chapter 7 electronic payment systems electronic commerce
TRANSCRIPT
Chapter 7
Electronic Payment Systems
Electronic Commerce
ObjectivesFour methods for collecting customer paymentsCredit and debit card processingHow electronic wallets workHistory and future of electronic cash systems, how they work and are implementedSmart cardsWhich payment systems are most popular and which are likely to gain acceptance
Electronic Payment Systems
Three methods of payment currently Cheque, credit card, or cash
Four methods of electronic payment Electronic cash, electronic wallets,
smart cards, and credit/debit cards
Electronic Cash Storage
Two methods On-line
Individual does not have possession personally of electronic cash
Trusted third party, e.g. e-banking, bank holds customers’ cash accounts
Off-line Customer holds cash on smart card or electronic
wallet Fraud and double spending require tamper-proof
encryption
How Electronic Cash Works
Customer opens account with bank in person and establishes identity Thereafter, digital certificate serves as proof of
identity
Once identified, bank issues e-currency and deducts amount from customer’s account (minus service fee)Customer spends e-cash with merchant who validates it to prevent forgery or fraudMerchant presents e-cash to issuing bank for deposit once goods or services are received
Electronic Cash Issues
Primary advantage is with purchase of items less than £5
Credit card transaction fees make small purchases unprofitable
Facilitates Micropayments – eg for items costing less than £1
Must be anonymous, just like regular currencySafeguards must be in place to prevent counterfeiting Must be independent and freely transferable regardless of nationality or storage mechanism
Beenz Home Page
Electronic Cash Summary
Advantages More efficient, eventually meaning lower
prices Lower transaction costs Anybody can use it, unlike credit cards, and
does not require special authorization
Disadvantages Tax trail non-existent, like regular cash Money laundering Susceptible to forgery
CyberCash -- A Pioneer in Electronic Cash
CyberCash Story(http://www.internetweek.com/news/news082098-4.htm)
Electronic Wallets
Stores credit card, electronic cash, owner identification and address Makes shopping easier and more efficient
Eliminates need to repeatedly enter identifying information into forms to purchase
Works in many different stores to speed checkout Amazon.com one of the first online
merchants to eliminate repeat form-filling for purchases
Electronic Wallets – an Assessment(http://www.computing.co.uk/Features/1134792)
IBM and Micropayments(http://www.alphaworks.ibm.com/tech/micropayments)
Smart Cards
Plastic card containing an embedded microchip Can contain cash Over 100 times more information
storage than a magnetic-striped plastic card
Information is encrypted, unlike credit cards which have account number on its face, making credit theft practically impossible
Smart Cards
Available for over 10 yearsSo far not successful in U.S., but popular in Europe, Australia, and JapanUnsuccessful in U.S. partly because few card readers availableSmart cards gradually reappearing in U.S.; success depends on: Critical mass of smart cards that support
applications Compatibility between smart cards, card-reader
devices, and applications
Mondex Smart Card ProcessingFigure 7-12
Mondex Smart Card
Holds and dispenses electronic cashDeveloped by MasterCard InternationalRequires specific card reader for merchant or customer to use card over InternetSupports micropayments as small as 2p and works both online and off-line at stores or over the telephone
Mondex Smart Card
Disadvantages Card carries real cash in electronic
form, creating the possibility of theft No deferred payment as with credit
cards -cash is dispensed immediately
Octopus Smart Card - Trains(http://www.kcrc.com/eng/company/lrts_octopus.html)
Octopus Smart Card - Buses(http://www.citybus.com.hk/eng/RouSer/Octopus/concession_list.asp)
Octopus Smart Card – Auto Reloading(http://www.daoheng.com/bf07.htm)
Octopus Smart Card- A Downside?(http://asia.cnn.com/2001/BUSINESS/asia/08/12/hk.octopuskids/)
S E A R C HG O
M A IN PA G EA S IAW O R L DW E A T H E RB U S IN E S Sm ark etscu rren ciesS P O R TT E C H N O L O G YT R A V E LN E W S B R IE FIN -D E P T H
Q U IC K N E W SC O M M U N IT YM U L T IM E D IAE -M A ILS E R V IC E SC N N O N P D AA B O U T U S
C N N T Vw h at's o nsh o w tran scrip tsC N N In tern atio n al
E D IT IO N SC N N .co m U .S .C N N .co m E u ro p eset y o u r ed itio n
L a n g u a g e s
T im e , In c .
S ma rt ca rd s to wire Ho n g Ko n gsch o o ls
B y C N N 's K ristie L u S to u t
In H o n g K o n g , a p o p u la r sm a rtca rd co m m a n d s a ccess tosu b w a y s, ca fes, v en d in gm a ch in es, a n d n o w sch o o ls. A n dp riv a cy a d v o ca tes a re n o ta m u sed .
C alled O cto p u s card s, th ese sm artcard s em it a sig n al th at talk s to anelectro n ic read er. Ju st w av e y o u rw allet an d y o u r acco u n t is d eb ited .
T h e card h as crep t in to th e city 's d aily g rin d . M illio n s o f H o n g K o n g ers u seit to rid e th e su b w ay, sh o p at 7 -E lev en sto res, an d b u y d rin k s fro m v en d in gm ach in es an d cafes.
B u t its creato r h as a far b o ld er p lan .
A ccess co n tro l
"B ey o n d th e u ses as a p ay m en t card , w e also w an t to u se th e card fo raccess co n tro l," say s C reativ e S tar C E O R o b N o b le.
"B ecau se ev ery card h as its o w n u n iq u e n u m b er so y o u can set th at u p toallo w sp ecific n u m b ers to g o th ro u g h a d o o r."
T h is S ep tem b er, alm o st 1 ,0 0 0 stu d en ts w ill b e m ad e to u se O cto p u s card sto clo ck in an d o u t o f sch o o l.
T h e T ao ist A sso ciatio n C h in g C h u n g S eco n d ary S ch o o l w ill b e H o n gK o n g 's first to u se th e sy stem .
"A t th e seco n d stag e, w e'll ex ten d th at in to access co n tro l in to certainro o m s," say s N o b le.
"B o rro w in g lib rary b o o k s, b o o k in g facilities, if y o u w an t to b o o k th eb ask etb all co u rt y o u can w ith th e O cto p u s card . . . "
A n d H o n g K o n g 's p riv acy ad v o cates are co n cern ed .
P riv a cy co n cern s
"T h e card is a k ey, b u t th e p ro b lem is w ith th e w h o le d atab ase b eh in d it,"say s H o n g K o n g H u m an R ig h ts M o n ito r D irecto r Y .K . L aw .
L aw fears th at co rp o rate in terests co u ld ab u se th e in fo rm atio n co llectedfro m stu d en t card h o ld ers.
"A ch ild m ay g o to sch o o l an d h av e to alw ay s clo ck in an d clo ck o u t an dalso g o to so m e o f th e sh o p s an d b u y th in g s, b u t m ag azin es an d all th eirex p en d itu re h ab its . . . can b e co m p iled in to a w h o le lifesty le o f a p erso n --an d th at's v ery d an g ero u s," say s L aw .
S ch o o l au th o rities say th ey are u sin g th e O cto p u s sy stem b ecau se th eyw ere in v ited to . O n e o fficer to ld C N N , "W e d o n o t n eed to p ay . . . so it isw o rth y to jo in ."
T h e E d u catio n D ep artm en t m ain tain s it "w ill g iv e su p p o rt to sch o o ls in u sin gan y facilities w h ich can h elp en h an ce th e efficien cy o f th e m an ag em en t."
B u t p erh ap s th e m o st au th o ritativ e an aly sis co m es fro m o n e teen ag estu d en t: "H o w an n o y in g ," sh e say s. "I d o n 't th in k it's a g o o d id ea to u se it tog o in an d o u t -- it w o u ld really co n tro l m y tim e."
C reativ e S tar rem ain s u n fazed b y th e criticism th at its sy stem h as g o n e to ofar. It also d en ies ch arg es th at it w o u ld ex p lo it th e d ata co llected fro mstu d en t card h o ld ers.
In stead , th e co m p an y is fo cu sin g o n th e fu tu re -- targ etin g h alf th e sch o o ls inH o n g K o n g w ith its card sy stem .
R E L A T E D S IT E : • O cto p u s C ard
N o te: P ag es w ill o p en in a n ew b ro w ser w in d o wE x tern al sites are n o t en d o rsed b y C N N In teractiv e.
B U S IN E S S T O P S T O R IE S :• N ik k ei lead s A sian m ark ets h ig h er• B O J su rp rises, leav es m o n etary p o licy as is• S in g T el n et d ro p s 2 4 .7 % to $ 8 0 0 M• E n ro n in q u iry v o w s to fin d tru th• M acau g am b les o n a g litterin g fu tu re
(M o re)
S earch C N N .c o m F in d
B ack to th e to p© 2 0 0 2 C a b le N ew s N etw o rk L P , L L L P .A n A O L T im e W arn er C o m p an y. A ll R ig h ts R eserv ed .T erm s u n d er w h ich th is serv ice is p ro v id ed to y o u .R ead o u r p riv acy g u id elin es. C o n tact u s.
Schlumberger Sema Smart Cards(http://www1.slb.com/smartcards)
Credit and Charge Cards
Credit card Used for the majority of Internet purchases Has a preset spending limit
Charge card No spending limit Entire amount charged due at end of billing
period
Merchants must set up merchant accounts to accept payment cards
Processing a Payment Card OrderFigure 7-13
Secure Electronic Transaction (SET) Protocol
Jointly designed by MasterCard and Visa with backing of Microsoft, Netscape, IBM, GTE, SAIC, and othersDesigned to provide security for card payments as they travel on the Internet Contrasted with Secure Socket Layers
(SSL) protocol, SET validates consumers and merchants in addition to providing secure transmission
Secure Electronic Transaction (SET) Protocol
Goal is single method of conducting payment transactions on the Internet Acceptance of standard has been slow
SET specification Uses public key cryptography and digital
certificates for validating both consumers and merchants
Provides privacy, data integrity, user and merchant authentication, and consumer nonrepudiation
M(obile)-Payments – the future?(http://www.paycircle.org/)
“Analysts believe that easy mobile payment is one of the main prerequisites for the success of m-commerce. When the mobile phone can function as an electronic wallet for mobile payments, including micropayments, application developers will find it attractive to introduce new mobile communication services to the market. Examples include mobile entertainment (downloads of music, mobile gambling, etc.), information services (sports news, horoscopes, location-based services, etc.), and real-world services (paying parking fees, buying train or concert tickets, etc.). Network operators envision micropayments as an attractive business that does not compete with banks or credit card companies. For the end user, PayCircle will make m-commerce easy and secure and thus eliminate the major hurdles to widespread adoption and popularity.”
PayCircle.org Press release Jan 23rd 2002