Electronic Payment Systems

The largest distinction between traditional Web servers and Web commerce software is the concept of money: handling payments over the internet. There are currently three basic ways to pay for your purchases: cash, check or credit card

Electronic cash distribution and payment can be handled by wallets, smart cards, or through proprietary, limited-use scrip. Scrip is digital cash minted by a small number of third-party organizations.

Electronic cash is especially useful for making micropayments Internet payments of less than $1 - Because the cost of processing credit cards for transaction less than $10 obliterates any profit on small items. E-cash shares several benefits with real cash. E-cash is portable, easily divisible into small units, and can be used for international transactions. E-cash can be stored online or off-line. Online e-cash is stored by a third party such as bank. The Consumer holds off-line cash in specially designed wallets.

Credit card-issuing banks make money, in part, by charging merchants a processing fee ranging from 1.5 to 3 percent of the value of the transaction. Often they impose minimum fee of 20 cents. Thats where electronic cash can shine. Even though there have been many failures in ecash Electronic cash is attractive in the sale of goods and services of less than $10 dollars-the lower threshold for credit card payments. Internet payments for items costing $1 or less are called Micropayments.

Electronic cash ,one of the forms of payment should have two important characteristics in common with real currency. First ,it must be possible to spend electronic cash only once, just as with real currency. Second, electronic cash ought to be anonymous, just as real currency is. =>Electronic cash transaction occurs between two parties such that the recipient knows that the electronic currency being received is not counterfeit or being used in two different transactions.

 Electronic

cash is also known as e-cash or digital cash. E-cash portability means that it must be freely transferable between any two parties in all forms of peer-to-peer transactions. Divisibility is a property that distinguish ecash from real currency. Divisibility determines the size of payment units.

Two approaches to holding cash: online storage and off-line storage. Online cash storage: a trusted third party- an online bank-is involved in all transfers of electronic cash and holds the consumers bank to receive payment for a consumer purchase. Off-line cash storage: the virtual equivalent of money you keep in your wallet. The customer holds it ,and no trusted third party is involved in the transaction.

 Protection

against fraud is still concern, so either hardware or software must prevent double or fraudulent spending. Double spending is spending a particular piece of electronic cash twice by simply submitting the same electronic currency to two different vendors

 E-cash

transactions are more efficient. Transferring e-cash on the Internet costs less than processing credit card transactions. The fixed cost of hardware to handle electronic cash is near zero. Distance not matter.

 Internet

tax Money Laundering can easily occur through purchase of goods and services with e-cash.

To establish e-cash, 1. A consumer goes in person to open an account with a bank and show some identification to establish identity. 2. Consumer withdraw e-cash to make a purchase, they access the bank via the internet by presenting proof of identity. 3. A digital certificate issued by a Certification Authority usually serves as digital proof of identity. 4. Bank verifies consumer identity to issue e-cash 5. Consumer stores the e-cash in a wallet on his or her computers hard disk or an smart card.

 Problem

-> Double spending To prevent double spending, the main security feature is the threat of prosecution. Double spending can neither be detected nor prevented with truly anonymous e-cash. Anonymous e-cash is e-cash that, like bills and coins, cannot be traced back to the person who spent it. To trace e-cash is to attach a serial number to each electronic cash transaction.

E-cash Is popular in Europe and Japan but not in US to date. CyberCash:Created CyberCoin for micro payments. DigiCash was a pioneer in the electronic cash field

MilliCent: KDD Communications (KCOM) is the internet subsidiary of kokusai Denshin Denwa, Japans largest global phone company. KCOM offers NetCoin e-cash system and offers e-cash through its NetCoin Center,which is supported by software system called MilliCent.

Checkfree : provides online payment processing services to both large corporations and Internet users. Checkfree provides the infrastructure and software to permit users to pay all their bills with online electronic checks. Clickshare is an e-cash system aimed at magazine and newspaper publishers. Ability To make micropayment Users with an ISP that supports clickshare automatically registered with clickshare. Clickshare does this with the Standard HTTP web protocol and does not require cookies or s/w wallets.

CyberCash: Combines features from cash and checks. It offers Internet payment options, including credit card, micropayments, and check payment services. Cybercash provides micropayment services through its Cybercoin service.

DigiCash: Digicash was a trailblazer in the electronic cash field. Digicash made software products that allowed users to purchase goods and services on the Internet and to pay for them using anonymous electronic cash.

eCoin.Net: Ecoins are electronic tokens issued by eCoin.net that can be used to pay for online goods. Make micro payments online E-cash is stored in an eCoin wallet on the consumers computer. Millicent : provide a way for consumers to purchase items that have a very low value. Developed by digital, now a part of Compaq Millicent is an electronic scrip system. Each participating merchant creates and sells its own scrip to a broker at a discount.

An electronic wallet, serving a similar function to a physical wallet, holds credit cards, electronic cash, owner identification and owner address information and provides that information at an electronic commerce sites checkout counter. E-wallet make online shopping more efficient.

Electronic Wallets are particularly useful, and heres why:

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When shoppers have filled their electronic shopping carts, they proceed to the checkout counter to confirm their choices At the checkout counter, they are confronted with a one- or twopage form into which they must enter their name, address, credit card number, and other personal Information. A consumer must fill in all the information boxes in order to complete the checkout process Repeatedly having to fill out long forms has cost the electronic industry millions of dollars A survey by forrester research Inc found that all most 65% of shoppers selected the products they want to purchase but failed to complete the checkout process Web consumers were less likely to abandon their shopping carts at the checkout counter when they used e-wallet

Agile Wallet technology (Cyber Cash's InstaBuy and Agile wallet technologies) is hosted on the Agile Wallet secure electronic server The server, developed by cyber cash, handles consumer payment and purchase information, providing quick and safe transaction completion. The first time a consumer wants to make a purchase with the Agile Wallet, he or she types in required information, including name, address, credit card data Information is stored securely on the Agile Wallet server. On subsequent visits to merchants supporting Agile Wallet service, the Agile wallet frame containing the consumers purchase information pops up within the merchants payment page Using this frame, the consumer completes a purchase transaction with a single mouse click after verifying that the information is correct.

A product of Launchpad Technologies eWallet is free wallet software, that consumers download and install on their computer. It is not stored on a central server along with others wallets. When you want to purchase an item, you simply click the eWallet icon, enter your password, and drag the credit card of your choice from the eWallet to a checkout form. To protect your information, eWallet is encrypted and password protected. You can download the eWallet by clicking the Install and use eWallet link found on the eWallet homepage

 Microsoft

Wallet comes preinstalled in Internet Explorer 4.0 and higher but not, of course, in Netscape Navigator. All personal data you enter into your Microsoft Wallet, including your name, address and credit card(s) information , are encrypted and password protected . Future versions of wallet will be able to interact with electronic cash system.

The World Wide Web Consortium(W3C) has recently weighted in with its proposal standard for electronic wallets. W3C Electronic Commerce Interest Group (ECIG) developed the Common Markup for Web Micropayment Systems public working draft. The proposed ECIG standards sets the guidelines for a systems that provides an extensible and interoperability way to embed micropayment information on the web. An extensible system is one that people can easily enhance without vioding any earlier wor k on the system.

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The ECIG draft standard proposes the following architecture: The client initiates the micropayment activity by requesting information from the merchant server. Browser has module called Per Fee Link Handler (PFLH), and one or more electronic payment wallets. On the merchant side of the client/server duo is an HTTP server. The W3C document proposes new HTML tags to carry the embedded micropayment information. W3C intends to consider the opinions and feedback from the web community- the browsing public, Internet consumers and merchant site producers to form a final standard.

Fieldname Merchanturl Merchantname

Short Description Identifies the merchant site Specifies a merchant designation

Format URL Character string

Requirements MUST be provided MAY be provided

Buyurl

Identifies what the Relative URL client is buying

MUST be provided

Price

Specifies amount and currency

Character string

MUST be provided

 electronic commerce modeling language It is a breakthrough because users enter credit card and address information once into their ECML-capable electronic wallet. Wallet will be accepted at all commerce sites if the consortium is sucessful in pushing the new technology to widespread acceptance.
ECML

A smart card is a plastic card with an embedded microchip containing a broad range of information. Can store over 100 times more information than a magnetic-striped plastic card A smart card contains private user information such as financial facts, private encryption keys, account information, credit card numbers, health insurance information. Smart card are better protected from misuse because the information are encrypted. Used for the use of pay phones and pay television.

 Mondex

is a smart card that holds and dispense electronic cash. It is a product of Mastercard International. As a card gain acceptance on the internet and in the general market place,mondex cards will allow other applications to reside on the chip. Mondex card was invented in 1990

 Mondex

requires special equipment; merchants who accept mondex must have a specific card reader at their checkout counter. Mondex card can accept e-cash directly from users bank account but needs a mondex card reader. Two cardholders can transfer cash between their cards through telephone line.

 An

advantage of mondex a single card will work both in the online word and off-line mode of ordinary merchants stores. Disadvantage : the card carries real cash in electronic form, and the risk of theft of the card. Mondex cards can dispense their cash immediately.

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User inserts Mondex card into a reader. Both merchant and card user are validated to make transactions. Merchants terminal requests payment while simultaneously transmitting the merchants digital signature. If signature is valid, transaction amount is deducted from the card holder card. Merchant checks customer digital signature for authenticity. Once the Cash is deducted from cardholder cash and transferred to merchants e-cash account .

 Online

shoppers use credit and charge cards for a majority of their Internet purchase. Credit card such as a Visa or a MasterCard, has a preset spending limit based on the users credit limit. A charge card, such as one from American Express, carries no preset spending limit, and the entire amount charged to the card is due at the end of the billing period.

Payments cards provide built-in security for merchants because they have a higher assurance that they will be paid through payment-card issuing companies than through the sometimes-slow direct involving process. Members involved:

Merchant Merchants bank Customer Customers bank Payment card company

Payment card transactions follow these general steps once the merchant receives a consumers payment card information, which is sent via a Secure Socket Layers protected web page: 1. The merchant must authenticate the payment card to ensure it is both valid and not stolen. 2. Merchant can check with the consumers payment card issuer to ensure that funds are available and put a hold on the funds needed to satisfy the current charge. 3. Often a few days following the consumers request for purchse, settlement occurs, which means funds travel through the banking system into merchants account after the purchase has been shipped.

 Closed

loop systems: for some payment card systems serves as a broker between card users and merchants accepting the card. These types of arrangements are called closed loop systems because no other institution are involved in the transaction. Open loop system involves three or more parties like customers , merchants and third party acquiring bank is involved besides of two banks.

merchant bank or acquiring bank is a bank does business with merchants that want to accept payment cards. Processing Payment Cards Online:
Payment card processing can be handled

automatically by software packaged with your electronic commerce software or you can contract with third party to handle all your payments.

 SET

is secure protocol jointly designed by Mastercard and Visa with the backing of Microsoft, Netscape, IBM,etc. The purpose of set is to provide security for card payments as they transverse the internet between the merchant sites and processing banks. Through SSL protocol transmits payment data and other sensitive information securely between merchants and consumers.

 SET

specification uses public key cryptography and digital certificates for validating both consumers and merchants. SET protocol provides confidentiality (secrecy), data integrity, user and merchant authentication and consumer nonrepudiation. SET goals contains SET Protocol goals and VeriFone and SET

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A shopper makes a purchase from a merchant who supports the SET specification. using the browser installed e-wallet, a user transmit encrypted financial information from the wallet along with digital certificate. The merchants web servers transfers the SETencoded transaction to a payment card processing center, which decrypts the transaction and processes it. The payment card processing center routes the transaction to the financial institution that issued the consumers credit card for approval.

4.finally, the merchant receives notification from the consumers bank that the transaction is approved. Then, the consumers credit card account is charged for the transaction amount. 5.The merchant ships the merchandise and adds the transaction amount to the batch of payment card transaction that are later transmitted to the merchants bank for deposit.