Electronic Commerce043002

Chapter 11: Payment Systems For

Electronic Commerce Dr. Jing Zhou

Dr. Jing Zhou - School of Computer Science, Communication University of China, Beijing; email zhoujing@cuc.edu.cn; © 2007

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Learning Objectives

In this chapter, you will learn about:

The basic functions of online payment systems (结算系统 )

The use of payment cards ( 结算卡 ) in electronic commerce

The history and future of electronic cash ( 电子现金 )

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Learning Objectives (Cont’d)

How electronic wallets ( 电子钱包 ) work

The use of stored-value cards ( 储值卡 ) in electronic commerce

Internet technologies and the banking industry (银行业 )

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Online Payment Basics

An important function of EC sites is handling of payments over Internet

Four basic ways to pay for purchases dominate both traditional and electronic B2C commerce: cash ( 现金 ), checks (支票 ), credit cards (信用卡 ), and debit cards (借记卡 ) which account for more than 90 percent of all

consumer payments in the United States

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Online Payment Basics (Cont’d)

Most popular consumer electronic transfers are automated payments of Auto loans (汽车贷款 )

Insurance payments (保险费 )

Mortgage payments (还贷 )

made from consumers’ checking accounts (活期存款账户 )

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Online Payment Basics (Cont’d) Scrip (代币 )

Digital cash minted (铸造 ) by a company instead of by a government

Cannot be exchanged for cash

Must be exchanged for goods or services by company that issued the scrip

Like a gift certificate (礼品券 ) that is good at more than one store

Businesses should provide multiple secure, convenient, and widely accepted payment methods for customers – Key is to find the best payment method that suits both you and your customer the best

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Payment Cards ( 结算卡 )

Describe all types of plastic cards used to make purchases

Main categories of payment cards are credit cards, debit cards, and charge cards (签账卡 )

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Credit Cards

Has spending limit based on user’s credit history

User can pay off (偿清欠款 ) entire credit card balance or pay a minimum amount each billing period (记帐期 )

Online credit card purchases are similar to telephone purchases in that card holder is not present, which is called card not present transactions (不出示卡交易 )

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Debit Cards

Removes amount of sales from cardholder’s bank account

Transfers it to seller’s bank account

Debit cards are issued by the cardholder’s bank and usually carry the name of a major credit card issuer by agreement between the issuing bank and the credit card issuer

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Charge Cards

Carries no spending limit

Amount charged to cards is due at end of billing period

Do not involve lines of credit (信用贷款的最高额度 ) and do not accumulate (累计 ) interest charges

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Single-use Cards ( 一次性卡 )

Customers have concerns about providing payment card

numbers to vendors online

Single-use cards provided by payment card companies and have disposable

numbers

give consumers unique card number valid for one

transaction only

Prevent an unscrupulous (不道德的 ) vendor from using card number to complete unauthorized transactions or selling card number to others

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Advantages and Disadvantages of Payment Cards Advantage

Worldwide acceptance

Built-in security for merchants

Disadvantage

Payment card service companies charge merchants per-transaction fees and monthly processing fees

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Payment Acceptance and Processing Steps followed once merchant receives

consumer’s payment card information

Merchant authenticates (验证 ) payment card

Merchant checks with payment card issuer

To ensure that credit or funds are available

Puts a hold (冻结 ) on credit line or the funds needed to cover the charge

Settlement (清算 ) occurs

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Open and Closed Loop System

Closed loop systems (封闭系统 )

Card issuer pays merchants that accept the card directly and does not use an intermediary

Open loop systems (开放系统 )

Involve three or more parties

Systems using Visa or MasterCard are examples

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Merchant Accounts ( 商家帐户 )

To process payment cards for Internet transactions Online merchant must set up merchant account

New merchant must supply Business plan (业务计划 )

Details about existing bank accounts

Business and personal credit history (信用历史 )

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Merchant Accounts Cont’d

Type of business also influences bank’s likelihood of

granting account

Bank assesses level of risk in business based on type of

business and credit information provided

Chargeback(扣款 ) occurs when card holder

successfully contests a charge

One problem facing online businesses is level of fraud in

online transactions much higher than in-person or

telephone transactions

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Processing Payments Online

InternetSecure Provides secure payment card services

Supports payments with Visa and MasterCard for Canadian and U.S. accounts

Provides risk management and fraud detection

Handles transactions from online merchants using existing, bank-approved payment card processing infrastructure, secure links, and firewalls

Ensures that transactions it processes are credited to the correct merchant’s account

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Processing Payments Online (Cont’d)

First Data Provides merchant payment card processing

services with the following programs ICVERIFY, PCAuthorize, and WebAuthorize

Banks connect to an Automated Clearing House (ACH) through Highly secure, private leased telephone lines

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Processing a Payment Card Transaction

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Electronic Cash ( 电子现金 )

Term that describes any value storage (资金存储 ) and exchange system (交换系统 ) created by a private entity that

Does not use paper documents or coins

Can serve as a substitute for government-issued physical currency (货币 )

Show particular promise in two applications:

Sale of goods and services of less than $10

Sale of higher-priced goods and services to those without credit cards

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Micropayments and Small Payments Micropayments ( 微额支付 )

Internet payments for items costing from a few cents to approximately a dollar

Small payments ( 小额支付 )

Payments of less than $10

Two companies (Yaga and BitPass) offer products for handling small payments that use credit cards as alternative

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Privacy and Security of Electronic Cash Concerns about electronic payment methods

include Privacy and security (隐私与安全） Independence (独立性 )

Portability (便携性 )

Convenience (方便 )

Advantages of electronic cash Independent and portable

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Holding Electronic Cash: Online and Offline Cash

Online cash storage ( 在线现金存储 ) Trusted third party is involved in all transfers of

electronic cash Holds consumers’ cash accounts

Offline cash storage ( 离线现金存储 ) Virtual equivalent of money kept in a wallet No third party is involved in the transaction

Double-spending (重复消费 ) Spending electronic cash twice

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Advantages and Disadvantages of Electronic Cash Advantages of electronic cash

Transactions are more efficient and therefore less costly

Transfer on the Internet costs less than processing credit card transactions

Transfers occur on existing infrastructure – the Internet – and through existing computer systems, thus, the additional costs for users of electronic cash being nearly zero

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Advantages and Disadvantages of Electronic Cash (Cont’d)

Disadvantages of electronic cash

Use provides no audit trail (跟踪检查 )

Problem of money laundering (洗钱 ) arises

Susceptible (易受外界感染的 ) to forgery

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How Electronic Cash Works

A consumer Opens an account with an electronic cash issuer

and presents proof of identity Then withdraws by accessing the issuer’s website

and presents proof of identity Receives specific amount of electronic cash after

verification and the same amount is deducted from his/her account

Stores the cash in electronic wallet or stored-value card

Authorizes issuer to may payment to third parties

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Providing Security for Electronic Cash

Cryptographic ( 密码的 ) algorithms Keys to creating tamperproof (防止篡改的 )

electronic cash that can be traced back to its origins

A two-part lock ( 双锁 ) provides anonymity security that also signals when one is attempting to double-spend cash

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Providing Security for Electronic Cash (Cont’d) Double spending can neither be detected nor

prevented with truly anonymous electronic cash

Anonymous electronic cash Electronic cash that cannot be traced back to the

person who spent it Creating truly anonymous electronic cash

Requires bank to issue electronic cash with embedded serial numbers

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Electronic Cash Systems

CheckFree

Largest online bill processor in the world

Provides online payment processing services

Provides infrastructure and software that permits users to pay all bills with online electronic checks

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Electronic Cash Systems (Cont’d)

Clickshare

An electronic cash system aimed at magazine and newspaper publishers

The ability to make micropayments is only one of Clickshare’s features

Keeps track of transactions and bills the user’s ISP which already has an account relationship with the user and then bills the user

Tracks where a user travels on the Internet which does defeat anonymity

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Electronic Cash Systems (Cont'd) PayPal

Provides payment processing services to businesses and to individuals

Peer-to-peer (P2P) payment system Free payment clearing service for individuals

Eliminates the need to pay for online purchases by writing and mailing checks or using payment cards

Transactions clear instantly

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Electronic Wallets ( 电子钱包 )

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

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Electronic Wallets (Cont'd)

Server-side electronic wallet ( 服务器端电子钱包 )

Stores customer’s information on a remote server belonging to a particular merchant or wallet publisher

Client-side electronic wallet ( 客户端电子钱包 )

Stores consumer’s information on his or her own computer

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Microsoft .NET Passport

An electronic wallet operated by Microsoft

Passport completes order forms automatically

All of the personal data entered into a Passport wallet is encrypted and password protected

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Microsoft .NET Passport (Cont’d) Passport consists of four integrated services

Passport single sign-in service (SSI) – allows to sign in at a participating website using the user’s username and password

Passport Wallet service – provides standard electronic wallet functions

Kids Passport service – helps parents protect and control their children’s online privacy

Public profiles (档案 ) – allows consumers to create a public page of info about themselves

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Yahoo! Wallet

An electronic wallet offered by the Web portal site Yahoo!

Lets users store information about several major credit and charge cards

Many industry observers and privacy rights activist groups are concerned about electronic wallets

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W3C Micropayment Standards Development Activity

Common Markup for Micropayment Per-Fee-Links (微额支付的通用注记 ) Standards developed by W3C Electronic

Commerce Interest Group (ECIG) Provide extensible and interoperable way to

embed micropayment information in Web page

Extensible system One that developers can add to (or extend) without

voiding (使无效 ) any earlier work on the system

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The ECML Standard

Electronic Commerce Modeling Language (ECML)

Users can enter credit card and address information once into an ECML-capable electronic wallet

Any existing wallet can be redesigned to follow the ECML standard

Users control access to their ECML electronic wallets

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Stored-Value (储值 ) Cards

Can be an elaborate ( 详尽的 ) smart card with a microchip or a plastic card with a magnetic strip that records currency balance

Common stored-value cards

Prepaid phone, copy (复印 ), subway, and bus cards

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Magnetic Strip Cards ( 磁卡 )

Cannot send or receive information

Cannot increment or decrement value of cash stored on the card

Processing must be done on a device into which card is inserted

Smart card

Better suited for Internet payment transactions

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Smart Cards (智能卡 )

Stored-value cards with embedded microchip

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

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Smart Cards (Cont'd)

Smart Card Alliance ( 智能卡协会 ) Promotes benefits of smart cards

Promotes widespread acceptance of multiple-application smart card technology

Members include companies in banking, financial services, computer technology, and healthcare

Promotes compatibility (兼容 ) among smart cards, card reader devices, and applications

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Internet Technologies and the Banking Industry

The largest dollar volume of payment today are still made using paper checks that are processed through banking systems

Other major payment forms also involve banks in one way or another

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Check Processing

Checks were processed physically by banks and clearinghouses in the past

Another disadvantage of using paper checks is the delay that occurs between the time that a person writes a check and the time that check clears ( 把支票兑现 ) the person’s bank

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Phishing Attacks ( 钓鱼攻击 )

is a technique for committing fraud against the customers of online businesses

The basic structure is fairly simple

The links in phishing emails are usually disguised ( 伪装 ), https://paypal.com@218.36.41,188/fl/login.html for example

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Phishing Attack Countermeasures ( 对策 )

Several groups are working on ways to improve the Internet’s mail transport protocols so that spam senders can be identified

The most important steps that companies can take today is to educate their website users

Many companies have contracted with consulting firms that specialize in anti-phishing work

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Summary

Most popular forms of payment on the Internet

Credit card

Debit card

Charge cards (payment cards)

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Summary

Electronic cash

Form of online payment

Slow to catch on (变得流行 ) in the United States

Especially useful for making micropayments

Advantages

Portable, anonymous, and usable for international transactions

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Summary Electronic wallets

Provide convenience to online shoppers Eliminate need to reenter payment card and

shipping information at site’s electronic checkout counter

Stored-value cards Physical devices that hold information

Smart cards Intended to replace collection of plastic cards

people now carry