Comp2513

E-Payment Methods

Daniel L. Silver, Ph.D.

 Objectives
 To introduce the basic methods of electronic
payment
 Reference: Deital Ch. 4

2001 Daniel L. Silver 2

 Outline
 Trandition Payment Methods
 E-Payment Methods

2001 Daniel L. Silver 3

 Major Architectural Components
of the Web Bank
Server
Client 1
Browser HTTP Server A
TCP/IP

Client 2 Internet HTTP App. Database

Server Server Server
Browser

prog1.class
URL index.html prog2.jsp
Server B
Bank
Server
2001 Daniel L. Silver 4
 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 5

 Selection of Payment Method
 Based on:
– Convenience
– Trace-ability
– Repudiation
– Financial risk
– Fraud protection
 Attacks on traditional methods?
2001 Daniel L. Silver 6
 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 7

 Credit Card - Business Model
Logical Money Flow
3. Clearance/Settlement

Customer Visa Store’s

Bank (3rd Party) Bank

2. Credit
4. Payment Authorization

Customer Store
1. Charge

What can you do if your statement shows

a fraudulent purchase?
2001 Daniel L. Silver 8
 Credit Card - IT
Physical Data Flow
Customer 3rd Party
EFT
Customer Bank Authorization EFT
System System Store’s
(Visa) Bank
Card Info, System
CARD
Signature

Authorization
Reader Request
Authorization
Program 56k bps
modem
POS Terminal OK!

2001 Daniel L. Silver 9

 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 10

 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 11
 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 12

 Use of Credit Card on the Web
Store’s
3rd Party EFT Bank
Customer Authorization System
Bank System
Authorization
System cybercash.com
Server A

HTTP App. Database

Internet Server Server Server
Client 1

Browser URL prog.jsp

index.html

2001 Daniel L. Silver 13

 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 14

 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 15
 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
 Entrypoint’s InfoGate offers an e-wallet
2001 Daniel L. Silver 16
 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 17
 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 18
 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 19

 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 20

 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
2001 Daniel L. Silver 21
 THE END

danny.silver@acadiau.ca