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Electronic Payment Systems

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Outline
• Types of money
– Fiduciary v. scriptural
– Token v. notational

• Types of payment systems
• Cash
• Credit cards
– SSL (TLS) protocol

• Intermediaries
– PayPal

• Smart cards
• Electronic Bill Presentment

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scrips – Discharging power based on trust in issuer – Can be refused 20-751 . gift certificates.Types of Money: Fiduciary vs. travelers checks. legal tender) – Issued by a central (government) bank – Has real “discharging power” (to discharge debts) – Cannot be refused • Scriptural money (not legal tender) – Money not issued by central bank – Examples: bank accounts. Scriptural • Fiduciary money (fiat money.

Types of Money: Token vs. frequent flyer miles Transferred by order Requires clearance (determining net effect of multiple orders) Requires settlement (payment in fiduciary money) • Hybrid money – Check. traveler’s check) – Can be lost • Notational money (value held in account balance) – – – – Examples: bank accounts.g. gift certificate. telephone card (carries promise of future service) 20-751 . cash. Notational • Token money (value represented by physical article) – Represented by a physical article (e.

BUYER PHYSICALLY GIVES CASH TO SELLER 20-751 . SELLER DEPOSITS CASH IN SELLER’S BANK ACCOUNT THE VISIBLE TRANSACTION 0. CENTRAL BANK SELLS CASH TO BUYER’S BANK BUYER’S BANK 4. SELLER’S BANK CREDITS SELLER’S BANK ACCOUNT SELLER’S BANK 2. CENTRAL BANK ISSUES FIDUCIARY MONEY (ANTI-FORGERY) + (SERIAL NUMBERS) CENTRAL BANK -1. SELLER’S BANK SENDS CASH TO CENTRAL BANK 3. BUYER’S BANK ALLOWS BUYER TO DRAW CASH FROM BUYER’S ACCOUNT BUYER SELLER 1.Cash Transaction -2.

00  Mini $0.00 Micro $0.001 $0.01 $1.Ecommerce Payment Ranges Minimum Transaction Value Typical Transaction Value Maximum Transaction Value Macro $5.10 $1.00 $10. 20-751 .00 SOURCE: COMPAQ CORP.00 $50.

checks – Automated Clearing House (ACH) • Online Banking – Wingspan • Intermediaries – PayPal • Stored-Value Cards. direct transfers. Smart Cards. Wallets – Mondex – Octopus 20-751 . SET protocols • Payment orders.Types of Payment Systems • Credit card – SSL.

10) – Millicent • Aggregation – Centralized account for merchants + customers (Qpass) • Digital Scrip – Flooz. Beenz (both now bankrupt) • Electronic Cash – eCash 20-751 .Types of Payment Systems • Micropayment (usually below $0.

29 Currently the most convenient method Advantage: allows credit People can buy more than they can afford Disadvantages: – doesn’t work for small amounts (too expensive) – doesn’t work for large amounts (too expensive) 20-751 .29 + 2% of transaction value A $100 charge costs the merchant $2.Credit Cards • • • • • • • The most expensive ePayment mechanism MasterCard: $0.

Parties to a Credit Card Transaction BUYER CARD. INTERNET SELLER DIALUP OR LEASED LINE U. TELEPHONE.S. MAIL! SELLER’S BANK BUYER’S BANK CARD ASSOCIATION PROPRIETARY NETWORK 20-751 .

Secure Sockets Layer (SSL) if it has one 20-751 SOURCE: WEB SECURITY .

PayPal • Pay anyone. places credit hold on credit card for guarantee • 16 million users – Bank of America has 3. or send to someone else Mobile payments (WAP) 20-751 .000 Based on automated clearinghouse Withdraw funds anytime. million • • • • Accounts insured up to $100.3. anywhere via email • Draws funds from user’s bank account.

ACCOUNT X 3.PayPal ACCOUNT HOLDER A ACCOUNT HOLDER A’S CREDIT CARD 1. A PAYS X VIA PAYPAL (A HAS ENOUGH IN PAYPAL ACCOUNT) INTERNET 2. OR: PAYPAL CHARGES X’S CREDIT CARD ACCOUNT HOLDER A’S BANK PAYPAL ACCOUNT A .. FUNDS ARE DEPOSITED IN PAYPAL’S BANK PAYPAL’S BANK 20-751 6. PAYPAL NOTIFIES X OF PAYMENT.. OR: PAYPAL MAILS CHECK TO X . OR: PAYPAL INITIATES ACH CREDIT ACCOUNT HOLDER X’S BANK 8. X CHOOSES PAYMENT METHOD ACCOUNT HOLDER X EMAIL 5. OR: PAYPAL INITIATES ACH DEBIT ACH PROCESSOR 4. PAYPAL CREDITS X’S PAYPAL ACCOUNT 7.

00 • 32-bit processors now available – Intelligent.75 • Memory cards – 1-4 KB memory.00 • Microprocessor cards – Imbedded microprocessor • (OLD) 8-bit processor. no processor. cost $7. active devices with defenses 20-751 . cost $0.Smart Cards • Magnetic stripe – 140 bytes.00-12. 512 bytes RAM • Equivalent power to IBM XT PC. cost $7.20-0.50 • Optical memory cards – 4 megabytes read-only (CD-like).00-15.00-2. 16 KB ROM. cost $1.

Smart Card Applications • Ticketless travel: Seoul bus system – 4M cards. ID Medical records Ecash Store loyalty programs Personal profiles Government – Licenses • Mall parking .. 1B transactions since 1996 • • • • • • Authentication. 20-751 ..

Smart Card Structure Contacts: Microprocessor Card (Upside-down) Contacts Epoxy Contacts (8) SOURCE: SMART CARD FORUM 20-751 .

UK) et al. stored-value card (SVC) Subsidiary of MasterCard NatWest (National Westminister Bank. must be on Mondex card Loaded through ATM – ATM does not know transfer protocol. connects with secure device at bank • Spending at merchants having a Mondex value transfer terminal 20-751 .Mondex • • • • • • Smart-card-based. Secret chip-to-chip transfer protocol Value is not in strings alone.

Mondex Overview SOURCES: OKI. MONDEX USA 20-751 .

Mondex Components (Hitachi) Cashless ATM PCMCIA Reader/Writer Electronic Cash Register Key Fob Balance Reader Electronic Wallet SOURCE: HITACHI 20-751 .

Octopus SONY RC-S833 CONTACTLESS SMART CARD SONY READER/WRITER I/O SPEED: 211 Kbps SOURCE: SONY 20-751 .

Financial Aggregation • Idea: allow access to all assets through a single portal • Citigroup • Electronic bill presentment – CheckFree demo. EIPP – Paytrust • Mobile – Vodaphone demo 20-751 .

EBPP Participants PERSONAL FINANCE SYSTEM. BANK DATA PARSING BILL FORMATTING BILLER HOSTING DATA FLOW  BILL INFO PAYMENT ORDERS  MONEY FLOW PAYMENT AND REMITTANCE PROCESSING 20-751 SOURCE: EBILLING. AGGREGATOR.ORG .

Key Takeaways • epayment security accomplished with PKI • PayPal is the fastest-growing technology in history • Rising use of smart cards – Face-to-face minipayments • • • • Little movement toward electronic cash Online banking retains customers Electronic bill presentment/payment add value Profound changes in money flow are afoot 20-751 .

Q&A 20-751 .