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

Outline
Trandition Payment Methods
E-Payment Methods

2001

Daniel L. Silver

Major Architectural Components

of the Web
Bank
Server

Client 1
HTTP
TCP/IP

Browser

Internet
Internet

Client 2
Browser

Server A
HTTP
Server

App.
Server

URL index.html
Server B
2001

Bank
Server
Daniel L. Silver

Database
Server

prog1.class
prog2.jsp

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

Selection of Payment Method

Based on:
Convenience
Trace-ability
Repudiation
Financial risk
Fraud protection

Attacks on traditional methods?

2001

Daniel L. Silver

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

Credit Card - Business Model

Logical Money Flow
3. Clearance/Settlement
Customer
Bank

Visa
(3rd Party)

Stores
Bank
2. Credit
Authorization

4. Payment

Store

Customer
1. Charge

What can you do if your statement shows

a fraudulent purchase?
2001

Daniel L. Silver

Credit Card - IT
Physical Data Flow
Customer

CARD

3rd Party
Customer
EFT
Authorization EFT
Bank
System
System
(Visa)
Card Info,
Signature

Reader

Stores
Bank
System

Authorization

Authorization
Program

Request
56k bps
modem

POS Terminal OK!

2001

Daniel L. Silver

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

3 Party
Authorization
System
cybercash.com
rd

Customer
Bank
System

Stores
Bank
System

EFT

Authorization
Server A

Internet
Internet

Client 1
Browser

HTTP
Server
URL

2001

App.
Server

index.html

Daniel L. Silver

Database
Server
prog.jsp
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
Entrypoints 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 Ecommerce facilities on an international scale
2001

Daniel L. Silver

21

THE END
danny.silver@acadiau.ca