E-Payments lecture

Electronic Business:

Electronic Business

Why there is need for Payment?:

Why there is need for Payment?

E-Payment:

E-Payment Electronic Payment System is a way of transferring money over Electronic Media.

Some Examples:

Some Examples Methods of traditional payment Check, credit card, or cash Methods of electronic payment Electronic cash, Scrips, software wallets, smart cards, and credit/debit cards Scrip is digital cash minted by third-party organizations

How to Pay? Depends upon the type of transactions:

How to Pay? Depends upon the type of transactions

Electronic Transactions:

Electronic Transactions Internet Based EDI Based Mobile Based

Electronic Transactions:

Electronic Transactions Business-to-Business Business-to-Customer Customer-to-Customer or Peer-to-Peer

Ecommerce Payment Ranges:

Ecommerce Payment Ranges Maximum Transaction Value Typical Transaction Value Minimum Transaction Value Mini $10.00 $0.10 $1.00 Macro $5.00  $50.00 Micro $0.001 $.10 $0.01 SOURCE: COMPAQ CORP. AMOUNTS IN USD

Key Issues in E-Payment Systems:

Key Issues in E-Payment Systems Privacy Authentication Integrity Non-repudiation

Other Desired Properties:

Other Desired Properties A tomicity Money Atomicity Goods Atomicity Certified Delivery C onsistency I solation D urability

Other Desired Properties:

Other Desired Properties Ease of use Low Cost Divisibility Scalability Interoperable Non-Counterfeiting Wide-range Acceptance Temporal durability Anonymity

Types of E-payments:

Types of E-payments Credit Card Debit Card E-cash Electronic Money Stored-Value cards Electronic Check System Electronic Fund Transfer Accumulating Balance Intermediaries peer-to-peer Mobile Payment

Credit Card Transaction:

Credit Card Transaction 1. BUYER TENDERS CREDIT CARD INFO TO SELLER 4. BUYER’S BANK AUTHORIZES/REJECTS 2. SELLER TRANSMITS PAYMENT DATA TO SELLER’S BANK 10. BUYER’S BANK SENDS BILL TO BUYER 3. SELLER’S BANK ASKS BUYER’S BANK FOR AUTHORIZATION BUYER’S BANK SELLER’S BANK BUYER 5. SELLER’S BANK NOTIFIES SELLER 6. SELLER SHIPS GOODS TO BUYER 11. BUYER PAYS BUYER’S BANK USING SOME OTHER METHOD OF PAYMENT 9. BUYER’S BANK PAYS SELLER’S BANK HOW? HOW MUCH? CLEARANCES: 2. HOW MUCH SHOULD SELLER GET? -- HOW MUCH SHOULD EACH BANK GET/PAY? 10. HOW MUCH SHOULD BUYER’S BILL BE? SETTLEMENTS: 7. SELLER GETS PAID 9. SELLER’S BANK GETS PAID 11. BUYER’S BANK GETS PAID 7. END OF DAY, SELLER UPLOADS COMPLETED TRANSACTIONS TO BANK SELLER 8. SELLER’S BANK CREDITS SELLER’S ACCOUNT

Definitions:

Definitions Consumer = Browser connected to Internet Merchant = Web store front (e.g. Amazon.com). Provides catalog, shipping, shopping cart functionality Payment Gateway – take credit information from consumer and implement financial transaction with Merchant and Issuer bank Merchant Bank – Web store front’s bank Issuer Bank – Issuer of consumer’s credit card

Debit Card:

Debit Card On spot payment Easy to obtain Eliminates the need to carry cash or check book Anonymity is there Advantage for the merchants

Electronic Cash:

Electronic Cash Primary advantage is with purchase of items less than $10 Credit card transaction fees make small purchases unprofitable Micro-payments Payments for items costing less than $1

E-cash Concept:

E-cash Concept Merchant Consumer Bank 1 2 3 4 5 1. Consumer buys e-cash from Bank 2. Bank sends e-cash bits to consumer (after charging that amount plus fee) 3. Consumer sends e-cash to merchant 4. Merchant checks with Bank that e-cash is valid (check for forgery or fraud) 5. Bank verifies that e-cash is valid 6. Parties complete transaction: e.g., merchant present e-cash to issuing back for deposit once goods or services are delivered

Electronic Cash Issues:

Electronic Cash Issues E-cash must allow spending only once Must be, just like regular currency Safeguards must be in place to prevent counterfeiting Must be independent and freely transferable regardless of nationality or storage mechanism Divisibility and Convenience Complex transaction (checking with Bank)

Two storage methods:

Two storage methods On-line Individual does not have possession personally of electronic cash Trusted third party, e.g. online bank, holds customers’ cash accounts Off-line Customer holds cash on smart card or software wallet Fraud and double spending require tamper-proof encryption

E-cash Systems:

E-cash Systems CyberCash CyberCoins Stored in CyberCash wallet, a software storage mechanism located on customer’s computer Used to make purchases between .25c and $10

E-cash Systems:

E-cash Systems Coin. Net Millicent Digicash Trailblazer in e-cash Allowed customers to purchase goods and services using anonymous electronic cash

Electronic Wallets:

Electronic Wallets Stores credit card, electronic cash, owner identification and address Makes shopping easier and more efficient Eliminates need to repeatedly enter identifying information into forms to purchase Works in many different stores to speed checkout Amazon.com one of the first online merchants to eliminate repeat form-filling for purchases

Slide 23:

An Electronic Checkout Counter Form

Electronic Wallets:

Electronic Wallets Agile Wallet E-Wallet Microsoft Wallet Comes pre-installed in Internet Explorer 4.0, but not in Netscape All information is encrypted and password protected Microsoft Wallet Merchant directory shows merchants setup to accept Microsoft Wallet

Slide 25:

Entering Information Into Microsoft Wallet

Stored Value Cards:

Stored Value Cards

Peer-to-peer Payment Systems:

Peer-to-peer Payment Systems eCash: allows the transfer of digital cash via e-mail between two people with accounts at eCash-enabled banks PayPal: allows a user to send money to anyone with an e-mail address BillPoint (eBay and Wells Fargo): allows buyers to submit electronic payments to sellers’ checking accounts

PayPal Structure:

PayPal Structure PayPal Private Bank X.COM’s BANK INTERACTS WITH BANKING SYSTEM THROUGH ACH ONLY MAINTAINS LEDGERS NO MOVEMENT OF REAL MONEY WITHIN PAYPAL User User’s Bank USER INTERACTS WITH PAYPAL THROUGH BROWSER BETWEEN TWO PAYPAL USERS, TRANSACTIONS ARE PURELY BOOK ENTRIES IF REAL MONEY MUST MOVE, PAYPAL SENDS INSTRUCTIONS TO ITS BANK USER MAINTAINS NORMAL RELATIONS WITH HIS BANK eBay PUBLIC COMPANY

PayPal:

PayPal It’s a big disk drive! SHAMOS WEISS - $100 + $100

PayPal:

PayPal ACCOUNT HOLDER A ACCOUNT HOLDER A’S BANK ACCOUNT HOLDER X PAYPAL ACCOUNT A . . . ACCOUNT X ACCOUNT HOLDER X’S BANK ACH PROCESSOR ACCOUNT HOLDER A’S CREDIT CARD INTERNET EMAIL PAYPAL’S BANK 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

Business-to-Business:

Business-to-Business Electronic Fund Transfer Electronic Checks Transfer Financial EDIs Purchase Cards