electronic payment systems 20-763 lecture 12 peer-to-peer payments
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Electronic Payment Systems 20-763 Lecture 12 Peer-to-Peer Payments. Peer-to-Peer Payments. Are banks necessary? Peer-to-peer payments PayPal Elliptic Curve Cryptography CHIPS, SWIFT. Peer-to-Peer (P2P) Concepts. P2P payments not involving a bank - PowerPoint PPT PresentationTRANSCRIPT
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Electronic Payment Systems20-763
Lecture 12
Peer-to-Peer Payments
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Peer-to-Peer Payments
• Are banks necessary?• Peer-to-peer payments
– PayPal
• Elliptic Curve Cryptography• CHIPS, SWIFT
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Peer-to-Peer (P2P) Concepts• P2P
– payments not involving a bank– payments “directly” between payor and payee– classic example: cash– transfers between digital wallets– purchasing online content– micropayments
• Distinguish between P2P payments and P2P technology– Napster, Gnutella
• Someday we may use P2P technology for P2P payments
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal Structure
x.com
PayPal Private Bank
X.COM’s BANKINTERACTS WITHBANKING SYSTEMTHROUGH ACH
ONLY MAINTAINS LEDGERS
NO MOVEMENT OF REALMONEY WITHIN PAYPAL
PRIVATELY HELD COMPANY
User User’s Bank
USER INTERACTSWITH PAYPALTHROUGH BROWSER
BETWEEN TWO PAYPALUSERS, TRANSACTIONSARE PURELY BOOK ENTRIES
IF REAL MONEY MUSTMOVE, PAYPAL SENDSINSTRUCTIONS TO ITSBANK
USER MAINTAINS NORMALRELATIONS WITH HIS BANK
eBayPUBLIC COMPANY
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal
ACCOUNTHOLDER A
ACCOUNTHOLDER A’S
BANK
ACCOUNTHOLDER X
PAYPAL
ACCOUNT A. . .
ACCOUNT X
ACCOUNTHOLDER X’S
BANK
ACHPROCESSOR
ACCOUNTHOLDER A’S
CREDIT CARD
INTERNET EMAIL
PAYPAL’SBANK
1. A PAYS X VIA PAYPAL (A HAS ENOUGH IN PAYPAL ACCOUNT)
6. PAYPAL NOTIFIES X OF PAYMENT. X CHOOSES PAYMENT METHOD
2. OR: PAYPAL CHARGES X’S CREDIT CARD
3. OR: PAYPAL INITIATES ACH DEBIT
4. FUNDS ARE DEPOSITED IN PAYPAL’S BANK
7. OR: PAYPAL INITIATES ACH CREDIT
5. PAYPAL CREDITS X’S PAYPAL ACCOUNT
8. OR: PAYPAL MAILS CHECK TO X
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal Concepts• Merchants pay low fees; individuals pay nothing• Interest paid on deposits• Mass (bulk) payments• Business model: fees + float• Relationship with eBay• Mobile payments possible• What would happen if PayPal could be used for
everything?
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal Fees
SOURCE: PAYPAL
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal Fees
SOURCE: PAYPAL
• No fees for individuals• Only merchants are charged• Must be a merchant to receive credit card payments• No fee for deposits or withdrawals from US banks
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal and Foreign Exchange
eBay
PayPal U.S.
U.S. User U.S.User’s Bank
PayPal U.K. U.K.PayPal Bank
U.S. PayPal £ Acct
U.K.User’s Bank
U.K. User
$ £ U.K.
PayPal Bank U.K. PayPal $ Acct
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal IPO (Ticker: PYPL)• PayPal filed for $80.5M public offering Sept. 2001• Number of depositors: 20M, >90% market share• No one else has more than 100,000 (less than 1%)• Bank of America (largest in U.S.) has 3.3M regular
depositors• Search for “We accept PayPal” gave 36,000 hits• Year 2000 revenue: $14.5M, lost $170M• Year 2002 revenue: $200M, profit $5M• Daily volume: 165,000 payments• Annualized volume of payments handled: $3B• Total number of Silicon Valley IPOs in 2001: 5
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
PayPal v. NASDAQ
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Email Payments Market
SOURCE: CELENT.COM
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Email Payments Growth
SOURCE: CERTAPAY
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
eBanking as Integrated Activity
10
2030
40
50
$$$
$ $
Management
Cash
forecasts
AR APbalances payments
investment/debt
hedging
generalledger
OperationsAccounting
Brokers
Banks VendorsCustomerseBanking B2BB2C
eTradingERP
eCRMProduction Mgmt
SOURCE: SELKIRK
Australia Integrated eBanking Framework
Receipts
SOURCE: VICTORIA DEPT OFTREASURY AND FINANCE (AU)
Financial Markets
• Human Services• Justice• Taxes• Tolls
• Salaries• Suppliers• Service Providers• Transfer Payments
Bank Service and Transaction Mgmt
Cash Management
Single Acct for Govt OR
Single Acct for Dept
TCV
Departmental Accounting
Public Ledger and Central Agencies
Payments
Revenue Expenditure
• EFT• cards• cheq• cash
Value Transfer Value
Transfer
Information Flows
Fund Flows
• Commonwlth• Educat, NRE• Parliam, AG
Bank
• internet• electronic• Maxi• teleph• mail• counter
• EFT• cards• cheq• cash
• internet• electronic• teleph• mail
Outer Budget Balances
E-CommerceE-Business
Government Outputs: Budget Sector
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Treasury WorkstationTWS SCOPE
SOURCE: SELKIRK FINANCIAL TECHNOLOGIES
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Mobile Aggregators
SOURCE: VERTICAL ONESEE ALSO YODELEE2GO WIRELESS BANKING: EDS
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Mobile phone centric futureMillions
1996199719981999200020012002200320042005
More handsets than PCs connected to the Internet by the end of 2003 !
Projectedcellularsubscribers(Nokia 2000)
Projected PCs connected to the Internet(Dataquest 02/2000)
Projected Webhandsets(Nokia 2000)
...entering the paybox-PIN on the mobile phone
4
Clearing& settlement is done via electronic direct debit
5 Consumer authorises the payment to the Internet shop by...
3
Consumer has goods in shoppingbasket and selects “paybox - pay with mobile phone“ on website
1 paybox connectstransaction partnersand rings consumer on mobile phone
2
paybox
Paybox
SOURCE: PAYBOX NORDIC AB
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
AUTHENTICATION AND AUTHORIZATION MADEOVER GSM NETWORK
Transaction Space
Internet
Payment Space
Banking NetworkAuthorization Space
GSM Network
TRANSACTION TRIGGEREDOVER THE INTERNET
PAYMENT MADE THROUGHBANKING NETWORK
Paybox Combines Networks
SOURCE: PAYBOX NORDIC AB
• works with any mobile phone• any network provider• supports WAP via GPRS or UMTS• high taxicab penetration• 4% of all B2C in Germany
paybox
paybox: Payment Procedure
Customer Vendor1. Send phone number
6. Ship goods
2. Send phone # + amount
5. Confirm payment
3. Call customers mobile phone
4. Confirm recipient + amount (PIN)
SOURCE: ANDREAS KUNZ
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Paybox Features
• Payment authentication by mobile phone, relies on SIM identification and GSM encryption
• Started in May 2000 in Germany, now also operational in Austria, Spain and Sweden with more to come (e.g. Britain)
• 50% owned by Deutsche Bank• Amounts: starting at about 1€• Transfer to other mobile phone (1-2% or 25 cent fees)
or bank account possible• Offline shopping possible
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
Major Ideas
• P2P is cheap• P2P can be ubiquitous (email)• No certificates, but could generalize
– B2B payments
• Mobile services
20-763 ELECTRONIC PAYMENT SYSTEMS
FALL 2002
COPYRIGHT © 2002 MICHAEL I. SHAMOS
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