S. Kungpisdan ITEC5611 1

Electronic Payment Systems

Lecture 8

Supakorn Kungpisdan

S. Kungpisdan

ITEC56112

Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• E-Checking

• Electronic Bill Presentment and Payment

• PayPal

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The Payment Revolution

• Crucial Factors– Independence

• Some e-payment systems require specialized software or hardware to make payment

– Interoperability and portability– Security– Anonymity– Divisibility– Ease of use– Transaction fees– Regulations

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Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• E-Checking

• Electronic Bill Presentment and Payment

• PayPal

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Using Payments Cards Online

payment card

Electronic card that contains information that can be used for payment purposes

• Three forms of payment cards:– Credit cards– Debit cards– Stored-Value Cards

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Using Payments Cards Online

• Key participants in processing credit card payments online include the following:– Acquiring bank– Credit card association– Customer– Issuing bank– Merchant– PSP or Payment Gateway

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Using Payments Cards Online

• Processing Credit Cards Online

authorization

Determines whether a buyer’s card is active and whether the customer has sufficient funds

settlement

Transferring money from the buyer’s to the merchant’s account

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Using Payments Cards Online

• Fraudulent Credit Card TransactionsAddress Verification System (AVS)

Detects fraud by comparing the address entered on a Web page with the address information on file with cardholder’s issuing bank• Result in a number of false positive• Only available in US and Canada

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Using Payments Cards Online

card verification number (CVN)

Detects fraud by comparing the verification number printed on the signature strip on the back of the card with the information on file with the cardholder’s issuing bank

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Using Payments Cards Online

• Fraudulent Credit Card Transactions– Additional tools used to combat fraud include:

• Manual review• Negative files

– check to see if customer’s transaction is matched against the file containing customer’s information

• Card association payer authentication services– 3D (3-domain) Secure – E.g. Verified by Visa, MasterCard SecureCode, JCB J/Secure– Require cardholders to register with the systems and merchants to

adopt and support both existing systems and the new systems– Cardholder needs to have an additional password to authenticate

him/herself– Merchant must also enroll itself to the program

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Smart Card

An electronic card containing an embedded microchip that enables predefined operations or the addition, deletion, or manipulation of information on the card

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Types of Smart Cards

contact cardA smart card containing a small gold plate on the face that when inserted in a smart card reader makes contact and passes data to and from the embedded microchip

contactless (proximity) cardA smart card with an embedded antenna, by means of which data and applications are passed to and from a card reader unit or other device without contact between the card and the card reader

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Applications of Smart Cards

• e-purse or e-walletSmart card application that loads money from a card holder’s bank account onto the smart card’s chip

• Transit FaresTo eliminate the inconvenience of multiple types of tickets used in public transportation, most major transit operators in the United States are implementing smart card fare-ticketing systems

• E-IdentificationBecause they have the capability to store personal information, including pictures, biometric identifiers, digital signatures, and private security keys, smart cards are being used in a variety of identification, access control, and authentication applications

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Applications of Smart Cards

• Health Care– Storing vital medical information in case of emergencies– Preventing patients from obtaining multiple prescriptions

from different physicians– Verifying a patient’s identity and insurance coverage– Speeding up the hospital or emergency room admissions

process

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Securing Smart Cards

• Smart cards store or provide access to either valuable assets or to sensitive information

• Because of this, they must be secured against theft, fraud, or misuse

• The possibility of hacking into a smart card is classified as a “class 3” attack, which means that the cost of compromising the card far exceeds the benefits

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Outline

• The Payment Evolution• Using Payment Cards Online• Secure Electronic Transaction (SET)• E-Micropayment• E-Checking• Electronic Bill Presentment and Payment• PayPal

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Secure Electronic Transaction

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Services Provided by SET

• Secure communications channel among involved parties

• Trust by using X.509 certs• Party privacy: parties will receive only the

information that they are intended to receive

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Secure Electronic Transaction

12

34, 6

5, 10, 11

79

8

12

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SET Transaction Overview

1. Client opens an account2. Client receives a certificate3. Merchants have their own certs4. The client places an order (C M)5. The merchant is verified (M C)6. The order and payment are sent (C M)7. The merchant requests payment authorization (M PG)8. Payment is approved (PG I, I A, I,A PG)9. The merchant receives authorization response (PG M)10. The merchant confirms the order (M C)11. The merchant provides goods or service (M C)12. The merchant requests payment (M A)

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Stored-Value Cards

• A card that has monetary value loaded onto it and that is usually rechargeable

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Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• E-Checking

• Electronic Bill Presentment and Payment

• PayPal

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E-Micropayments

• Small online payments, typically under US $10• Companies with e-micropayment products:

– BitPass (bitpass.com)– Paystone (paystone.com)– PayLoadz (payloadz.com)– Peppercoin (peppercoin.com)

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Millicent

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Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• Electronic Check

• Electronic Bill Presentment and Payment

• PayPal

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E-Check

e-checkA legally valid electronic version or representation of a paper check

Automated Clearing House (ACH) NetworkA nationwide batch-oriented electronic funds transfer system that provides for the interbank clearing of electronic payments for participating financial institutions

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Benefits of e-check processing

• Reduces the merchant’s administrative costs by providing faster and less paper-intensive collection of funds

• Improves the efficiency of the deposit process for merchants and financial institutions

• Speeds the checkout process for consumers• Provides consumers with more information about their

purchases on their account statements• Reduces the float period and the number of

checks that bounce because of insufficient funds (NSFs)

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Processing E-Checks with Authorize.Net

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Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• E-Checking

• Electronic Bill Presentment and Payment

• PayPal

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Electronic Bill Presentment and Payment (EBPP)

Presenting and enabling payment of a bill online. Usually refers to a B2C transaction

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E-Bill Presentment

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• Online banking

• Biller Direct

• Bill Consolidator

Types of E-Billing

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• Reduction in expenses related to billing and processing payments

• Electronic advertising inserts can be customized to the individual customer

• Reduces customer’s expenses

Advantages of E-Billing

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E-Billing Process for Single Biller

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E-Billing Processes for Bill Consolidator

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Outline

• The Payment Evolution

• Using Payment Cards Online

• Secure Electronic Transaction (SET)

• E-Micropayment

• E-Checking

• Electronic Bill Presentment and Payment

• PayPal

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PayPal

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PayPal Interface

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Send Money Person-to-Person

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Request Money

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PayPal Website Payment

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PayPal Website Payment (cont’d)

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PayPal Website Payment (cont’d)

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PayPal Website Payment (cont’d)

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Receiving money

• A merchant who wants to withdraw money from Paypal account must add bank account to Paypal first.

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Withdraw Fund

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Withdraw Fund (cont’d)

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Withdraw Fund (cont’d)

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Paypal Virtual Terminal

• It’s an online version of the credit card swipe machines used in stores. But it gives you added advantages:

• Increase sales. Expand your business beyond the internet.

• Save money. There’s no need to invest in expensive equipment.

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Paypal Sandbox

• Go to https://developers.paypal.com/

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Paypal Sandbox (cont’d)

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Paypal Sandbox (cont’d)

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Paypal Sandbox (cont’d)

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