Download - Electronic Payment Systems Shortened
Electronic Payment Systems
Digital Tokens
Digital / Electronic token:- Cash that is backed by bank
3 types-
1. Cash or real-time
2. Debit or pre-paid
3. Credit or post-paid
Dimensions of analyzing
• The nature of transaction for which the instrument is designed• The means of settlement used
– Credit, electronic bill payment, cash• Approach to security, anonymity and authentication• The question of risk
Electronic cash (e-cash)
• E-cash is an electronic payment option
• The cash could be stored on a remote computer’s memory, in smart cards,
or in other easily transported standard or special-purpose devices
Remote computer’s memory:-
• The user downloads electronic money from his bank account using
special software and stores the E-cash on his local hard drive. • To pay a WWW merchant electronically, the E-cash user goes
through the software to pay the desired amount from the E-cash "wallet" to the merchants local hard drive ("wallet") after passing the transaction through an E-cash bank for authenticity verification.
• The merchant can then pay its bills/payroll with this E-cash or
upload it to the merchant's hard currency bank account. • The E-cash company makes money on each transaction from the
merchant (this fee is very small, however) and from royalties paid by
banks which provide customers with E-cash software/hardware for a
small monthly fee. • Transactions between individuals would not be subject to a fee.
Properties of e-cash
1. Monetary value
2. Interoperability
3. Retrievability
4. security
E-cash in action
• Digital signature• Private & public keys• Bank supplies its public key to customers
Purchasing e-cash from currency servers
1. Establishment of an account
2. Maintaining enough money in the account to back the purchase
Using the digital currency
• Advantage of e-cashInstant settlement
• Drawback of e-cashInability to divide into smaller amountsCurrency fluctuations
Smart Cards
A "smart card" is a microprocessor card of credit card dimensions or smaller, with various tamper-resistant properties (e.g. a secure crypto-processor, secure file system, human-readable features) and is capable of providing security services (e.g. confidentiality of information in the memory).
In Japan, France, Germany, Singapore smart cards are used to pay public phone calls, transportation etc.
Types of smart cards
1. Relationship based smart cards2. Electronic purses
Relationship based smart cards
It is an enhancement of existing card services that a financial institution
delivers to its customers via a chip-based card
Services
1. Access to multiple financial accounts- debit, credit, investment
2. Variety of functions- cash access, bill payment, balance enquiry
3. Multiple access options at multiple locations using multiple devices- ATM, personal computer, PDA
4. Info of card holder
Electronic purses
Wallet sized smart cards embedded with programmable microchips that stores sums of money for people to use
Purse can be loaded with money at an ATM
Once depleted the purse can be recharged with more money
It can be used to pay the bills
Small bills like photocopies, laundry , parking fees etc
Credit based payment
3 categories
1. Payments using plain credit card details
2. Payments using encrypted credit card details
3. Payments using third party verification
Encryption & credit cards
Sequence of steps for secure transaction
1. Customer presents card to the merchant2. Merchant validates customer’s identity as the owner of the card3. Merchant relays credit card charge & signature to its bank4. Bank relays this info to customer’s bank for authorization approval5. Customer’s bank returns authentication & authorization to the
merchant
Processing payments using encrypted credit cards
Customer
Merchant's server
Send encrypted credit card number
Send information
Online credit card processors
Customer’s bank
Monthly purchase statement
verify
authorize
OKCheck for credit card
authenticity and sufficient funds
Third party processor & credit card
• Consumers register with a third party on the internet (OTPPs) to verify electronic micro transactions
• Example of companies:-
First Virtual (http://www.fv.com/)
Open market (http://www.openmarket.com/)
OTPP- On-line Third Party Processors
OTPPs process
1. Consumer C acquires an OTPP a/c number
2. C requests for item from merchant M by quoting OTPP a/c number
3. M contacts OTPP payment server with C’s a/c number
4. OTPP verifies a/c number & checks for funds
5. OTPP sends an electronic message to the buyer. Buyer responds as Yes, No , Fraud
6. If Yes, OTPP informs M
7. OTPP will not debit buyer’s a/c until it receives
confirmation of purchase completion
Online payment process using a third party processor
customer merchant
Merchant’s server
Client browser
request
Payment server
Credit cards
visa
Charge cards
American express
Bank accounts
Debit cards
Private label cards
Digicash
On-line third party processors with links to multiple payment systems
verification authorization
Risk in electronic payment system
• Mistakes & Disputes• Privacy issues• Credit risk
Designing electronic payment systems
• Privacy• Security• Intuitive interfaces• Database integration• Brokers• Pricing• standards