E-Business - 5

E-MoneyGetting the

online money

E-Money Is an electronic medium of making money. E-money may be of :

Identified: Contain information that makes it possible to identify the

person who withdrew the money from the bank Process generate an audit trail

Anonymous: Works like paper money and leaves on trail

Online Each transaction is verified and approved by the issuing

institution before payment is made Off-line

Require no validation

For any kind of online money transaction these two test should be considered

The ACID Test

THE ICES Test

ACID Test Atomicity:

A transaction must occur completely or not at al Consistency:

All parties involved in the transaction must agree to the exchange

Isolation: Each transaction must be independent of any other

and be treated as a stand alone episode Durability:

It must always be possible to recover the last consistent state or reverse the facts of the exchange

ICES Test Interoperability

Ability to move back and for the between different system

Conservation How easy money is to store and access

Economy Processing transaction should be inexpensive and

affordable Scalability

Ability of a system to handle multiple system user at the same time

The SET (Secure Electronic Transaction) Protocol Authenticates cardholder and merchant identity

through use of digital certificates An open standard developed by MasterCard and

Visa Transaction process similar to standard online

credit card transaction, with more identity verification

Thus far, has not caught on much, due to costs involved in integrating SET into existing systems, and lack of interest among consumers

Four Important Goal

Confidentiality of payment as it is processed electronically

Integrity of transmitting data: data will not be corrupted during transmission or processing

Authentication Interoperability across network providers

How SET Transactions Work

Credit Card

Represents an account that extends credit to consumers, permitting consumers to purchase items while deferring payment, and allows consumers to make payments to multiple vendors at one time

Issuing banks – Issue cards and process transactions

Processing centers (clearinghouses) – Handle verification of accounts and balances

How an Online Credit Card Transaction Works

Processed in much the same way that in-store purchases are

Major difference is that online merchants do not see or take impression of card, and no signature is available

Participants include consumer, merchant, clearinghouse, merchant bank (acquiring bank) and consumer’s card issuing bank

How an Online Credit Transaction Works

Secure Sockets Layer, a protocol developed by Netscape for transmitting private documents via the Internet.

Limitations of Online Credit Card Payment Systems Security – neither merchant nor consumer can be

fully authenticated Cost – charges merchant pays for online

transactions. The average charges for a transactions is from 2 – 5%

Social equity – many people do not have access to credit cards

Digital Payment Systems

Digital Credit Card Payment Systems

Digital Check Payment SystemsDigital CashE-Wallets

Digital Credit Card

Extend the functionality of existing credit cards for use as online shopping payment tools

Focus specifically on making use of credit cards safer and more convenient for online merchants and consumers

Example: eCharge

How a Digital Credit Card Payment Systems Works: eCharge

Digital Checks

On the Internet a check can be replaced with adigitally signed message:

payer uses a secure processor in the form of a PC card, to generate a digitally payment instruction or check;

check is transmitted to the merchant, where it is endorsed digitally;

check is sent to the merchant’s bank where it is cleared using an ACH - Automated Clearing House

How Digital Checking Works: eCheck

Merchant’s bank send E-check for clearance

Digital Cash

One of the first forms of alternative payment systems

Not really “cash” – rather, are forms of value storage and value exchange that have limited convertibility into other forms of value, and require intermediaries to convert

Many of early examples have disappear; concepts survive as part of P2P payment systems

Advantages and Disadvantages of Electronic Cash

Advantages of electronic cash Transactions are more efficient Transfer on the Internet costs less than processing

credit card transactions

Disadvantages of electronic cash Use provides no audit trail Problem of money laundering arises Susceptible to forgery

Digicash: How First Generation Digital Cash Worked

Digital Wallets Hold credit card numbers, electronic cash, owner

identification and contact information

Give consumers the benefit of entering their information just once

Make shopping more efficient

Provide functionality of traditional wallet

Most important functions: Authenticate consumer through use of digital certificates or other

encryption methods

Store and transfer value

Secure payment process from consumer to merchant

Two major categories:

Server-side electronic wallet Stores customer’s information on a remote server

belonging to a particular merchant or wallet publisher MSN Wallet

Client-side electronic wallet Stores consumer’s information on his or her own

computer Gator.com, MasterCard Wallet

Online Stored Value Systems

Permit consumers to make instant, online payments to merchants and other individuals based on value stored in an online account

Rely on value stored in a consumer’s bank, checking or credit card account

Smart Cards as Stored Value Systems

Stored-value cards

Can hold private user data, such as financial facts

Can store about 100 times more information than a magnetic strip plastic card

Safer than conventional credit cards

See eg. American Express Blue, Mondex, Visa...

TYPES OF SMART CARD

contact smart cards: to read information on smart cards and update information, contact smart cards need to be placed in a smart card reader

contactless smart cards: have both a coiled antenna and a computer chip inside, enabling the cards to transmit information

Mondex

Smart card that holds and dispenses electronic cash

Introduced in 1990 and now part of MasterCard International

Can accept electronic cash directly from a user’s bank account

Card carries real cash in electronic form

Steps in using a Mondex card to transfer electronic cash from buyer to seller

1. Card user inserts Mondex card into reader

2. Merchant’s terminal requests payment

3. Customer’s card checks merchant’s digital signature

4. Merchant’s terminal checks customer’s just-sent digital signature for authenticity

5. Once electronic cash is deducted from the cardholder’s card. Same amount is transferred into the merchant’s electronic cash account