a large companies can take today
number of recipients is to educate Web site
Message states that an users
account has been Many companies contract
compromised and the consulting firms that
matter should be specialize in anti-phishing
corrected work
Message includes a link Anti-phishing technique is
User enters a login name to monitor online chat
and password, which the rooms used by criminals
perpetrator captures
Once inside a victim’s
account, the perpetrator
can access personal
information
Group Exercise
In your group research these payment systems. Visit the
following sites and prepare an overview to be discussed
in class:
Group A -- The Fedwire system – accessible from
[Link] and click on “banking information” and
then “payment systems.” read the general information
about the US Payment system.
Group: B -- The CHIPS system [Link]
Group C -- The National Automated Clearinghouse
Association [Link]
Group D National Securities Clearing Corporation –
[Link]
