Transcript Chapter 7

Chapter 7
Electronic Payment Systems
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Learning Objectives
In this chapter, you will learn about:
• Distinct methods to collect payments from
customers
• The history and near-term future for
electronic cash
• The implementation of electronic cash
systems
• Electronic wallets and how they work
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Learning Objectives
• The role of smart cards in electronic
commerce
• Credit and debit card processing for
electronic commerce transactions
• The most popular electronic payment
systems
• The SET protocol and how it protects credit
card transactions
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The Basics of Electronic
Payment Systems
• Electronic commerce involves the exchange
of some form of money for goods and
services.
• Implementation of electronic payment
systems is in its infancy and still evolving.
• Four technologies to be used: electronic
cash, software wallets, smart cards, and
credit/debit cards.
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Electronic Cash
• Electronic cash is attractive in two arenas:
– in the sale of goods and services of less than $10
– in the sale of higher-priced goods and services to those
without access to credit cards
• Internet payments for items costing from a few
cents to approximately $10 are called
micropayments.
• Companies offer micropayment systems include
iPin, eChange, Qpass, 1ClickBrands, and
PayPal.com.
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Electronic Cash
• Concerns about electronic payment methods
include:
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privacy and security
independence
portability
divisibility
convenience
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Electronic Cash
• Electronic cash should have two important
characteristics in common with real
currency:
– it must be possible to spend electronic cash
only once
– electronic cash ought to be anonymous
• Beenz is a kind of scrip that consumers can
earn and exchange for goods and services.
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Online and Offline Cash
• Two approaches to holding cash: online storage
and offline storage.
• Online cash storage means that an online bank is
involved in all transfers of electronic cash.
• Offline cash storage is the virtual equivalent of
money you keep in your wallet. However, it must
prevent double or fraudulent spending.
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Advantages of Electronic Cash
• Electronic cash transactions are more
efficient and less costly than other methods.
• The distance that an electronic transaction
must travel does not affect cost.
• The fixed cost of hardware to handle
electronic cash is nearly zero.
• Electronic cash does not require that one
party have any special authorization.
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Disadvantages of Electronic Cash
• The concept of an Internet tax poses many
problems and questions.
• Because true electronic cash is not
traceable, money laundering is a problem.
• Electronic cash is susceptible to forgery.
• Electronic cash is, so far, a commercial flop.
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How Electronic Cash Works
• To establish electronic cash, a consumer goes in
person to open an account with a bank.
• The consumer uses a digital certificate to access
the bank through the Internet to make a purchase.
• Consumers can spend their electronic cash at sites
that accept electronic cash for payment.
• The electronic cash must be protected from both
theft and alteration.
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Providing Security for Electronic
Cash
• To prevent double spending, the main security
feature is the threat of prosecution.
• A complicated two-part lock provides anonymous
security that also signals when someone is
attempting to double spend cash.
• One way to trace electronic cash is to attach a
serial number to each electronic cash transaction.
Click to see Figure 7-3:
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Electronic Cash Systems
• Compaq Computer’s electronic cash
technology allows users to use its NetCoin
electronic cash.
• CyberCash created CyberCoin for
micropayments.
• No standards were ever developed for the
entire electronic cash system.
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CheckFree
• CheckFree provides online payment processing
services to both large corporations and individual
Internet users.
• CheckFree permits users to pay all their bills with
online electronic checks.
• CheckFree signed an agreement with Yahoo! to
provide Yahoo! customers the option of paying
directly from the Yahoo! site.
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Clickshare
• Clickshare is an electronic cash system aimed at
magazine and newspaper publishers.
• Users with an ISP that supports Clickshare are
automatically registered with Clickshare.
• Clickshare tracks users with the standard HTTP
Web protocol.
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DigiCash (eCash)
• 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 pay for them
using anonymous electronic cash.
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eCoin.Net
• ECoins are electronic tokens issued by eCoin.net.
• Consumers can use the tokens to pay for online
goods.
• The electronic cash is stored in an eCoin wallet on
the consumer’s computer.
• The eCoin system uses a three-link chain
consisting of a consumer, a merchant, and the
eCoin server.
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InternetCash
• InternetCash provides electronic currency that is
very similar to traditional cash.
• Customers must first purchase an InternetCash
card from stores such as Circle K.
• Customers then go online and activate their cards
by entering a 20-digit code and creating a PIN.
• Once their card is activated, customers can pay for
purchases using the InternetCash card at any site
accepting them.
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MilliCent
• MilliCent is an electronic scrip system that does
not issue one standard currency.
• Each participating merchant creates and sells its
own scrip to a broker at discount.
• Consumers register with one broker and buy
broker scrip in bulk.
• Paying for an item involves simply transferring a
merchant’s scrip to the merchant in exchange for a
purchased item.
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PayPal
• PayPal.com is a free service that earns a profit on
the float, which is money that is deposited in
PayPal account.
• PayPal is very popular with eBay auction
customers.
• PayPal allows customers to send money instantly
and securely to anyone with an e-mail address,
including an online merchant.
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Loyalty and Rewards Systems
• Scrip is a form of electronic cash that is
stored on your computer or on the server of
the scrip vendor.
• Loyalty and rewards programs endorsed by
various Web stores frequently use scrip to
reward Web visitors.
• Flooz and beenz are two most popular
brands of scrip.
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Beenz
• Beenz is a brand of scrip that is marketed as
a loyalty reward program for Internet
consumers.
• Consumers collect beenz and later redeem
them for merchandise at participating
merchant Web sites.
• On average, on beenz is worth
approximately one cent.
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Flooz
• Flooz is scrip that you purchase using a credit card
and either use for your own purchases or send to a
recipient as a gift or payment.
• Flooz is redeemable for purchases at any merchant
that accepts it.
• The Flooz exchange rate is one Flooz equals to
one dollar.
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Electronic Wallets
• An electronic wallet serves a function
similar to a physical wallet, also:
– Holds credit cards, electronic cash, owner
identification, and owner contact information
– Provides owner contact information at an
electronic commerce site’s checkout counter
– Contains an address book
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Electronic Wallets
• Electronic wallets make shopping more
efficient.
• Electronic wallets fall into two categories
based on where they are stored:
– Server-side electronic wallet
– Client-side electronic wallet
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Electronic Wallets
• Electronic wallets are particularly useful
and save a lot of time to fill out electronic
checkout counter form.
• Electronic wallets can enter required
information into checkout forms
automatically.
• MasterCard offers its own electronic wallet,
called the MasterCard e-wallet.
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eWallet
• EntryPoint produces eWallet, a free wallet
software that consumers download and
install on their computer.
• eWallet stores personal and payment
information inside the electronic wallet.
• To protect your information, eWallet is
encrypted and password protected.
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Microsoft Passport
• Microsoft Passport Wallet comes preinstalled in
Internet Explorer 4.0 and higher versions.
• All the personal data you enter into your Microsoft
Passport, including your name, address, and credit
card information, are encrypted and passwordprotected.
• Passport consists of four integrated services:
Passport single sign-in service, Passport Wallet
Service, Kids Passport service, and public profiles.
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The W3C Proposed Standard
• The W3C proposed standards for electronic
wallets will impact every vendor’s wallet
offerings.
• The W3C Electronic Commerce Interest
Group (ECIG) developed the Common
Markup for Web Micropayment Systems
public working draft.
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The ECML Standard
• The consortium of America Online, Brodia,
Compaq, CyberCash, Dell, IBM, Microsoft,
Visa USA, and MasterCard has agreed on a
technology called ECML, or electronic
commerce modeling language.
• The ECML standard will expedite online
processing for customers by simplifying the
form-filling procedure.
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Stored-Value Cards
• A stored-value card can be an elaborate
smart card or a simple plastic card with a
magnetic strip that records the currency
balance.
• A smart card is better suited for Internet
payment transactions because it has limited
processing capability.
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What is a Smart Card?
• A smart card is a plastic card with an
embedded microchip containing
information about you.
• A smart card contains private user
information such as financial facts, private
encryption keys, account information, credit
card numbers, health insurance information,
etc.
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Mondex Smart Card
• Mondex is a smart card that holds and
dispenses electronic cash.
• Mondex requires special equipment such as
card reader to process.
• Containing a microcomputer chip, Mondex
cards can accept electronic cash directly
from a user’s bank account.
Click to see Figure 7-18:
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Credit and Charge Cards
• A credit card, such as a Visa or a
MasterCard, has a preset spending limit
based on the user’s credit limit.
• A charge card, such as one from American
Express, carries no preset spending limit.
• The collective term “payment card” will
refer to both types of card.
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Advantages and Disadvantages of
Payment Cards
• Advantages:
– Payment cards provide fraud protection
– Their worldwide acceptance
– They are good for online transactions
• Disadvantages:
– Payment card service companies charge
merchants per-transaction fee and monthly
processing fee
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Payment Acceptance and
Processing
• Open and closed loop systems will accept
and process payment cards.
• A merchant bank or acquiring bank is a
bank that does business with merchants who
want to accept payment cards.
• Software packaged with your electronic
commerce software can handle payment
card processing automatically.
Click to see Figure 7-19:
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Secure Electronic Transaction
(SET) Protocol
• SET is a secure protocol jointly designed by
MasterCard and Visa with the backing of
Microsoft, Netscape, IBM, GTE, SAIC, and
other companies.
• The purpose of SET is to provide security
for card payments as they traverse the
Internet between merchant sites and
processing banks.
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Secure Electronic Transaction
(SET) Protocol
• The SET specification uses public key
cryptography and digital certificates for
validating both consumers and merchants.
• The SET protocol provides confidentiality,
data integrity, user and merchant
authentication, and consumer
nonrepudiation.
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