Comp2513

E-Payment Methods
Daniel L. Silver, Ph.D.
2001 Daniel L. Silver 2
Objectives
To introduce the basic methods of
electronic payment
Reference: Deital Ch. 4

2001 Daniel L. Silver 3
Outline
Trandition Payment Methods
E-Payment Methods
2001 Daniel L. Silver 4
Major Architectural Components
of the Web
Internet
Browser
Database
Server
Client 1
Server A
Server B
Bank
Server
URL
HTTP
TCP/IP
Browser
Client 2
HTTP
Server
App.
Server
index.html
Bank
Server
prog1.class
prog2.jsp
2001 Daniel L. Silver 5
Traditional Payment Methods
Payment: The transfer of money from one
individual or legal entity to another
Cash
Personal Cheques
Money orders (Bank note)
Credit cards
Debit cards

2001 Daniel L. Silver 6
Selection of Payment Method
Based on:
Convenience
Trace-ability
Repudiation
Financial risk
Fraud protection
Attacks on traditional methods?
2001 Daniel L. Silver 7
Credit Cards
A very common method of payment
Cards are issued by a bank
Unique 16-digit number (including check
digits) and an expiration date
Third party authorization companies verify
purchases
2001 Daniel L. Silver 8
Credit Card - Business Model
Logical Money Flow
Customer
Customer
Bank
Store
Visa
(3
rd
Party)
1. Charge
2. Credit
Authorization
3. Clearance/Settlement
4. Payment
What can you do if your statement shows
a fraudulent purchase?
Stores
Bank
2001 Daniel L. Silver 9
Credit Card - IT
Physical Data Flow
CARD
Reader
56k bps
modem
3
rd
Party
Authorization
System
(Visa)
Customer
Bank
System
Card Info,
Signature
Authorization
Program

Request
Authorization
EFT
POS Terminal
OK!
Stores
Bank
System
Customer
EFT
2001 Daniel L. Silver 10
Requirements of
E-Payment Methods

Enable an honest customer to convince a seller to
accept payment
Prevent a dishonest customer from making
unauthorized or fraudulent payments
Ensure the privacy of honest participants
Scalable to very large numbers of customers
Integrate with existing and evolving systems
NOT EASY!
2001 Daniel L. Silver 11
E-Payment Pros/Cons
Pros:
Potential for great flexibility
Low transaction costs
Rapid and diverse purchase power
Cons:
Perfect copying of transactions is possible
Vulnerability to world-wide attack
Lack of anonymity, potential for privacy
intrusion
2001 Daniel L. Silver 12
Various E-Payment Methods
Credit and Debit card
Digital Currency
E-Wallets
Peer-to-Peer Methods
Smart card
Micro-payments
B2B
2001 Daniel L. Silver 13
Use of Credit Card on the Web
Internet
Browser
Database
Server
Client 1
Server A
URL
HTTP
Server
App.
Server
index.html
prog.jsp
3
rd
Party
Authorization
System
cybercash.com
Customer
Bank
System
EFT
Stores
Bank
System
Authorization
2001 Daniel L. Silver 14
Credit Card Fraud
A major problem for E-commerce
The merchant has no legal proof of purchase
unless the buyer uses authentication certificate
Companys such as Visa, nochargeback.com and
CyberCash (now VeriSign) are working to limit
fraud:
Visa has established high risk business models and best
practices info for merchants
Nochargeback.com has lists of fraudlent cards, e-mail
addresses and postal addresses
VeriSign/CyberCash has employed AI to catch frauders

2001 Daniel L. Silver 15
Digital Currency
Digital cash accounts like traditional bank
accounts
Buyers deposit cash in the account and spend it at
E-Commerce sites (acct # is passed using secure
proprietary protocol)
E-Comm merchants can feel sure of payment
Customers do not need a credit card and spending
is limited to account balance
www.ecash.com

2001 Daniel L. Silver 16
E-Wallets
Established by financial institutions in
partnership with member E-Commerce sites
Allows customer to submit billing and
shipping info with one click at member sites
Also can store e-Cheques, e-Cash and credit
card information
Not as popular as originally projected
Entrypoints InfoGate offers an e-wallet


2001 Daniel L. Silver 17
Peer-to-Peer Methods
Digital cash via email (eCash.com)
PayPal.com digital payment system
Acts as a trusted third party (e.g. auction purchase)
To send money:
Sender sets up an account and requests to send payment
Sender places payment into the receivers account by credit-
card
Reciever is notified of payment via email
Receiver can transfer funds to bank account or request a
cheque
There is also a request payment method
FOR FREE .. ? What is the their business model ?
2001 Daniel L. Silver 18
Smart Cards
Cards with computer chips embedded on their
faces very common in Europe
Used for health care, transportation, ID, retail, pay
phones, loyalty programs, banking machines
Smart card readers interface with card and request
user PIN for access
Bank machines can load cards with cash and then
merchants can download cash from card
Returns anonymity of purchase to customer
GemPlus, MasterCard are leading supplier of SCs
2001 Daniel L. Silver 19
Micro-Payments
Long distance phone call charge is an example of
a micro-payment
Digital Equipment Corporatiion (DEC)
researchers originally envisioned MPs:
Payment per newspaper article ($0.005)
Payment by stock quote ($0.001)
Payment per click (Qpass, Inc)
Has not been popular, instead advertisers pay for
info, or customers pay flat rates Why?
2001 Daniel L. Silver 20
Why have micro-payments failed?
Overly complicated for customer and
business technology & accounting
Income is very dependent on customer use
(difficulties in cashflow management)
Customer anxiety could act as a deterent
Difficulties in standardization lost of
different approaches, variant media

2001 Daniel L. Silver 21
B2B
B2B transactions are the fastest area of $ growth
on the web
B2B transactions are substantially larger than B2C
Paymantech is major provider:
24/7 availability, all manner of EFT supported
many management tools and reporting methods
Ecredit.com offers real-time automated credit
approval and financing
TradeCard offers comprehensive B2B E-
commerce facilities on an international scale
THE END

danny.silver@acadiau.ca