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Chapter 8Electronic Payment Systems
and Security
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Learning Objectives
Describe typical electronic payment systems for EC Identify the security requirements for safe electronic
paymentsDescribe the typical security schemes used to meet
the security requirements Identify the players and procedures of the
electronic credit card system on the InternetDiscuss the relationship between SSL and SET
protocols
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Discuss the relationship between electronic fund transfer and debit card
Describe the characteristics of a stored value card
Classify and describe the types of IC cards used for payments
Discuss the characteristics of electronic check systems
Learning Objectives (cont.)
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SSL Vs. SET: Who Will Win?
A part of SSL (Secure Socket Layer) is available on customers’ browsers it is basically an encryption mechanism for order taking,
queries and other applications it does not protect against all security hazards it is mature, simple, and widely use
SET ( Secure Electronic Transaction) is a very comprehensive security protocol it provides for privacy, authenticity, integrity, and, or
repudiation it is used very infrequently due to its complexity and the need
for a special card reader by the user it may be abandoned if it is not simplified/improved
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Payments, Protocols and Related Issues
SET Protocol is for Credit Card Payments
Electronic Cash and Micropayments
Electronic Fund Transfer on the Internet
Stored Value Cards and Electronic Cash
Electronic Check Systems
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Security requirements
Payments, Protocols and Related Issues (cont.)
Authentication: A way to verify the buyer’s identity before payments are made
Integrity: Ensuring that information will not be accidentally or maliciously altered or destroyed, usually during transmission
Encryption: A process of making messages indecipherable except by those who have an authorized decryption key
Non-repudiation: Merchants need protection against the customer’s unjustifiable denial of placed orders, and customers need protection against the merchants’ unjustifiable denial of past payment
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Security Schemes
Secret Key Cryptography (symmetric)
Scrambled Message
Original Message
Sender
InternetScrambled Message
Keysender (= Keyreceiver)
Encryption
Original Message
Receiver
Keyreceiver
Decryption
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Public Key Cryptography
Sender
Original Message
Scrambled Message
Scrambled Message
Public Keyreceiver
Original Message
Receiver
Private Keyreceiver
Internet
Security Schemes (cont.)
Message
Sender
Original Message
Scrambled Message
Scrambled Message
Private Keysender
Original Message
Receiver
Public Keysender
InternetDigital
Signature
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Digital Signature
A digital signature is attached by a sender to a message encrypted in the receiver’s public key
The receiver is the only one that can read the message and at the same time he is assured that the message was indeed sent by the sender
Sender encrypts a message with her private key
Any receiver with senders public key can read it
Security Schemes (cont.)
Analogous to handwritten signature
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Certificate
Name : “Richard”key-Exchange Key :Signature Key :Serial # : 29483756Other Data : 10236283025273Expires : 6/18/96Signed : CA’s Signature
Security Schemes (cont.)
Identifying the holder of a public key (Key-Exchange)
Issued by a trusted certificate authority (CA)
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Certificate Authority - e.g. VeriSign
RCA
BCA
GCA
CCA MCA PCA
RCA : Root Certificate AuthorityBCA : Brand Certificate AuthorityGCA : Geo-political Certificate AuthorityCCA : Cardholder Certificate AuthorityMCA : Merchant Certificate AuthorityPCA : Payment Gateway Certificate Authority
Hierarchy of Certificate AuthoritiesCertificate authority needs to be verified by a government or well trusted entity ( e.g., post office)
Security Schemes (cont.)
Public or private, comes in levels (hierarchy) A trusted third party services Issuer of digital certificates Verifying that a public key indeed belongs to a certain
individual
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Electronic Credit Card Systemon the Internet
The Players
Cardholder
Merchant (seller)
Issuer (your bank)
Acquirer (merchant’s financial institution, acquires the sales slips)
Brand (VISA, Master Card)
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The process of using credit cards offlineA cardholder requests the issuance of a card brand (like Visa and MasterCard) to an issuer bank in which the cardholder may have an account.
Electronic Credit Card Systemon the Internet (cont.)
The authorization of card issuance by the issuer bank, or its designated brand company, may require customer’s physical visit to an office.
A plastic card is physically delivered to the customer’s address by mail. The card can be in effect as the
cardholder calls the bank for initiation and signs on the back of the card.
The cardholder shows the card to a merchant to pay a requested amount. Then the merchant asks for approval from the brand company.
Upon the approval, the merchant requests payment to the merchant’s acquirer bank, and pays fee for the service. This process is called a “capturing process”
The acquirer bank requests the issuer bank to pay for the credit amount.
Cardholder Merchantcredit card
Card Brand Company
Payment authorization, payment data
Issuer Bank
CardholderAccount
Acquirer Bank
MerchantAccount
account debit data payment data
Credit Card Procedure (offline and online)14
payment data
amount transfer
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Secure Electronic Transaction (SET) Protocol
1. The message is hashed to a prefixed length of message digest.
2. The message digest is encrypted with the sender’s private signature key, and a digital signature is created.
3. The composition of message, digital signature, and Sender’s certificate is encrypted with the symmetric key which is generated at sender’s computer for every transaction. The result is an encrypted message. SET protocol uses the DES algorithm instead of RSA for encryption because DES can be executed much faster than RSA.
4. The Symmetric key itself is encrypted with the receiver’s public key which was sent to the sender in advance. The result is a digital envelope.
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Sender’s Computer
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Sender’s ComputerSender’s Private Signature Key
Sender’s Certificate
+
+
Message
+Digital Signature
Receiver’s Certificate
Encrypt
Symmetric Key
Encrypted Message
Receiver’sKey-Exchange Key
Encrypt
DigitalEnvelope
Message
Message Digest
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5. The encrypted message and digital envelope are transmitted to receiver’s computer via the Internet.
6. The digital envelope is decrypted with receiver’s private exchange key.
7. Using the restored symmetric key, the encrypted message can be restored to the message, digital signature, and sender’s certificate.
8. To confirm the integrity, the digital signature is decrypted by sender’s public key, obtaining the message digest.
9. The delivered message is hashed to generate message digest.10. The message digests obtained by steps 8 and 9 respectively, are
compared by the receiver to confirm whether there was any change during the transmission. This step confirms the integrity.
Receiver’s Computer
Secure Electronic Transaction (SET) Protocol (cont.)
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Receiver’s Computer
DecryptSymmetric
Key
Encrypted Message
Sender’s Certificate
+
+
Message
compare
DigitalEnvelope
Receiver’s Private Key-Exchange Key
Decrypt
Message DigestDigital SignatureSender’s Public Signature Key
Decrypt
Message Digest
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Entities of SET Protocol in Cyber Shopping
IC CardReader
Customer xCustomer y
With Digital WalletsCertificateAuthority
Electronic Shopping Mall
Merchant A Merchant B
Credit CardBrand
ProtocolX.25
Payment Gateway
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SET Vs. SSL
Secure Electronic Transaction (SET) Secure Socket Layer (SSL)
Complex Simple
SET is tailored to the credit card payment to the merchants.
SSL is a protocol for general-purpose secure message exchanges (encryption).
SET protocol hides the customer’s credit card information from merchants, and also hides the order information to banks, to protect privacy. This scheme is called dual signature.
SSL protocol may use a certificate, but there is no payment gateway. So, the merchants need to receive both the ordering information and credit card information, because the capturing process should be initiated by the merchants.
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Electronic Fund Transfer (EFT)on the Internet
An Architecture of Electronic Fund Transfer on the Internet
Internet
Payer
Cyber Bank
Bank
Cyber Bank
Payee
AutomatedClearinghouse
VANBank
VAN
PaymentGateway
PaymentGateway
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Debit Cards
A delivery vehicle of cash in an electronic form
Mondex, VisaCash applied this approachEither anonymous or onymousCyberCash has commercialized a debit card
named CyberCoin as a medium of micropayments on the Internet
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Financial EDI
It is an EDI used for financial transactions EDI is a standardized way of exchanging messages
between businesses EFT can be implemented using a Financial EDI system
Safe Financial EDI needs to adopt a security scheme used for the SSL protocol
Extranet encrypts the packets exchanged between senders and receivers using the public key cryptography
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Electronic Cash and Micropayments
Smart Cards The concept of e-cash is used in the non-Internet
environment Plastic cards with magnetic stripes (old technology) Includes IC chips with programmable functions on
them which makes cards “smart” One e-cash card for one application Recharge the card only at designated locations,
such as bank office or a kiosk. Future: recharge at your PC
e.g. Mondex & VisaCash
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Mondex Makes Shopping Easy
Shopping with Mondex
Adding money to the card
Payments in a new era of electronic
shopping
Paying on the Internet
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Electronic Money
DigiCash The analogy of paper money or coins Expensive, as each payment transaction must be
reported to the bank and recorded Conflict with the role of central bank’s bill
issuance Legally, DigiCash is not supposed to issue more
than an electronic gift certificate even though it may be accepted by a wide number of member stores
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Stored Value Cards
Electronic Money (cont.)
No issuance of money Debit card — a delivering vehicle of cash in an
electronic form Either anonymous or onymous Advantage of an anonymous card
the card may be given from one person to another Also implemented on the Internet without
employment of an IC card
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Smart card-based e-cash Can be recharged at home through the Internet Can be used on the Internet as well as in a non-
Internet environment
Ceiling of Stored Values To prevent the abuse of stored values in money
laundry S$500 in Singapore; HK$3,000 in Hong Kong
Multiple Currencies Can be used for cross border payments
Electronic Money (cont.)
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Contactless IC Cards
Proximity Card Used to access buildings and for paying in buses
and other transportation systems Bus, subway and toll card in many cities
Amplified Remote Sensing Card Good for a range of up to 100 feet, and can be
used for tolling moving vehicles at gates Pay toll without stopping (e.g. Highway 91 in
California)
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Electronic Check Systems
Check
Signature
RemittanceInvoice
Secure Envelope
Remittance
Check
Signature
Certificate
Certificate
Remittance
Secure Envelope
Certificate
Certificate
EndorsementCertificateCertificate
Signature “Card”Signature“Card”
Workstation
Mall statementE-Check line item
Payer’s BankDebit account
Payee’s BankCredit account
E- MailWWW
ACH
ECP
Clear Check Deposit check
Payer Payee
AccountReceivable
Procedure of Financial Service Technology Consortium Prototype
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Electronic Checkbook
Electronic Check Systems (cont.)
Counterpart of electronic wallet To be integrated with the accounting information
system of business buyers and with the payment server of sellers
To save the electronic invoice and receipt of payment in the buyers and sellers computers for future retrieval
Example : SafeCheck Used mainly in B2B
Payer’s checkbook
agent
Payee’s check-receipt
agent
Payer Payee
Issue a check
Receipt
A/CDB
A/CDB
controlagent of payer’s bank
controlagent of payee’s bank
clearing
Checkbook,screened result
Request of screening checkissuance
present
report
payer’s bank payee’s bank
Internet
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Integrating Payment MethodsTwo potential consolidations:
The on-line electronic check is merging with EFT The electronic check with a designated settlement date is
merging with electronic credit cards
Security First Network Bank (SFNB) First cyberbank Lower service charges to challenge the service fees of
traditional banks
Visa VisaCash is a debit card ePay is an EFT service
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How Many Cards are Appropriate?
An onymous cardis necessary to
keep the certificates forcredit cards, EFT, andelectronic checkbooks
The stored value inIC card can be deliveredin an anonymous mode
Malaysia’s Multimedia Supper Corridor projectpursues a One-Card system
Relationship Card by Visa is also attemptinga one card system
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Five Security Tips Don’t reveal your online Passcode to anyone. If you think your
online Passcode has been compromised, change it immediately. Don’t walk away from your computer if you are in the middle of a
session. Once you have finished conducting your banking on the Internet,
always sign off before visiting other Internet sites. If anyone else is likely to use your computer, clear your cache or
turn off and re-initiate your browser in order to eliminate copies of Web pages that have been stored in your hard drive.
Bank of America strongly recommends that you use a browser with 128-bit encryption to conduct secure financial transactions over the Internet.
Managerial Issues Security solution providers can cultivate the opportunity of providing
solutions for the secure electronic payment systems Electronic payment system solution providers can offer various
types of electronic payment systems to electronic stores and banks Electronic stores should select an appropriate set of electronic
payment systems Banks need to develop cyberbank services to be compatible with the
various electronic payment system
Credit card brand companies need to develop an EC standard like SET, and watch the acceptance by customers
Smart card brand should develop a business model in cooperation with application sectors and banks
Certificate authority needs to identify the types of certificate to provide
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